…Comparative Analysis
have in recent weeks been pondering about current global economic turmoil and its impact on various countries. For the purpose of comparative analysis I considered two major countries that are quite similar, yet different in terms of the effect – USA and Nigeria. Yes these are countries at varying levels in the economic scale.
Unless you are in direct line of fire – based on your occupation, income level or where you reside in the US, you might be tempted to ask - where is the economic crisis sweeping the country? For the most part, life is continuing and public utilities are still functional even though news report and published data speak different stories – surging unemployment rate at over 7,8% national average, mortgage foreclosure crisis, declining productivity, frozen credit market etc. Despite unprecedented meltdown US economy remains productive, standing on firm ground and operating efficiently, thanks to its robust infrastructural base.
Unfortunately that’s not the case for Nigeria, what for its fragile economy. You hear about economic crunch, but the impact on common-man is quite dire. Fair enough, as a developing nation Nigeria operates at far lower rung with huge infrastructure deficit. Therefore any global shock is bound to reverberate severely and permeate society faster and deeper than in the US.
…Impact of Economic Meltdown
Changing fortunes of crude oil price is undoubtedly the principal culprit for Nigeria’s current predicament, while plummeting Naira value is probably key reflection of the meltdown on the country. Exchange rate against US dollar has declined precipitously from an all-time high of N117 in November 2008 to N159 today. The domino effect of this on the economy is palpable. Because Nigeria is so import-dependent, prices of consumer goods will soon begin to creep up as purchasing power of consumers dwindle.
Continued pressure on Naira resulting from lower foreign capital-inflow and declining oil price will create uncertainty in consumer psychology whereby more people will seek to purchase foreign currency not necessary for immediate needs but as store of value, according to expert opinion by Citi bank Nigeria, thereby worsening an already tense situation.
In light of this, if you were asked what should be the single most critical action that must be taken by the government to address current downturn and find lasting solution to myriad of Nigeria’s problems, what would your answer be? Continue to shore-up the Naira and keep imports cheap; provide bail-out money to the capital market or ailing domestic industries; increase salary and offer temporary social benefits/relief to citizens or focus on single agenda – power/related infrastructure.
…Electric Power Or Nothing
I will choose the last option - to be sure, current power generating capacity is less than 3500 megawatts in a country where installed capacity is nearly 5000 megawatts. Meanwhile plans to achieve 6000 megawatts of generation by December 2009 still remain a pipe-dream at best. The problems of Nigeria seem so clear to the ordinary mind yet you wonder why it is hard to decipher and aggressively pursue the right solution. It is my considered opinion that electric power and related infrastructure objects should be the one and only worry of President Yar'Adua for the rest of his tenure.
Yes his seven-point agenda is lofty and well-articulated but to me it looks more like an election manifesto than an actionable agenda, especially given the complexity of the problems facing Nigeria. Simply put, the seven-point agenda is dead on arrival and akin to firing scatter shots that doesn’t clearly target the crux of Nigeria’s problem. Successive regimes in Nigeria have failed because of systemic deficiency, incompetence and misguided policies – entrenched forces (whether politicians, embezzlers or civil servants) have either not allowed the right solutions to work or such measures have been pursued haphazardly and never to logical conclusion.
…Looking back
In hindsight, for all the ills, political malfeasance and critism, key success of the last administration was obvious - engendering the sort of fiscal policy framework and reform package that enabled Nigeria set its financial house in order, thereby averting financial calamity that might have befallen the country today.
By paying down crippling external debt, that gulped up to 25-30% of export-earning (as debt-service payment), then amassing foreign reserves in excess of $60 billion at its peak, Nigeria put itself on the global investment map, according to Financial Times. Without this buffer the nation might have been in worse financial shape by now with currency that could have been in free-fall. Critics will attribute that to favorable crude oil prices that lasted till summer 2008. But then, it is one thing to earn lots of money and another issue not to squander it.
Added to that, was banking consolidation, which was aggressively pursued to strengthen financial base of local institutions. The result is that knowingly or not, Nigeria built a nest-egg for the future as both critics and supporters will agree. Short of this, plus deregulation of the telecom sector, you might say nothing more dramatic in the economic life of most Nigerian citizens occurred during the last 10 years.
Obasanjo policies didn’t necessarily have a “human face”, hence overall quality of life is still quite dismal, while youth unemployment and poverty level remain unconscionably high, as festering crisis in the Niger Delta pose serious concerns. But even at that, wealth effect of the strides outlined above is that Nigeria now has some firm financial footing on which to tackle other pressing problems.
…Multiplier Effect of One-Point Agenda
Does Yar'Adua want to be confined to ash-heap of failed governments in Nigeria or what deed does he want to be remembered for? As much as holistic approach espoused in the seven-point agenda is commendable, it is untenable and in fact unrealistic to expect that within the remaining term of office any significant progress can be achieved on all the fronts.
