Full Transcript of Professor Charles Soludo's lecture at the APC Governor Progressive Forum, Kaduna

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Monday, September 5, 2016 11:25AM /News

Assigned Topic “Building the Economy of States: Challenge of Developing Inclusive and Sustainable Growth”. Has been focus of policy since 1962! Still ‘the issue’ today! Expectation? We can’t write a “blueprint” in a lecture. Only broad pillars possible, while a “dedicated Team” sits to iron out the “Details”. Dealing with Twin Shocks: Oil/economic and political— Response depends on whether interpreted as “temporary” or “permanent” shocks; Denial versus Reality? 

Our Thesis: “Growth in Nigeria/states won’t be inclusive if we don’t break the dynasties of poverty and maximize States’ and Nigeria’s comparative and competitive advantages. It won’t be sustainable if Nigeria is not secured and politically sustainable; deal with the demographics and environment as well as loosen the stranglehold of Abuja on the states”. 

Focus: “A Fragile State with a Failing Economy: Making Progressive Change Work for Nigeria” As first Lecture since the inauguration of APC Government, May 2015? 

FOCUS: META-LEVEL ARCHITECTURE: NO STATE CAN DEVELOP SUSTAINABLY IF THE OVERALL GOVERNANCE AND ECONOMY ARE IN CRISIS A creative destruction process is underway, and we need to get the fundamentals right, first: then meso, macro and micro level issues can follow simultaneously 

* AIM TO RAISE SOME GENERAL QUESTIONS/ISSUES THAT MUST UNDERPINE SEARCH FOR INCLUSIVE AND SUSTAINABLE ECONOMY—- NOT TO WRITE ‘BLUE PRINT’ FOR SPECIFIC STATES Given resource base of each state (human and material), we can brainstorm on state-specific programs to cope and compete in the evolving ‘new economy’…. No prize for governing at a time of twin crisis: But there also lies the Opportunity for Statesmanship! My commiserations and congratulations! I see collapse of oil price as Great Opportunity and Blessing for Nigeria…. DESPITE ALL ODDS, I STILL SEE HOPE AND GREATNESS AHEAD, PROVIDED……. II: CONTEXT 1: GLOBAL ECONOMY AND THE GREAT UNRAVELLING??: 

THE BURST might BE HERE FOR A WHILE… Global Economy stuck in a “low-speed lane” and economies running out of instruments to jumpstart rapid growth– liquidity trap and limited fiscal space due to debt overhang China is re-balancing: excess rural labour drying up, and wages rising; from investment-driven growth to domestic consumption: Cooling-off mode! Opportunity? Chinese Flying Geese! European Union under pressure; the US struggling to maintain economic and military hegemony; Emerging markets unravelling; Many primary commodity economies imploding; etc…. Commodity super-cycle is over: primary commodity price collapse (including oil and solid minerals) 

Unprecedented inequality and youth unemployment Waves of anti-globalization and anti-immigration Terrorism and violence becoming a “new normal” globally Opportunity? Swaths of huge but cheap finance abroad; large market for Export-Oriented Industrialization; Technology to leap-frog; etc. ii: context 2: Nigerian economy: Unravelling or Opportunity? Nigeria as a Fragile State (the Failed/Fragile State Index)? FRAMEWORK FOR NEW BEGINNING Ranked 54th in 2005; and deteriorated to 14th (2010-2012); 17th (2014); and 14th in 2015 and now 13th in 2016 out of 178 countries. 

Very High Alert: 1. Somalia; 2. South Sudan; 3. Central African Republic; 4. Sudan; 5. Yemen; 6. Syria; 7. Chad; 8. Congo, D.R. High Alert: 9. Afghanistan; 10. Haiti; 11. Iraq; 12. Guinea; 13. Nigeria; 14. Pakistan; 15. Burundi; 16. Zimbabwe; etc, etc. Variables in the computation of Fragile State Index (U.S. Fund for Peace) Uneven Economic development; 2. Poverty and economic decline; 3. Demographic pressure; 4. Group grievance; 5. Refugees and IDPs; 6. Human flight and brain drain; 7. State legitimacy; 8. Public services; 9. Human rights and rule of law; 10. Security apparatus; 11. Factionalized Elite; 12. External Intervention. Economy unravelling vs opportunity?? Fragile State: (a “Hostage Economy”– Hakeem Baba-Ahmed) — With widespread “localized trapped economies”– encaged by terrorism, kidnapping, militancy, violence and desertification. — Agitations for self-determination; and elite discord. 

