i african economy

i

COUNTRY CASE STUDY 3: NIGERIA

AuthorNigerian Economic Society (NES), Nigeria

THE DEVELOPMENTAL STATE IN NIGERIARelevance, Feasibility, and Lessons from South Korea

AFRICAN ECONOMYDEVELOPMENT POLICY IN PRACTICE –LESSONS FROM SOUTH KOREA’S DEVELOPMENT EXPERIENCE

AFRICAN ECONOMY DEVELOPMENT POLICY IN PRACTICE- LESSONS FROM SOUTH KOREA’S DEVELOPMENT EXPERIENCE

COUNTRY CASE STUDY 3: NIGERIA

THE DEVELOPMENTAL STATE IN NIGERIA Relevance, Feasibility, and Lessons from South Korea

AuthorNigerian Economic Society (NES), Nigeria

ii

THE DEVELOPMENTAL STATE IN NIGERIA:Relevance, Feasibility, and Lessons from South Korea

African Development Bank Policy Research Document 5

This report is the product of the Vice-Presidency for Economic Governance and Knowledge Management. It is part of a larger effort by the African Development Bank Group to promote knowledge and learning, share ideas, provide open access to its research, and make a contribution to development policy. The reports featured in this new Policy Research Document series contribute to the Bank Group’s mission and its High-5 priority areas—to Power Africa, Feed Africa, Industrialize Africa, Integrate Africa, and Improve the Quality of Life for the People of Africa. The authors can be contacted at [email protected].

Coordinator: Adeleke O. Salami

Disclaimer: The opinions expressed and arguments employed herein do not necessarily reflect the official views of the African Development Bank, its Boards of Directors, or the countries they represent. This document, as well as any data and maps included, are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries, and to the name of any territory, city, or area.

You may copy, download, or print this material for your own use, and you may include excerpts from this publication in your own documents, presentations, blogs, websites, and teaching materials, as long as the African Development Bank is suitably acknowledged as the source and copyright owner.

© African Development Bank 2021

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Telephone: +225 2026 3900 Email: [email protected] Website: www.afdb.org

ISSN: 1737-8990ISBN: 978-9938-9955-3-4

Correct citation: Nigerian Economic Society (NES), Nigeria (2021), The Developmental State in Nigeria, Relevance, Feasibility, and Lessons from South Korea - Country Case Study 3: Nigeria, African Economy Development Policy In Practice – Lessons From South Korea’s Development Experience, African Development Bank, Abidjan, Côte d’Ivoire.

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iii

Acknowledgements

This research report was conducted by the African Development Bank (AfDB) in collaboration with the Korea Institute for International Economic Policy (KIEP). Funding for the project was generously supported by the Korean Ministry of Strategy and Finance, through the Korea-Africa Economic Cooperation (KOAFEC) Trust Fund under the Knowledge Sharing Program.

The preparation of the research report was led by John C. Anyanwu and Adeleke Salami under the overall supervision of Hanan Morsy, Director, Macroeconomic Policy, Forecasting, and Research Department. Mr. Steve Kayizzi-Mugerwa’s numerous contributions, especially on the Synthesis Report, are highly appreciated. We would like to thank the following institutions for their input into the country case studies’ analytical work:

x Centre d’Etudes et des Recherches en Economie et Gestion (CEREG), Cameroon;

x Centre Ivoirien de Recherches Economiques et Sociales (CIRES), Côte d’Ivoire;

x Nigerian Economic Society (NES), Nigeria;

x Development Policy Research Unit (DPRU), School of Economics, University of Cape Town, South Africa; and

x Southern African Institute for Policy and Research (SAIPAR), Zambia.

The report has benefitted from John Ohiorhenuan’s framework paper; Bedia Aka’s review of the French country case studies, and Keith Mudadi’s and Tirsit Endaylalu’s desk reviews. We would also like to thank Yaya Koloma and Tunc Gursoy for the review of the layout. Mrs. Abiana Nelson’s administrative assistance is also appreciated.


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Chapter IIntroduction 01

Abbreviations and Acronyms v

Chapter IVManaging Natural Resources 39

Chapter IIIMacroeconomic Performance and Sustainability 22

Chapter VIIIndustrialization, the Private Sector, and Enabling Infrastructure 72

Chapter IIThe Developmental State: Concept, Feasibility, and Replication 07

Chapter VNational Planning and Economic Governance 50

Chapter VIAgriculture, Rural Development, and Spatial Inclusion 64

Chapter VIIISocial Service Delivery in Nigeria 86

Contents

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Chapter IXConclusion 103


v

AFRICA LOOKING EAST:Developmental State, Economic Transformation, and the Relevance of South Korea's Experience

v

ADP Agricultural Development Project

AIDS Acquired Immune Deficiency Syndrome

AMCON Asset Management Corporation of Nigeria

APRM African Peer Review Mechanism

AU African Union

BATMIS Budget Accounting and Treasury Management Information

BOI Bank of Industry

CBN Central Bank of Nigeria

CRS Cross River State

CRSG Cross River State Government

CSO Civil Society Organization

DAS Dutch Auction System

DFID UK Department for International Development

DPP Director of Public Prosecution

DPR Department of Petroleum Resources

EBP Economic Planning Board

ECA Excess Crude Oil Account

ECN Energy Commission of Nigeria

EFA Education for All

EFCC Economic and Financial Crime Commission

EPB Economic Planning Board (South Korea)Education Sector Support Program in Nigeria ESSPIN