Only single-minded aggressive onslaught against the lingering problem of epileptic and inadequate power supply will bring Nigeria out of its prolonged doldrums. You might say right now that money is not the issue; rather political will, unwavering commitment and strong desire to leave lasting legacy should drive Mr. President.
Recent press report by the minister of power Dr. Babalola indicated that Nigeria doesn’t have electric power master-plan – so why not start now to create one? We also recently learnt that political infighting and shortage of gas supply are some of the major problems militating against achieving targets in power generation.
President Yar'Adua was right on-point and forthright when he assumed office and identified the bane of Nigeria’s backwardness, while promising to declare state of emergency in the power sector. Nearly two years and counting, no solution in sight and still no state of emergence in power sector – you wonder why.
The multiplier effect of getting power sector right is colossal and multi-faceted. As the tool that drives the economic central nervous system Consider for a moment what adequate and regular power supply can do for Nigeria:
- It could dramatically improve living standards both in terms of quality healthcare delivery, education, and productivity, thereby delivering new lease of life to Nigeria’s masses.
- This will address perennial poor production capacity and drive up level of capacity-utilization in the manufacturing sector which according to published reports consistently hovers around 35-45%.
- It could reduce operating cost and expenditure for powering business activities by every company and industry. In recent years we have witnessed flight of notable manufacturing companies from Nigeria due to excessively high cost of production. Estimates suggest that astronomic power-cost add 30-40% of burden to production output in Nigeria.
- Increased capacity utilization and lower production cost will automatically translate to more jobs and increased employment opportunities for teeming youths and graduates in Nigeria, which should be direct hit on crime and restiveness, around the country and especially in the Niger Delta.
- The socio-economic impact of more people getting busy and companies producing more at less cost will mean soaring gross domestic product nationally, but more importantly that should provide additional economic base within states and local government that will drive up internally generated revenue.
- Finally, with electric power in place, new economic activities will be spawned and expanded in the country through cottage industries and small-scale manufacturing delivering basic consumer goods that is currently imported with hard currency from Asia.
…A Harvest of Challenges
How hard is it to understand that most of the issues described in the seven-point agenda revolve around this one-point – Electricity. Even in the worst of circumstances, Nigeria remains one of the 40 largest economies in the world and has logged an impressive growth rates of 5-8% over the last few years. The non-oil sector is already poised for take-off growing at faster pace than oil/gas sector.
So, the aspiration of becoming top-20 economy by 2020 is not too far-fetched. However achieving qualitative improvement in living standard such as millennium development goal, poverty alleviation, higher life-expectancy and other laudable ideals of normal society will remain unrealized unless power problem is fixed ones and for all.
There’s no gainsaying that erecting and operating power plants is quite technical requiring huge amount of investment in human and financial resources and coordination in the right policy climate. Experience and history of Nigeria shows that there is dearth of adequate and critical competence especially within the public sector to tackle complex issues.
Conceptualizing, planning, executing and maintaining power/infrastructure projects of any size is highly challenging even in the best environment, but Nigeria’s situation is compounded by subjective human factors - not only due to limited supply of the right caliber of people/mindset in decision-making roles, but endemic ailments like political bickering, red-tape or sometimes outright sabotage by groups whose interest might not be adequately represented.
Nigeria’s nightmare with solving electricity problem over the last 5 years has been a tale of woes. Lead-time for delivering power turbines by manufacturers can range up to 18 months but we know that huge orders for turbines worth over $500 million was placed with US conglomerate (GE) in the dying days of Obasanjo administration.
Some news reports indicate that power turbines already imported into Nigeria by Rockson Engineering handling several projects have been idling away at the Federal Ocean terminal (in Onne, Rivers State) simply because it couldn’t be evacuated to construction site. Evidently, most of power projects awarded this past few years are at various stages of execution, but my chance conversation with senior official of Nigeria Gas Company revealed that even after completing the power plants more obstacles to will be lurking in the horizon.
Despite huge natural gas reserves and incessant flaring, current gas supply is far short of critical volume necessary to fire-up these plants upon completion. Even in the best of circumstances, assuming the power plants get all the gas supply they require, the national power-grid will present yet another mammoth hurdle in evacuating and distributing power output.
Nigeria’s transmission lines in its current deplorable condition simply cannot do the job. The climax to the intractable problems is of course the human element, which has began to manifest with current tussle in the sector between the ministry, power holding company and electricity regulatory commission.
All this combined pose quite formidable challenge for President Yar'Adua whose job is well cut-out. If he elects to side-step the issues by commissioning one committee after another, foot-drag on long-awaited state of emergency or succumb to political inertia and therefore fail to fix this “power mess”, far-reaching economic progress will not take hold just as condition could worsen after him. His administration might then go down in history as one that missed an auspicious moment to capitalize on the country’s current financial strength to foster Nigeria's economic emergence.
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