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Nigeria's Economic Prospects: An International Perspective

Author: Princeton N. Lyman
September 17, 2004
Council on Foreign Relations

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Address to the Nigeria-U.S. Investment Conference

Abuja, Nigeria


INTRODUCTION

Honorable Ministers, Governors, Distinguished guests, ladies, and gentlemen:

I am pleased that the Council on Foreign Relations could join in cosponsoring with the Corporate Council on Africa and the Nigeria Economic Summit Group this conference on investing in Nigeria. The Council on Foreign Relations has had, for the past four years, a project dedicated to assisting in Nigeria’s economic reform program. That is not a typical project of the Council. The Council on Foreign Relations is one of the foremost independent foreign policy institutions in the United States. It produces reports, studies, and books on the critical foreign policy issues facing our country, and the world. Nearly every major foreign policy issue today, in the Middle East, Asia, and Europe, and in Africa, has come under its scrutiny. But a long term project focused on the economic policies and progress of one country is relatively rare.

Rare too is sponsoring a conference dedicated to private investment. The Council on Foreign Relations has done so in support of peace in the Middle East, and on occasion in other circumstances. But I believe it is special that we join with our partners in the Corporate Council for a conference like the one we are attending this week here in Nigeria.

I would like to say that the reason for this special attention to Nigeria is because, as Director of Africa Studies at the Council, and a former American Ambassador to Nigeria, I engineered this focus. But the truth is that the Nigeria project began before I came to the Council in this position. The real reason for this focus is that Nigeria, and Nigeria’s economic future, is critical to the fate of all West Africa. But it is more than that. Nigeria represents hope as well. Nigeria, the most populous nation in Africa, emerged from years of military rule, years of economic mismanagement and disarray, to restore civilian rule in 1999. That transformation was part of a larger transformation taking place across Africa: the institutionalization of elected government, the commitment to more effective economic policies, the development of stronger regional and sub-regional organizations. It was codified in the New Partnership for African Development (NEPAD), with Nigeria a leading force.

What happens in Nigeria thus matters. It matters most of all to Nigerians. But it matters also to Africa, to the relationship between Africa and the United States, and to the hopes for peace and prosperity on the continent.

THE STATE OF PLAY

The Council on Foreign Relations’ project with Nigeria began in 1999. But it is not tied to any one government here. Hopefully, we will see governments elected in succession here, with competing parties and feelings of participation from all parts of the country. Yet this present period is critical. Unless a firm foundation is established now, politically and economically, there is no guarantee that democracy will survive nor economic hopes realized.

That is why the international community is watching the Nigerian economic reform program so closely. Now encompassed in the National Economic Empowerment and Development Strategy (NEEDS), it lays out a program of fiscal reform, transparency, countering corruption, investment in badly needed infrastructure, revival of agriculture, investment in health, and opening opportunities for the private sector. As these reforms move forward, the Nigerian government hopes that the international community will respond with significant reduction of Nigeria’s debt and increases in foreign investment, especially in the non-oil sector.

This is an impressive program. But it comes up against several barriers. One is deep skepticism, bordering on cynicism. It is no surprise to this audience. That skepticism is strong in Nigeria. Traveling in Nigeria the last few weeks, I experienced it in the business community in Lagos and Benin City, among government watchers in Abuja, in conversations with people in Sokoto, with journalists, politicians, and some Governors. That skepticism, to be frank, is reflected in the international community. A long history of false promises, crushed hopes, corrupting practices at all levels, and poor use of Nigeria’s oil resources have bred a deep skepticism about promises of this government and indeed among some about the prospects for Nigerian reform at all.

It is not universal. Those who follow the program closely, those knowledgeable of the pitfalls and challenges of such reform, those aware of what a long term process it is, are in fact impressed. But that is still an opinion among the cognoscenti. It is still a minority opinion.

A second barrier is that such reforms, largely macroeconomic, do not translate into immediate benefits for the population at large, the majority that is experiencing severe poverty. Indeed there is pain for many in the short run, with higher fuel prices, unsettling changes in key institutions like the banking sector, and continuing unemployment. The results of macroeconomic reform are always slow to bear fruit for the economy as a whole. It is one reason that such programs are often abandoned before such gains are realized. In Nigeria, the problem is compounded by institutional obstacles – and I include in such a euphemism corruption -- to delivery of services and public investment, obstacles that exist from the federal government on down through state and local governments. In sum, people do not feel that the reforms are for their benefit if they are real at all. There are exceptions, of course: Governors and local governments that are making serious investments in infrastructure, water, education, and industrial development; federal programs that are adding to the power grid, revive agriculture and improve access to safe drugs. But these programs are not extensive enough to overcome the sense of déjà vu, of continued economic torpor, and of favoritism in the access to riches.