FAILING ECONOMY? ** Oil price shock, and burst of rentier, consumption-based, dysfunctionally-diversified economy (by-passed competitive industrialization)………. GDP compression from about $575 bn to about $296 bn (almost 50%); back to 2nd position in Africa after South Africa; technically in RECESSION! Per capita income down from about $3,100 to about $1,582 ***** Per capita income growing NEGATIVELY as population growth rate higher than GDP growth Nominal and Real Wage compression: Nigerian workers badly hit Unemployment especially youth, Poverty, and Inflation soaring— compare to APC promises?? 

Capital market still in coma with trillions of Naira in asset loss – critical barometer Nominal Exchange rate on free-fall with crude capital controls – A moving target? FGN budget in US$ as smallest in recent years $15- 19bn depending on exchange rate and about 5% of GDP— or approx. 

$80 per capita! ** Recurrent Exp. = 107% of total FGN revenue? *** More than 100% of Capital expenditure is borrowed AGGREGATE REVENUE IMPLODES: IMPORT COMPRESSION AND FALLING CUSTOMS REVENUE; INCOME TAXES FALL —- Fiscal Pressure; Rising DEBT and Contingent Liabilities PUBLIC SECTOR EMPLOYEES (States) OWED MONTHS OF SALARY……Fiscal Viability of States? STRUCTURAL COMPLICATIONS???

1) Demographics and Migration/urbanization??? Preparing for 400m population by 2050 (433 per sq.km or 722 per sq.km for land unencumbered by desertification and erosion). Currently, 213 per sq.km (India 404; US 33; China 143). Pressures on land and water; urbanization rate one of the highest in the world; ageing pop without social protection; youthful pop with little education/skills: JOBS??? 

2) Desertification, terrorism and violence; and North-South Migration—- Desertification = 0.6km per annum (350,000 ha per annum): in 100 years, about 60km southwards and increasing. 55 million people in 11 states under serious threat (Adamawa; Bauchi; Borno; Gombe; Katsina; Jigawa; Kano; Kebbi; Sokoto; Yobe; Zamfara) and these account for 40% of Nigeria’s land: These are also the POOREST States in Nigeria. 

Crop yields in these states drop by 20%; and estimated $5.1bn lost in these economies per annum Search for new grazing land and tensions over land; Deadly erosion especially in the South East North-South Migration escalating: implications for citizenship questions and pressures on land? STRUCTURAL COMPLICATIONS 

3. Low Savings –Low Investment Trap (Paradox of huge capital flight in context of capital scarcity): *** Foreign savings to fill the gap or innovative (forced) domestic long-term savings 

4. Extreme (spatial and individual) concentration of wealth and inequality and POVERTY 

5. Paradox: Huge excess capacity vs low absorption capacity 

6. Huge Infrastructure deficit especially transport and power 

7. Weak Institutions, pervasive corruption, and low value-for-money in public expenditure 

8. Very low productivity and innovation 

9. Acute skill shortages: Extensive schooling with little education and skills 

10. Paucity of long-term finance for development 

11. Unsustainable twin deficits— fiscal and current account 

12. Broken TRUST between Leadership-Citizenship (Taxation vs provision of services) 

Necessity as mother of invention? Finally, an OPPORTUNITY to actualize the 54 year-old aspiration (since 1962 Dev Plan) for diversified and sustainable economy! Opportunity to escape the OIL CURSE and RENTIER, consumption economy towards PRODUCTION. Huge Growth Reserves: Abundant cheap labour; Huge reserves of natural gas, oil?, solid minerals; fallow arable land; extensive coastal land, high pop density for globally competitive manufacturing; Diaspora resources; More diversified market economy with some “shock absorbers”; cheap international finance; Huge elbow room for tax revenues— can increase from less than 5% to more than 20% of GDP: one of most under-taxed in the world! States can learn from each other! We have been through this road before (see Shagari and Buhari 1—1981-85). 

SUCCESS depends on whether oil shock is understood as temporary or permanent shock—-hence whether short-term demand management or long-term structural adjustment Fundamental Threat is Democracy with short-term electoral cycles and hence pressure for “short-term” populist, albeit palliative response vs desired long-term but potentially painful adjustment. Potential conflict between what the people “want” today vs what they “need” tomorrow! 

A TIME OF CRISIS BRINGS OUT THE BEST OF LEADERSHIP! IV: Towards a “progressive response”… blame game plus trial and error coping strategy Phase ONE: Seems to Assume shock is temporary; literally waiting for oil price to recover: POLICY REGIME? More of the same +short-term DD management 330 Working days (Mon-Friday): May 29, 2015 – Aug. 2016 (35.22% of effective working days until Dec. 2018) KEY PERFORMANCE? Fight against corruption and Boko Haram, and Treasury Single Account? 2016 FGN Budget signals more of the same, with tinkering at the margins; bail-outs, borrowing, et Exchange rate and crude capital controls: Confusing trial-and-error of tried and failed neo-socialist command and control policy regime of 1960s- mid 1980s. 