ETRI Electronics and Telecommunications Research Institute (South Korea)

EU European Union

FAFIN Fund for Agricultural Finance in Nigeria

FCT Federal Capital Territory

FEAP Family Economic Advancement Programme

GATS General Agreement on Trade in Services

GDP Gross Domestic Product

HIV Human immunodeficiency virus infection

HRMIS Human Resource Management Information System

IAR Institute for Agricultural Research

IICT Information, communications, and technology

IDA International Development Association (World Bank)

IDB Industrial Development Bureau (Taiwan)

IFC International Financial Corporation (World Bank)

IFRS International Financial Reporting Standards

IITA International Institute for Tropical Agriculture

ILO International Labour Organization

IMF International Monetary Fund

IPP Independent Power Project

IPPIS Integrated Payroll and Personnel Information System

ISI Import Substituting Industrialization

KADCCIMA Kaduna Chamber of Commerce, Industries, Mines and Agriculture

KADP Kaduna State Agricultural Development Programme

Abbreviations and Acronyms


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KAIST Korean Advanced Institute for Science and Technology

KCIA Korean Central Intelligence Agency (KCIA)

KEPA Kaduna Environmental Protection Agency

KIMM Korea Institute of Machinery and Metals

KIST Korea Institute for Industry and Science

KOTRA Korea Trade Promotion Corporation

LASEED Lagos State Economic Empowerment and Development Strategy

LDP Local Development Plan

LGA Local Government Areas

LPG Liquefied Petroleum Gas

LSADA Lagos State Agricultural Development Authority

LSDP Lagos State Development Plan

M&E Monitoring and Evaluation

MAN Manufacturers Association of Nigeria

MDAs Ministries, Departments and Agencies

MDGs Millennium Developments Goals

MEBP Ministry of Economic Planning and Budgeting

MEND Movement for the Emancipation of the Niger Delta

MITI Ministry of International Trade and Industry (Japan)

MNC Multinational Corporation

MPC Monthly Policy Committee

MTEF Medium Term Expenditure Framework

NACB Nigerian Agricultural Cooperative Bank

NACRDB Nigerian Agricultural Cooperative and Rural Development Bank

NAERLS National Agricultural Extension and Research Liaison Services

NAFPP National Accelerated Food Production Project

NAIP National Agricultural Investment Plan

NALDA National Agricultural Land Development Agency

NAN News Agency of Nigeria

NARICT National Research Institute for Chemical Technology

NBA Nigerian Bar Association

NCX Nigeria Commodity Exchange

NEEDS National Economic Empowerment and Development Strategy

NEPA National Electric Power Authority

NEPAD New Economic Partnership for Africa Development

NEPC Nigerian Export Promotion Council

NEPP National Electric Power Policy

NEPZA Nigeria Export Processing Zones Authority

NERICA New Rice for Africa

NES Nigerian Economic Society

NEXIM Nigerian Export-Import Bank

NFRA National Food Reserve Agency

NGOs Non-Governmental Organization

NHIS National Health Insurance Scheme

NOCOPO National Open Contracting Platform

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vii


vii

NUJ Nigeria Union of Journalists

NWSP National Water Supply and Sanitation Policy

OAG Office of the Accountant General

OAU Organization of African Unity

OECD Organization for Economic Cooperation and Development

OFN Operation Feed the Nation

OPEC Organisation of Petroleum Exporting Countries

OPG Open Government Partnership

PAC Public Accounts Committee

PATHS Partnership for Transforming Health Systems

PCN Pharmacy Council of Nigeria

PCU Projects Coordinating Unit

PCRP President’s Comprehensive Response Plan

PFM Public Financial Management

PHCN Power Holding Company of Nigeria

PTDF Petroleum Technology Development Fund

PTI Petroleum Training Institute

R&D Research and development

RBDAs River Basin Development Authorities

RMAFC Revenue Mobilization, Allocation and Fiscal Commission

SOE State-owned enterprise

TETFUND Tertiary Education Trust Fund

TFP Total Factor Productivity

THDW Traditional Hand Dug Well

TIN Taxpayer Identification Number

TRIM Agreement on Trade-related Investment Measures

TRIPR Agreement on Trade-related aspects of Intellectual Property Rights

TVE Technical Vocational Education

TWG Technical Working Groups

UBE Universal Basic Education

UBEB Universal Basic Education Board

UBEC Universal Basic Education Commission

UFRU Urban Furniture Regulatory Unit

UN United Nations

UNDP United Nations Development Programme

UNECA United Nations Economic Commission for Africa

UNESCO United Nations Educational, Scientific and Cultural Organization

UNICEF United Nation Children Education Fund

UNIDO United Nations Industrial Development Organization

UNRISD United Nations Research Institute for Social Development

USAID United State Agency for International Development

WAEC West African Examination Council

WDAS Wholesale Dutch Auction System

WHO World Health Organization

WTO World Trade Organization


1

INTRODUCTION

Chapter I

1

1.1Introduction 02

1.2Definition of the Developmental State 02

1.3Path to Developmental State in Nigeria 03

1.4Lessons for Nigeria from South Korea’s Developmental State Experience 04

1.5Outline of the Rest of the Book 05

References 06


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1.1Introduction This report is about the relevance and feasibility of the developmental state model for socio-economic development in Nigeria. It looks at the lessons that the country can learn from the experiences of South Korea and other East Asian economies, which were catapulted from poverty to affluence in a matter of five decades, following World War II (WWII) (Chang 1999, 2006). For Nigeria—and many other African countries—the attraction of the developmental state model is threefold: its insistence on policy autonomy, its ability to generate rapid growth through the pursuit of export-oriented industrial policies, and its focus on the creation of a strong and cohesive civil service that is able to provide quality public services to all segments of the population.