Is this skepticism justified? Like most complex questions, the answer is mixed. There has been real progress on reform in Nigeria in transparency of budget allocations, in improved revenue collection, in fiscal discipline, and pending reform of the financial sector. Steps are being taken to monitor government contracts and to bring to justice those engaged in financial crimes. Growth may reach 5% this year, though some of that has to be credited to climate. Inflation is trending downward. Plans are under way to audit the entire oil sector, as a prelude to Nigeria meeting the criteria of the Extractive Industry Transparency Initiative, to which Nigeria was an early signatory.

On the negative side, there are still exceptions made to the rules for favored interests, sometimes with trade decisions, sometimes with contracts or other transactions. Hardly any who have been charged with corruption involving government transactions have been convicted. Privatization has slowed. Questions continue about the proceeds from the oil sector, some perhaps exaggerated or based on rumor, but some based on the government’s own investigations. The pathway to private investment, as this conference has detailed, remains filled with bureaucratic and financial obstacles. Problems of infrastructure – power especially, but still also telecommunications, roads, and railroads – make Nigeria increasingly less competitive in a globalizing economy. Above all, as pointed out earlier, poverty remains the overriding fact of life for most Nigerians.

Then there is the state of justice. To reduce corruption, achieve transparency, and strengthen accountability, there must be justice. Nigeria’s once proud system of justice, in particular the judiciary, has lost much of its luster. That feeds the skepticism about the anti-corruption drive as well as the prospects for personal security. Restoring the independence and capacity of the judiciary would also restore confidence to Nigerian and international business that Nigeria is a predictable investment environment in which commercial and investor rights are protected, and disputes are resolved in a fair and unbiased manner. Perhaps this is an area that Nigeria’s strong bar association and legal community can take on as their cause.

THE INTERNATIONAL PERSPECTIVE

But I am not going to go any further into detail on the economy. One thing I know, from years of involvement in Nigeria: there is nothing that foreigners – even from the Council on Foreign Relations -- can tell Nigeria about the economy, and what needs to be done that Nigerians do not already know full well. The problems are of long standing, the prescriptions are almost obvious, above all there are scores of Nigerians – in government, the private sector, the universities, and the media – who have analyzed these issues and understand exactly what steps are necessary. The purpose of the Council’s project is thus not to come up with new formulas, or offer some new source of profound advice. Our purpose is to encourage Nigeria on its own path of reform and development, and to provide a bridge to the international community about what is happening here and what the international community can do to support those efforts.

Perceptions of Reform

With that in mind, let me turn not so much to what perceptions are here in Nigeria about the state of reform and the prospects of success, but those in the international community, as best as I can discern. I will not speak about the perspectives of the International Financial Institutions – the IMF and the World Bank. They speak for themselves, and you have just seen in the media commentary, rather favorable I would note, from the head of the IMF mission, Mr. Menachem Katz.

Rather I want to reflect on more general opinion, but opinion that influences the reaction of governments and the private sector. First of all, let me emphasize the positive. There has been considerable admiration and great expectations from the economic team assembled by President Obasanjo in his second term. This admiration was furthered by the frank assessment of the economy produced early in the administration and the practical, step by step plan for reform that the team prepared. That plan is now, as noted, embodied in NEEDS. Nigeria’s signature to the Extractive Industries Transparency Initiative was also welcomed along with the initial steps to bring transparency to the oil sector. The other achievements, noted above, have also been well received.

But the skepticism that is present within Nigeria is mirrored in many parts of the international community. And for all the same reasons: the disappointments in the past, the still imperfect implementation of reforms, worry over continued corruption, and the lack of supporting infrastructure. There is also incomplete understanding of how the system really works in Nigeria. The reality of the federal structure is not all that apparent abroad, namely that much of whether Nigeria succeeds or not rests not with the federal government but with the state and local governments. International knowledge of what is happening on those levels is spotty and incomplete. Most of the reports on those levels are of political infighting, election irregularities, violence, and again corruption. Governors and local governments that are making significant progress and serving their constituents well are rarely reported. But whether the overall record is good or bad, the truth is that Nigeria will succeed or fail largely on the basis of performance at those levels.