As predicted, quantities (employment and output collapse)! Capital market comatose; capital flight with vengeance, private investment pulse, inflation soars, and twin deficits exacerbate. Economy in Recession compared to APC 10% Growth; 3 million jobs p.a. Delayed, incoherent (dysfunctional), and incomplete adjustment exerting great toll on the economy OUTCOMES SO FAR (especially in 2016) SELF-INFLICTED by acts of omission and commission Nigeria would have avoided a recession: One year enough for blaming fall in oil prices; after that blame our failures: “The fault, dear Brutus, is not in our stars but in ourselves”– Shakespeare– Julius Caesar. 

Extended coping strategy: “Emergency economic stabilization bill 2016”….If true? A positive step forward: Akin to Shagari’s “Economic Stabilization (Austerity measures) Act 1982?? But must be seen as only “First Step”. Problems beyond short-term Demand management! Premise of the Bill (if true?): Economic recession caused by insufficiency of aggregate demand; but recession is largely supply-side, structurally, and policy- induced? Focus so far? Stabilization plus reflation (basic pump-priming): The basis is faulty, and could become race to the bottom. Transition to a Nigerian economy without oil cannot be sustainable by merely pumping money into the system— clapping with one hand! 

Where is the Agenda for Supply-side/structural transformation? “Confidence grows at the rate that a coconut tree grows, but falls at the rate of a coconut”: Investors don’t act like switch pumps. TOWARDS A “PROGRESSIVE” RESPONSE…. Delivering the promised ‘change’ towards a Nigeria without oil??? IT IS ‘CHANGE’ WITH A DEADLINE (No Second Chance to Create a first impression, BUT…) Sept 2016- Dec 2018 –607 working days; Jan – May 29, 2019 is lame duck season! TWO MORE ANNUAL BUDGETS before next electioneering! ECONOMY NOW STUCK ON A “SLIPPERY MUDDY LANE” WITH A FRAGILE STATE WHAT ARE THE ‘7 IROKO TREES’ THAT APC WILL SHOW NIGERIANS ON ITS PERFORMANCE SCORE-CARD BY JANUARY 2019??– OUT OF THE BOX IDEAS FOR UNUSUAL TIMES? 

APC: Moving from an Election-winning coalition to a Governing Team (in control of FGN, and 23 out of 36 states, NO EXCUSES!) CHALLENGE? First time a govt in Nigeria will be required to “structurally transform” but without external ‘conditionalities’. 

Can we have the discipline to self-regulate and make the hard choices— especially with next elections in mind? Big Ideas to steer the economy to the next level?– Need agg public sector spending of 15-20% of GDP; unconventional monetary-fiscal-exchange rate-financial regime; structural and institutional changes; infrastructure boom; unleashing the States; etc: In short, where is the APC’s ‘New Deal’ for Nigeria? APC governors as the “force of change’? ABUJA AS ‘FORCE OF CHANGE’ was for the old, oil-based, distributional system. 

For a PRODUCTIVE ECONOMY, Change must occur from BELOW, but ABUJA must unchain the stranglehold APC GOVERNORS AS A LOBBYING GROUP FOR CHANGE AND SOUNDING BOARD FOR FGN???—- Two Hands to Clap: COORDINATE! COORDINATE!! HOW DO WE RECOGNIZE AN APC STATE WHEN WE SEE ONE? (Compare to NPN and UPN states in 2nd Republic): What are the “Common Core” that define APC states? APC AGENDA FOR BREAKING THE DYNASTIES OF POVERTY: ADDRESSING BOTH EQUALITY OF OUTCOMES AND MORE SO, EQUALITY OF OPPORTUNITY—- especially accessible and qualitative education and health! Exporting Human Capital as Sustainable Agenda for Job Creation??? 

Where is the Agenda? WHAT IS APC’S POLICY ON ‘POPULATION MODERATION’ VS POVERTY REDUCTION?? Dealing with Desertification/Erosion Power of Collective Action? If 23 States under APC are ‘progressive’, Nigeria in aggregate will be ‘progressive’. 

If 23 APC Governors agree, you can literally change the Constitution of Nigeria: Don’t repeat the mistake of the PDP—whereby ‘Opposition’ was largely from within. NEED FOR INSTITUTIONALIZED THINK-TANK?? Can’t drive sustained, productive change on ad-hoc, ‘as the spirit directs’ basis. 