Since Nigeria’s independence in 1960, civilian and military regimes alike have professed that the country’s economic development and the prosperity of the population were their main objectives (Adebisi 1998). In practice, however, policy approaches varied greatly between regimes with respect to both the goals and the areas of emphasis. For example, the strategies lacked both plausibility and coherence (Ohiorhenuan 1990). The frequent turnover of governments, with incessant switches between military and civilian regimes, meant that a consistent long-term development and poverty reduction strategy would fail to emerge. However, as democracy has become entrenched in Nigeria since 1999 so has policymakers’ confidence in their ability to devise effective “home-grown” policies to address the country’s development challenges. This has led to cautious optimism about the country’s future.

The plausibility of the developmental state model for Nigeria’s economic development is thus a key focus of this book. Previous Nigerian governments generated similar lofty vehicles for the country’s development but with limited results. Hence the question is whether a new focus on the developmental state will have more traction in the future. In looking ahead, the experiences of South Korea and other East Asian countries will be crucial, especially regarding the federal and state governments’ ability to create effective institutions, bolster morale and capacity in the public service, and formulate development policies that are not unduly exposed to the vagaries of regime shifts and can thus be sustained over the longer term (Evans 1998).

The rest of this chapter proceeds as follows. Section 1.2 defines the concept of the developmental state and discusses its relevance and feasibility, while section 1.3 looks at the Nigerian context. Section 1.4 summarizes the implications of the developmental state model and the experiences of South Korea for Nigeria’s economic development.

1.2Definition of the Developmental State While the concept of the developmental state originated from the study by Johnson (1982) of Japan’s Ministry of International Trade and Industry and its role in that country’s dramatic growth after WWII, the policies and institutions that led to the rapid growth of the East Asian economies have also drawn interest in other developing regions of the world (World Bank 1993). Countries in other parts of Asia (Indonesia, Malaysia, and Singapore) and Latin America (Brazil) have demonstrated national variations of the model, giving hope to other regions that the developmental state can be “domesticated” (Kuznets 1988; Chang 1994;; and Chang and Evans 2005).

According to Johnson (1987), a developmental state is characterized by a commitment to rapid economic development and the ability to mobilize human and physical resources towards meeting the country’s development objectives. In particular, Johnson (1987) identified four elements for success: (1) an efficient bureaucracy, staffed by the best managerial talents available in the system; (2) a political system that allows the bureaucracy substantial autonomy in implementing policies; (3) a strong partnership between the state and the private sector (that is, a domestic alliance for development), that nonetheless respects bureaucratic autonomy; and (4) an institution (a pilot agency) with sufficient resources and political support to guide the development without undue hindrance (Koh 2010; Kim 2014).

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But even among countries with close economic and cultural links such as Japan, South Korea, and Taiwan, the development paths their governments pursued in recent decades differed in significant ways, including leadership styles, the democratic dispensation of the country (in the Western sense), and the nature of the links between the elite and the state. The government’s ability to create a social compact for development that promoted competitiveness at home while protecting domestic firms from inordinate international capital penetration was also crucial. Moreover, initial conditions mattered a great deal, including the timing of land reforms that eliminated traditional landholders and the existence of a merit-based system in education and the civil service.

In looking at preconditions, first, the emergence of developmental states in East Asia was enabled by the political and institutional dynamics in the countries and in the region as a whole (Jomo 2004; Lee 2009). In the post-WWII years, Japan, South Korea, and Taiwan all had extraordinarily strong motivation to industrialize; failing to do so would have exacerbated the existential threats they faced. Moreover, East Asia saw the emergence of authoritarian regimes that viewed rapid development as justification for holding on to power (and vice versa). This raises the question of whether a development state must necessarily be non-democratic to prosper. On the other hand, the African examples of Botswana and Mauritius have demonstrated that a developmental state can also be democratic (Meyns 2010; Mkandawire 2001; Meisenhelder 1997).

A second important precondition is a strong alliance between the state and the private sector in driving the industrialization effort. In Japan and then South Korea, the state prioritised certain industries and facilitated their growth as well as dealing with the tensions arising between the two sides through a system of cooperation and mutual accommodation. In Taiwan, which had a much weaker private sector than Japan and South Korea, the state created a policy network that relied heavily on state-owned banks, research organizations, universities, and consulting firms (Wade 1990).

A third feature of the developmental state is the creation of a prominent planning and pilot agency to guide the process of economic transformation. In Japan, the Ministry of International Trade and Industry in collaboration with the Ministry of Finance played the lead role: identifying strategic industries, determining their evolution, and marshalling the resources and fiscal incentives required for their growth and global competitiveness. In South Korea, on the other hand, a much more politically centralized process was accompanied by the presence of a key agency for planning, execution, and monitoring, the Economic Planning Board (EBP). In Taiwan, the lead agency, the Industrial Development Bureau (IDB), served more as a coordinating committee than a direct implementing agency.