As that fact becomes better recognized, I would expect greater international attention to the role that state and local governments are playing. I note the report of a recent seminar here in Abuja on budget and budgeting at the state level. The need for greater transparency, oversight, and accountability was stressed as was the role of civil society and the media. I would stress too the need for much more investment in agriculture, with clear understandings of the responsibilities at all levels of government for this sector. The Africa Union has on more than one occasion pledged that African nations will devote no less than ten per cent of their budgets to this sector. Yet few countries have actually achieved that target. Nigeria must do so.

Power shortages and similar shortcomings in infrastructure are another serious source of concern and a long term one. Nigeria has for far too long allowed its power sector to be badly managed. As a result, Nigeria today, with a population of perhaps 130 million people, produces little more than ten per cent of the power produced in South Africa with forty million people. The World Bank recently estimated that the power shortfall in Nigeria adds 16 per cent to the cost of production here. In an increasingly globalized economy, that almost puts Nigeria out of the running in many sectors. Already a flood of consumer goods from Asia is challenging domestic production and leading to the shutdown of key industries. The government projects a doubling of power generation over the next several years, but even if that is achieved it is not necessarily enough. The question is, with admitted reform and increased power projections on the books, can Nigeria truly move fast enough, with enough will and unity of purpose, to overcome this handicap in time? Or will Nigeria fall ever more behind?

Security

There is another great concern in the international community. The level of violence, whether religious, ethnic, political or communal, seems to be rising and in some areas almost out of control. Perhaps most disturbing are reports of militias, some even organized and armed by political leaders, terrorizing communities, enforcing one political elite or ethnic group’s will on others, committing in some cases large scale violence. The linkage of these militias with corrupt practices, with oil bunkering in the delta but also with other sources of illicit support elsewhere, suggests the very structure of the state is becoming vulnerable.

From abroad, it may be too easy to exaggerate the significance of this violence. But it is not an exaggeration to say that these reports set off alarm bells in the international community. Not long ago, a report was issued by an international agency that monitors piracy, stating that the Gulf of Guinea was the most dangerous area of piracy in the world today. As soon as that report was issued, I began receiving calls from businessmen, media and others as to whether this report, along with earlier reports of internal violence, portended a break-up of Nigeria altogether. Indeed the fear that Nigeria may well be in danger of collapse is not far from the minds of some distant observers.

I hasten to add that I do not share that fear. Nigeria has a better sense of its national identity and an understanding of the incentives for unity than many countries, a sense that can transcend the divisions in Nigerian society. As one Nigerian friend said to me recently, “Nigerians have a way of transforming impossible obstacles into something else.” Nevertheless, the levels of violence, and the seeming loss of government control over law and order, indeed the participation of some parts of government in the undermining of that order, are ominous. Left to continue they could undermine the reality of a stable Nigerian state even while its formal structure remains. Naturally, the specter of violence does nothing to encourage foreign investors.

The Institutionalization of Reform

Finally, there is concern over the future of reforms. How much will they be institutionalized? How much can be expected in the remaining years of the Obasanjo administration? How much are they dependent upon one administration rather than a commitment from all political parties? Primary among these reforms, in the minds of the international community, is increased transparency and sound management of Nigeria’s oil and gas proceeds. That is the sine qua non of credibility and respect within the international community. Without real progress in that direction, few will have faith in Nigeria’s economic future.

Looking ahead to what we all hope will be a better managed and far more widely acceptable election process in 2007, will economic policy be debated substantively, differences debated frankly, and a direction made clear by whichever party emerges as victor as to the path of reform and essential investment? Here both civil society and political leaders bear a heavy responsibility. The election process itself will be a bell weather. People are looking for substantial improvements. There is a direct relationship between the degree of transparency and credibility of the political process and perceptions of the economic viability of a country like Nigeria. Especially in the age of NEPAD and the expectations generated by African leaders in adopting that program, the progress of democracy and development cannot be separated in the minds of the international community, and I would guess in the minds of Nigerians as well.

RESPONSBILITIES OF THE INTERNATIONAL COMMUNITY

I have spoken mostly of what is happening here and how it is perceived, correctly or imperfectly abroad. But I want to turn to the responsibilities of the international community. After all, one of the purposes of the Council on Foreign Relations project is to bring Nigeria’s progress and promise to the attention of the international community and to encourage an appropriate response.