It needs COORDINATED THOUGHT PROCESS AND PROGRAMMING!—A BIG BRAIN BOX! APC policy war room or PGF secretariat? Pressing the Re-Set Button: APC Manifesto Vs the Change Nigeria Needs?? Transforming “Progressivism” from just a Name or Slogan, into an ideology/executable Agenda for ‘transformational change’?? (Experiment: Quiz for 5 leaders of APC per state on what APC offers to Nigeria— result will be greatest comic relief of the century!) Still nostalgia about the UPN, NPN, PRP days— with clarity about ‘Vision for Nigeria’ and HOW to get there! Take another look at APC Manifesto on the Website: Compare to Actual programmes? POLITICS ALWAYS TRUMPS ECONOMICS, although Sound Economics is Excellent Politics: Sustainable Change is impossible without POLITICAL TRANSFORMATION OF NIGERIA! — 

No successful transformation to a “productive and competitive economy” with META-Level institutions designed for ‘distribution and consumption’ Where is the APC’s Political Agenda for Competitive Federalism via fundamental Constitutional Change, including fiscal federalism—taxation powers, rights over natural resources, wage setting, fiscal responsibility, etc—- breaking from unitary-federalism of uniform standards to multi-speed federalism with only minimum standards? A coherent agenda is possible whereby after transitional 5- 10 years, every penny from mineral resources would be devoted 100% to build bridges to the future— infrastructure and education plus Fund for Future! In the new Federal Structure, we could transit from current Federation Account sharing to a matching grants scheme from FGN— in a more transparent and accountable manner; there are just too many change ideas to debate Too many of existing laws are inconsistent with a regime for competitive production; new ones needed! 

Operationally, the Secretariat or Policy War Room must be fully funded to, among other things: A) Discover and disseminate global best practices on accountable governance and shared growth; B). Peer Learning: Collect, collate, and study different approaches of different states on different deliverables and budgets (e.g. short-term coping strategies with fiscal shocks and restructuring, school feeding program; public works programme for employment; environmental sustainability; urban renewal, etc) and provide comparative information. All politics is local but innovative ideas can have universal applicability or adaptability.

Subsequent meetings of PGF (perhaps a day before or after NEC), to deliberate on “evidence-based” presentations of best practices in the states and elsewhere?? C) Peer Review Mechanism Secretariat to work with PGF to define and agree on measurable “common core” standards and programmes for all APC States. 

Undertake periodic peer review (confidential in-house, peer review evaluations) D) Statistics and Baseline?? How do you measure performance? If you can’t measure it, you can’t improve it! What is your baseline data? What are you trying to improve?—- GDP growth in your state, employment, poverty, inequality, manufacturing-based jobs, indicators of ease of doing business (See BECANS III for example). 

Transiting to Diversified Economy, led by mass, export-oriented Industrialization With high pop density, highest urbanization rate, abundant natural resources, orchestrating mass industrial revolution remains the KEY to a future economy without oil (correct the dysfunctional diversification of the past: natural resource dependence on solid minerals and agriculture not sustainable in the long-term). 

Where is the APC Industrialization masterplan? OR, Adoption of existing one? (Merely getting infrastructure and prices right won’t automatically ignite industrialization: it requires intensive case study approaches—- Dangote or our big banks did not just happen: deliberate efforts were set to “create them”. 

How does Nigeria strategically position itself to harness the Chinese Flying Geese for mass industrialization? What is the APC’s stand on EU-ACP Economic Partnership for Africa and other TPAs? What is the APC’s agenda for Funding industrialization and transformation– borrowing or leveraging or what?? So far, much of what one reads about the Sectoral Strategies appear largely More of the Same— just tinkering at the margins here and there. There is huge and serious work to be done: HOW WE ADDRESS IT DEPENDS ON WHETHER WE APPRECIATE THE STATE OF EMERGENCY OR WHETHER WE BELIEVE THINGS WILL SOON RETURN TO ‘NORMAL’. 

Conclusion: Communicating Change And Building Coalition to sustain it So far, a Mis-communication of the Change: Strategy is ‘backward-leaning’— blame PDP; blame oil price; blame corruption: Nigerians elected APC to sort out their problems. Assumption is that “things will soon return to normal”…… maybe they won’t! APC Govt to come clean with Nigerians: the old Nigeria with free rents no longer exists, and explain the road to a more sustainable Nigeria…. Nigerians waiting for a costed program with a deadline! “Be the Change you want to see”: “By their fruits, we shall know them”… Preach ‘change’ and tightening of belts but ….. (Patronize ‘Made in Nigeria’ but they see the cars, dresses, shoes, etc;) *** WHICH COALITIONS FOR SUSTAINABLE CHANGE ARE YOU BUILDING OR WILL IT BE A FLUKE? *** WHAT INSTITUTIONALIZED MECHANISMS FOR BUDGET COORDINATION BETWEEN FGN AND PGF? Generational Challenge: “Each generation must, out of relative obscurity discover its mission, fulfil it or betray it”— Frantz Fanon: Can APC truly make ‘progressive change’ work for Nigeria?? History beckons! The clock is ticking!

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Building the Economy of Nigerian States (1)            Building the Economy of Nigerian States(2)

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