Fourth, the pilot agencies worked hand in hand with strong and effective bureaucracies that, in the words of Evans (1995), enjoyed “embedded autonomy.” Despite the differences in country experiences, developmental states essentially pursued capitalist development, putting a premium on savings and investment and on extending incentives to domestic firms without discouraging competitiveness—that is, allowing for domestic contestation. It can be surmised that developmental states were not constrained by a particular economic or political ideology. Their focus was on finding the set of solutions that worked best in ensuring the attainment of their development goals.

1.3Path to Developmental State in Nigeria Without using the term “developmental state” per se, the Nigerian government that came into power in 2015 described its ambitions for the country as comprising good governance, efficient public service delivery, economic diversification, equal opportunity, spatial inclusion, and concern for the poor. These concerns and other recent government actions, including the anti-corruption agenda, have left little doubt that the new government sees the developmental state models of East Asia, and their association with an efficient civil service, as examples worth emulating.

Even when the developmental state approach is adopted in Nigeria, its outcomes will be shaped by radically different domestic and external contexts than those present when East Asia embarked on its development quest over 50 years ago (Adelman 2000). Domestically, Nigeria’s economy is the largest in Africa. Nigerian politics, on the other hand, have become much more democratic (in the Western sense) after decades of military rule. Ironically, this could counter the autocratic mannerisms that characterized the initial phases of East Asia’s developmental states.

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Externally, Nigeria faces a different set of challenges today than did South Korea in building global competitiveness. As a member of the World Trade Organisation (WTO), Nigeria has limits to how much the government can protect infant industries. And the world of rules-based international trade requires sophisticated capacities at the national level to negotiate and comply with international obligations while asserting national rights. Nigeria, like South Korea before it, requires an array of new institutional and administrative arrangements to cope with the vastly competitive environment of global commerce.

1.4Lessons for Nigeria from South Korea’s Developmental State Experience The lessons for Nigeria emanating from the development state experience of South Korea and its East Asian neighbours can be summarized as follows.

1. South Korea’s success in sustaining its development process derived from an acute awareness of the economic and political contexts and what they entailed at home, in the region, and globally. An examination of these contexts helps reveal the opportunities to be seized. Nigeria has always been aware of its special place in West Africa and the rest of the continent. The emergence of pan-African banks and other businesses that are headquartered in Nigeria but have a presence in most regions of the continent indicates that Nigeria is beginning to take advantage of its political and economic size and the ingenuity of its private sector.

2. Initial conditions and path dependence were unavoidable influences in the transformation process. South Korea’s history, including Japanese colonization and its close attachment to the United States post-WWII, and the matrices of social interaction and patterns of organization that existed on the eve of its industrialization drive, were critical influences during its transformation. Decolonization was a key facet of Nigeria’s development and there was a tendency in the past to encourage state capitalism and constrain private sector initiatives. The question today is how best to take advantage of the country’s geography and history—which are vastly different from those of South Korea—to define deeper economic links with the rest of the world, through commerce, investment, and research and development.

3. National ownership of the development process was an imperative feature of the developmental states in South Korea and East Asia. The countries in question demonstrated that their economic development agendas were owned collectively by the public and private sectors and did not shift with regime changes. Additionally, the bulk of the countries’ productive assets were nationally owned. Staking out a long-term economic development agenda that is owned by the bulk of the stakeholders in the country has been a challenge in Nigeria and other African countries—mostly for lack of a domestic business community able to embark on sizeable ventures (such as chaebols in South Korea). Each new regime has sought to profile itself through a thorough revamping of the development agenda, which meant discontinuity and, often, starting from scratch.

4. Although economic transformation is a team effort, visionary leadership is essential. The developmental state in South Korea was initiated in the early 1960s by a powerful general with an autocratic approach. However, what distinguished South Korean leadership from that of other developing countries at the time was its focus on the long-term perspective and its insistence on building the capacities for tomorrow’s economic growth today. There was also an acute awareness that the leader was incomplete without the institutional framework, including an efficient bureaucracy. Although flashes of visionary leadership have from time to time been demonstrated in Nigeria and other African countries, there has been a general lack of a support structure to see them to fruition.

5. Developmental states have demonstrated that successful transformation requires unwavering policy coordination, and institutions to ensure coherence and consistency in policy implementation through monitoring and evaluation and follow-up. One of the most remarkable aspects of the South Korean developmental state was the creation of a powerful pilot agency and associated agencies being given a clear and unencumbered mandate to guide the design and implementation of policies, coordinate the actions of key stakeholders, and maintain the agenda consistently over the long term.

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6. Political stability is important for economic transformation. The East Asian economies have enjoyed peace and stability for decades, enabling them to accumulate capital, generate wealth, and enhance social welfare. While Nigeria and other African countries have seen much improvement in their political stability indicators in recent decades, the continent as a whole still suffers from a negative perception due to pockets of insecurity. However, greater stability is encouraging Pan-African trade and, with it, increasing inflows of capital.

1.5Outline of the Rest of the BookThe rest of the book proceeds as follows.

Chapter 2 discusses the concept of the developmental state model and its essential features and how it has worked in practice, including the issues of adoption and transferability.