In that regard, I do not think we in the international community have done enough, either in understanding Nigeria’s situation or in responding to its needs. First of all there is a glib feeling that Nigeria is at its base, a rich country. A recent study of West Africa’s oil reserves estimated that Nigeria would earn more than $110 billion from oil over the coming decade, with additional earnings from natural gas. That is an impressive figure. But it translates into less than $1,000 per person in that period or less than $100 per capita annually. It is impressive in its total, and if used rightly it can make an enormous difference, but that alone will not transform Nigeria from its present status as alas one of the poorest countries of the world.

Second, and especially with oil prices at nearly record highs, there is little support for debt relief even though Nigeria’s debt is a significant drag on its budget and a source of discontent.

Third, although there is tremendous appreciation for what Nigeria has done and continues to do on behalf of peace in the region, and with commitment of Nigerian peacekeepers not only in West Africa but now in Sudan, there is deep resistance within some quarters for cooperation with Nigerian security forces. This arises from human rights violations by those forces in responding to domestic violence. Those violations are serious, but by not being prepared to join in helping to improve security – including the commitment to practices that protect human rights – we blind ourselves to the seriousness of the law and order situation within Nigeria.

Finally, we have to do more to encourage foreign direct investment. For that purpose, I salute the Corporate Council on Africa, not only for the conference we are attending this week but for a dedicated long term commitment to that objective.

What is then possible to improve this situation?

Nothing of course is more important than what is done here, by Nigeria and Nigerians. I don’t have to tell this audience that. The reform and the development programs must be carried forward with even greater promise of results. For their part, the private sector, civil society, and the media, need to go beyond skepticism to concrete action. That involves supporting the reforms that are in process, acknowledging those that are succeeding, and advocating for those that need to be done or done better, especially those that would begin to impact directly on the lives of the people. That will help to lift the deep mood of skepticism and pessimism that pervades much of society, a mood that can be self-fulfilling, and replacing it with a determination to succeed.

For the international community I would like to see a more formal pact in support of Nigeria. It is not yet realistic to get agreement on substantial debt relief for Nigeria for all the reasons I have mentioned. It is too early in the reform process, and still too much skepticism that must be overcome. But I would like to see agreement on a clear roadmap. A roadmap that lays out the measures of reform, especially of transparency, that are expected, with an agreement that within a fixed period of time and when those measure are in place, serious debt relief will be undertaken. I see that not just for the relief from debt payments, but as a sign of support and encouragement to the reform process. This is one objective that I have advocated and will continue to advocate.

Second, we need to encourage a much deeper engagement with Nigeria, and thereby engender a much deeper understanding of what is happening here, what is at stake, and what we can do together. I am saddened by the long hiatus in our cooperation in the field of higher education, where once there were interchanges across our country and yours, between the best of Nigerian universities and ours. I am glad that American foundations – Rockefeller, Carnegie, MacArthur and Ford – are once again taking up this endeavor.

Third, there needs to be a broader and deeper official engagement with Nigeria. One step in this direction has been the appointment of an absolutely splendid American Ambassador to Nigeria, John Campbell. He has a long history with this country and is a man of great understanding and commitment. I mourn, however, the decision some years ago by my government, to close our consulate in Kaduna. Not only does this place a hardship on many Nigerians seeking visas to the United States which now must be obtained in Lagos, it deprives us of a presence in the northern part of the country. We lack such presence in the east and in the delta as well. We need dialogue and understanding with all parts of Nigeria, especially in an age where religious tensions and misunderstandings are so prominent, here and in the world at large.

To pursue these objectives, we at the Council on Foreign Relations will continue to provide a forum for Nigerian officials and distinguished visitors in New York and Washington, where these issues can be frankly discussed with leaders in politics, business, and finance. We will also continue our dialogue here in Nigeria, extending it to more states and with broader audiences. I am especially pleased on this trip to have with me two very distinguished members of the Council on Foreign Relations: Walter Russell Mead, one of the most recognized and distinguished writers on American foreign policy today, and Pauline Baker, president of the Fund for Peace and a long time friend and scholar on Nigeria. I am grateful that they took time from their very busy schedules to be here.

CONCLUSION

I always say when I return from a visit to Nigeria that it was fun. People stare and say, “But how so with so many problems there?” And I reply that there is something wonderful, something special in the spirit of Nigeria, in that of Nigerians, that offers friendship, that gives hope, that includes a healthy dose of laughter, a dynamism that in the face of all the challenges, leaves one with faith in the future of this great country. This trip is no exception. I thank you all for this opportunity.

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