Chapter 3 presents a brief survey of the Nigerian economy over the past half-century, illustrating the various impediments to growth, economic and structural, that the country has had to address. It includes the most recent decade, when Nigerian has pursued a more liberal economic approach, allowing for greater private sector participation in the economy and a reduction of controls, including on prices, the exchange rate, and investment flows.

Chapter 4 discusses the political economy of natural resource management in Nigeria, notably that of oil, and how it has affected the country’s prospects for economic diversification, spatial inclusion, and fiscal federalism. The federal government’s dependence on oil revenue and the need to share it equitably with the country’s states has elevated the issue of oil management to the most important political economy issue in Nigeria.

Chapter 5 examines the issues of governance and institutional capacities for reform, and national planning and execution, relating them to the issue of decentralization of power and economic functions. It includes examples from the three-tier government structure—federal, state, and local. The chapter looks at the tensions implied in enforcing critical development policies at the state and local levels, including those related to infrastructure, in the absence of adequate financial and human resources.

Chapter 6 looks at the issues of agriculture, rural development, and spatial inclusion, focusing on the tensions between the modernizing tendencies at the centre and those for sustainable rural livelihoods based on peasant farming. It also evaluates the impact of recent policy innovations in agricultural development policies on rural households.

Chapter 7 focuses on human development, including access to health and education, strategies for skills development and enhancement of capacities (crucial in an aspiring developmental state), and strategies for boosting employment. Federal-level policies for capacity building and employment are compared and contrasted with those undertaken at the state and local levels.

Chapter 8 looks at the key issue of industrial policy and the extent to which Nigeria has been able to create conditions under which a vibrant and competitive manufacturing sector can emerge. It also examines the extent to which the government has been able to create an alliance for development with the private sector based on reciprocity, but without compromising domestic contestability, which is crucial for innovation.

Chapter 9 concludes the book by summarizing the lessons from the developmental state experience of South Korea and other East Asian countries for Nigeria and other aspiring African countries.

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CONTENTS

6

References

Adebisi, M.A. (1998) “The Military and Democratic Transition in Nigeria” in A. Ajayi and Y. Akinwumi (eds.) Multi-disciplinary Perspective in Nigerian Studies. Ilorin, Nigeria: Mathadex Publishers.

Adelman, I. (2000) “Fifty Years of Economic Development: What Have We Learned?” World Bank Working Paper No. 28737. Washington DC: World Bank.

Chang, H-J. (2006) The East Asian Development Experience: The Miracle, the Crisis and the Future. London: Zed Books.

Chang, H-J. (1999) “The Economic Theory of the Developmental State”, Chapter 6 in M. Woo-Cumings (ed.) The Developmental State. Ithaca, NY: Cornell University Press, pp. 182-199.

Chang, H-J. (1994) The Political Economy of Industrial Policy. London: St. Martin’s Press.

Chang, H-J., and P. Evans (2005) “The Role of Institutions in Economic Change”, Chapter 5 in S. de Paula and G. Dymski (eds.). Reimagining Growth: Institutions, Development, and Society. London: Zed Books.

Evans, P. (1995) Embedded Autonomy: States and Industrial Transformation. Princeton, NJ: Princeton University Press.

Evans, P. (1998) “Transferable Lessons? Re-examining the Institutional Prerequisites of East Asian Economic Policies”, Journal of Development Studies, Vol. 34, No. 6, pp. 66-86.

Johnson, C. (1982) MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975. Stanford, CA: Stanford University Press.

Johnson, C. (1987) “Political Institutions and Economic Performance: The Government-Business Relationship in Japan, South Korea, and Taiwan” in F.C. Deyo (ed.) The Political Economy of the New Asian Industrialisation. Ithaca, NY: Cornell University Press.

Jomo, K.S. (2004) “Southeast Asian Developmental States in Comparative East Asian Perspective”, Chapter 4 in L. Low (ed.) Developmental States: Relevancy, Redundancy or Reconfiguration. New York: Nova Science, pp. 57-77.

Kim, E. (2014) “The South Korean Developmental Alliance Between Business, Labour and Government”, in I. Yi and T. Mkandawire (eds.) Learning from the South Korean Developmental Success: Effective Development Cooperation and Synergistic Institutions and Policies. Palgrave: London.

Koh, Y. (2010) “The Growth of Korean Economy and the Role of Government”, in I. SaKong and Y. Koh (eds.) The Korean Economy: Six Decades of Growth and Development. Seoul: Korea Development Institute.

Lee, K (2009) “How Can Korea Be a Role Model for Catch-up Development? A ‘Capability-based View’”, WIDER Research Paper No. 2009/34. Helsinki: World Institute of Development Economics Research.

Meisenhelder, T. (1997) “The Developmental State in Mauritius”, Journal of Modern African Studies, Vol. 35, No. 2, pp. 279-297.

Meyns, P. (2010) “Botswana - A Developmental State in Africa”, in P. Meyns and C. Musamba (eds.) The Developmental State in Africa: Problems and Prospects, INEF‐Report 101/2010. Duisburg-Essen, Germany: Institute for Development and Peace, University of Duisburg-Essen.

Mkandawire, T. (2001) “Thinking about Developmental States in Africa”, Cambridge Journal of Economics, Vol. 25, No. 3, pp. 289-313.

Ohiorhenuan, J. (1990) “The Industrialisation of Very Late Starters: Historical Experience, Prospects and Strategic Options for Nigeria”, Institute of Development Studies Discussion Paper 273. Brighton, United Kingdom: University of Sussex.

Wade, R. (1990) Governing the Market: Economic Theory and the Role of Government in Taiwan’s Industrialization. Princeton, NJ: Princeton University Press.

World Bank (1993) The East Asian Miracle: Economic Growth and Public Policy. New York: Oxford University Press.


7

THE DEVELOPMENTAL STATE: Concept, Feasability, and Replication

Chapter II

7

2.1Introduction 08

2.2The Developmental State Model: Bringing “Politics Back In” 08

2.3Extending the Developmental State Model to Other Countries 10

2.4The Plausibility of an African Developmental State 14

2.5The Political Economy of Developmental State Effectiveness 14

2.6Relevance for Nigeria and Africa in General 16

References 18


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2.1Introduction The role of the state in structural transformation has been debated since the beginning of the development economics discipline in the post-WWII years(1). Indeed, an activist role for the state in matters of trade and the protection of national industry against foreign competition was generally taken for granted by the early developmentalists (Rosenstein-Rodan 1943; Gerschenkron 1962). Over the years, the state versus market debate became an important reflection of the evolving global economy and competing development ideologies. In the 1980s, which marked the era of structural adjustment for many developing countries, including Nigeria and its neighbours, the dominant paradigm became that of minimal state intervention and “getting the prices right”.

This chapter reviews the literature on the developmental state, focusing on the political economy of public policy. It discusses the historical and political antecedents of the developmental state model as well as the institutional forms and levels of state capacity that underpin its success.

2.2The Developmental State Model: Bringing “Politics Back In” The developmental state model underlines the cardinality of the “state” in economic development. The state rules over a sovereign territory and consists of the executive, the bureaucracy, the legislature, the judiciary, and the means to exercise coercion or physical force within the territory. The developmental state model assigns particular significance to the executive and the bureaucracy in the process of economic development. This reflects the Weberian notion that political neutrality is a defining characteristic of a modern bureaucracy, with the assumption that the state is dedicated to the pursuit of the general interest (Tinbergen 1952; Lewis 1966). This notion was counter to the Marxist approach, whereby the capitalist state is typically the instrument of the dominant class and with time could begin to pursue its own interests (Engels 1993; Marx 1968).

As noted in Chapter 1, the concept of the developmental state originated from Chalmers Johnson’s (1982) seminal study of Japan’s Ministry of International Trade and Industry and its role in that country’s dramatic growth surge after WWII. Johnson defines the developmental state as one in which the overriding priority is development. For various reasons (including the need to free itself from dependence on American aid), Japan made development an absolute imperative, which it pursued relentlessly for several decades.

Johnson (1982) makes an important distinction between a developmental state like Japan and a “regulatory” state like the United States. While the regulatory state is concerned with the forms and procedures—the rules—of economic competition, it does not engage in substantive matters, such as the allocation of resources between industries and influencing industrial patterns. The developmental state, on the other hand, is actively engaged in such substantive matters.

(1) See the literature reviews by Routley (2012, 2014).

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Johnson (1982) notes that a state aspiring to match Japan’s economic achievements must first be a developmental state, and only then can it become a regulatory state à la the United States. A developmental state is defined not necessarily by its achievements but by commitment to a hegemonic ideology of development (Woo-Cumings 1999a). Development must not be a mere aspiration. It must be pursed with great determination and accompanied by national political mobilization. In the latter regard, Johnson (1982) identifies some key elements of Japan’s success:

x The creation of a relatively small state bureaucracy staffed by the best managerial talent available in the system (which was given the mandate to pursue all aspects of industrial policy);

x The formation of a political system that allowed the bureaucracy substantial policy autonomy in initiating and operating projects, unconstrained by special interests;

x Establishment of a strong partnership between the state and the private sector, which nonetheless enabled the state bureaucracy to maintain a degree of autonomy (the perfection of market-conforming methods of state intervention); and

x The creation and empowerment of an agency like Ministry of International Industry and International Trade.

There were important differences in initial conditions. Japan—and South Korea and Taiwan, a generation later—pursued the same set of policies that today are seen as constituting the archetypical developmental state. Although the industrial development of South Korea and Taiwan bears some similarities to that of Japan, there were also striking differences. Wade (1990) notes that in Taiwan public-private cooperation was less intimate and the country created a different kind of policy network—comprising banks, research organizations, universities, and consulting firms—in order to maintain control over the developmental process.

Pempel (1999) further underlines the differences in starting conditions among the three countries, with that heterogeneity giving hope to aspiring developmental states such as Nigeria. He observed that the South Korean economy was only one-tenth the size of Japan’s, while that of Taiwan was one-seventeenth. There were also other differences in terms of the nature of the state, the role of the military, the capital mobilization process, the main thrust of monetary policy, the organization of the country’s export orientation, and the level of dependence on foreign capital. He notes, for example, that while Japan was a constitutional democracy, the Korean state was run by a succession of military regimes, and Taiwan was led by the Kuomintang (comprising Chinese mainlanders that had fled Mao Zedong’s political-military onslaught) that had given the president extraordinary emergency powers (Table 2.1).

Table 2.1Strategic Policy Differences Among Asia’s Developmental States

Japan Korea Taiwan

State Constitutional democracy, deeply embedded in society

Succession of military dictatorships, and autocratic one-person rule

Koumintang gives president a range of emergency powers

Role of military Minimal Highly interventionist Subservient to the Koumintang

Capital mobilization

Private banks linked to industrial groups, Bank of Japan controlled by Ministry of Finance, postal savings, limited foreign capital inflows

Substantial foreign capital inflows, private banks, government directed capital to key sectors

Minimal capital controls. Finance and industry separate

Monetary policy Low or negative interest rates Low or negative interest rates High interest rates

Export orientation

Oligopolistic and highly competitive Centralized Decentralized

Foreign investment and borrowing

Minimal Heavily reliant on foreign borrowing for long-term investment

Open to foreign investment since 1965

Source: Based on Pempel (1999).

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Pempel used the notion of developmental “regime” instead of “state” to highlight the importance of state-society responses to domestic and international conditions, which he suggests are downplayed in the developmental state notion. He identifies eight characteristics of the developmental regime, which might resemble those of the developmental state, but with important differences in terms of initial conditions. This has a strong bearing on the prospects of African countries to emerge as:

x “Strong states”, where technocrats and bureaucrats have power and are relatively free from populist pressures, especially from organized labour and peasant associations.

x Land reforms that had eliminated landholders as a major element in the socio-political landscape.

x Domestic power structures that are open to entry largely on the basis of merit.

x “Hegemonic projects” to nurture national economic competitiveness, while being opposed to communism, socialism and “big” states.

x Economic strategies that actively manipulated markets but did not foster a command-type economic system.

x Use of effective filters to prevent the effects of international capital penetration in an otherwise undeveloped financial sector from slipping through.

x Exceptionally close links to the United States and Japan in economic and security policies.

This last characteristic echoes Cumings’s (1984) assertion that these countries’ political economy was essentially the outcome of systemic interaction with the rest of the world.

2.3Extending the Developmental State Model to Other Countries A number of other Asian countries have also been classified as developmental states: Malaysia, Indonesia, Thailand, and the Philippines. They had good growth rates but their industrial sectors depended much more on foreign direct investment than Japan and South Korea, which favoured foreign loans over equity. Woo-Cumings (1999b) argues that the Southeast Asian states did not exercise the same level of nationalist mobilization for export-led growth as their predecessors in East Asia. Rather they had “protection rings”—in Indonesia, for instance, President Suharto’s family was heavily involved in business ventures. In these countries, the states became rent seekers, not directly interested in development itself. The relationships between the state and business were not forged through industrial policy but were based more on ethnic terms—hence the emergence of crony capitalism.

According to Doner, Ritchie, and Slater (2005), the feature that most differentiates South East from East Asian states is political and security considerations. South Korea, Taiwan, and Singapore faced stiff challenges in delivering payoffs to their key constituencies under conditions of extreme geopolitical insecurity and severe resource constraints. On the other hand, the ruling elites in Indonesia, Malaysia, the Philippines, and Thailand were not faced with the same degree of “systemic vulnerability” as their East Asian counterparts. They faced less pressure to build political coalitions to retain power, and hence demonstrated less ambition in their state-building efforts.

Several other countries with vastly different economic structures and policy frameworks such as India (Herring 1999), Mexico and Brazil (Schneider 1999), France (Loriaux 1999), and, more recently, China (Jian-xing and De-jin 2010) have also been analysed through the developmental state lens.

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Box 2.1Essentials of the South Korean Model: Developmental State in Practice

South Korea’s development strategy rests on two key premises: the pursuit of development through well-sequenced reforms and the promotion of export-led, as opposed to import substituting, industrialization (ISI). A crucial part of the reforms was the creation of the Economic Planning Board (EPB), which virtually usurped the powers of the Ministry of Finance. The government nationalized the banks in 1961, and embarked on a careful regulation of capital markets, thereby achieving an unchallenged position of dominance on economic matters vis-à-vis the business/capitalist classes in South Korea.

The new military-led regime launched its export drive in the 1960s, while closely monitoring the business sector’s adherence to it. The consensus on South Korea’s performance is that industrial policy was successful because the state was able to override the proclivities of the private sector and extract a level of performance from the policy. The revamping of the economic policy institutions enabled the government to monitor, coordinate, and guide domestic performance without resorting to onerous controls. The government consolidated its dominance by acquiring major stocks in commercial banks, thereby bringing them effectively under state control.

Elaborate policy planning and management processes were devised. The EPB was established in 1961 by combining the budget bureau from the finance ministry and the statistics bureau from the Ministry of Home Affairs. The Bank of Korea was also brought largely under EPB’s control. The EPB formulated national plans, managed and coordinated their implementation, administered the annual government budget, and formulated strategies for attracting foreign capital. The EPB facilitated about 15-20 economic meetings between ministers and vice-ministers and officials from leading agencies (including the Ministry of Finance, Ministry of Commerce and Industry, Ministry of Agriculture, Ministry of Construction, and Bank of Korea) to coordinate economic policy. The EPB minister (with the title of Deputy Prime Minister) chaired the meetings. The EPB also served as the apex coordinating body, monitoring economic performance closely with particular emphasis on results in the export sector.

In addition to the EPB, the government established strategic mechanisms to engender export promotion. It established an export-targeting system and the Korea Trade Promotion Corporation (KOTRA) for overseas trade. Moreover, the government established a National Investment Fund, using funds acquired through a compulsory mobilization of private deposits from commercial banking institutions, to provide long-term subsidized loans to strategically selected heavy and chemical industries targeted at capital formation. In addition, specialized banks and non-bank financial institutions, many of which were under the direct control of the Ministry of Finance, provided concessionary loans to corporations. Overall, there was systematic coordination of a number of policies regarding capital accumulation, human capital development and acquisition, technology acquisition as well as adaptation undertaken primarily under the direct supervision of the EPB (Joonghae et al. 2006).

Every month beginning in 1965, a meeting was held where the EPB minister would brief the president on economic trends. The meeting was also attended by the prime minister and other ministers, Bank of Korea governor, heads of relevant institutions, members of the Economy and Science Deliberation Council, the president’s special advisor, and chairs of the ruling party’s policy committee and other related standing committees of the National Assembly (Seunghee 2014).

The main vehicle for delivering economic policy in South Korea was the five-year national development plan. During South Korea’s high-growth period, four development plans were launched. Within the strategic framework of an export orientation, each plan had its own particular priority, even as successive plans carried on and built on the efforts of the earlier ones. South Korea’s first plan was launched in 1962. The major goal was to establish the foundation for self-sustained growth. That of the second plan was to modernize the industrial structure, while that of the third plan was to consolidate the foundation laid for self-sustained growth by nurturing chemical and heavy industry. By the fourth plan, South Korea was becoming established as a producer and exporter of intermediate and capital goods. Accordingly, it began to shift to technological innovation and also began to pay greater attention to equity and social development.

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Box 2.1Essentials of the South Korean Model: Developmental State in Practice (cont.)

The South Korean stride towards development followed a well-planned strategy. Key state institutions played a major role in the development of advanced technologies for key sectors, such as steel, chemicals, and electronics. The inward transfer of technology was strongly promoted, so that while the country relied heavily on imported technologies, it sought to develop domestic capacities to assimilate, improve, and adapt imported technologies to domestic production. Among the institutions established to promote industrialization were the Korea Institute for Industry and Science (KIST), established in 1966, and the Korean Advanced Institute for Science and Technology (KAIST) established in 1971 (UNRISD 2012). In addition, institutes such as the Korea Institute of Machinery and Metals (KIMM) and the Electronics and Telecommunications Research Institute (ETRI) worked with private industry to enhance the country’s technological capabilities (Joonghae et al. 2006).

In executing its development plans, the state sought to enhance human and technological capabilities. The government of South Korea recognized quite early in the process the risks associated with the implementation of its development plan in an environment of inadequate institutional capacities and human resources. To address this, the government embarked on a massive mobilization of the education and health sectors: it promoted the private provision of secondary and tertiary education under government regulation over admission quotas, tuition fee caps, the number and contents of courses to be offered, graduation requirements, and requirements for staff hiring and firing, while primary education was wholly government-run (Cocoman 2011; Lee 1997; UNRISD 2012; and Yi 2011). As a result of the new policy, enrolment at all levels of education increased. Secondary school enrolment doubled in 30 years, from less than 40% enrolment rate in 1970 to over 80% in 2000. And by 2004, South Korea’s university enrolment was the highest among OECD countries at over 60% (Joonghae et al. 2006). The focus on education extended beyond the conventional learning system to an extensive public vocational training system. A vocational training law was enacted in 1967, providing training in craft skills for the growing labour-intensive light manufacturing industries. The government subsidized companies that provided workers with training programmes meeting vocational training standards. By 1986, the vocational institutes provided about 3% of the total labour force (UNRISD 2012; Yi 2011). Similarly, the government funded the expansion of healthcare facilities in urban areas and also provided incentives to attract trained medical personnel to rural areas. Boosting the human capital of the youthful population was a key consideration for the government. The deliberate development of education and health services boosted synergies between the private and public sectors and helped align social service provision with production capacities in the economy. There were several significant phases in the development of the South Korean economy. During the colonial period, from 1910 to 1945, Japan had introduced new economic and social institutions, and invested substantially in social and physical infrastructure. While the Japanese settlers departed after WWII, the socio-economic infrastructures that they had established, though damaged during the Korean War of 1950 to 1953, remained. From the end of the war, recovery and reconstruction were accompanied by an import substitution strategy, based on massive foreign aid mainly from the United States, but also from the United Nations. Aid financed nearly 70% of total imports and 75% of total fixed capital formation between 1953 and 1961 (Haggard, Kim, and Moon 1990).

The land reform, pursued after WWII, took place in three waves: in the first, the government installed by the American military initiated land reform in 1946 by limiting peasants’ land rents to one third of the value of annual production. In 1948, it sold land belonging to the Japanese Oriental Development Company to tenants at low prices. The Korean government itself then led the third phase of land reform from 1949 to 1955, basing it on three principles. First, only those who were actually farming could own farmland. Second, land ownership was limited to three hectares. Third, farmers could not contract out their land to others for farming. The government then bought the excess land from farmers who had more than the limit or did no farming themselves and sold it to those who were more productive.

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Box 2.1Essentials of the South Korean Model: Developmental State in Practice (cont.)

Agricultural land reform in Korea was highly successful in creating independent smallholder farmers and reducing inequality in land ownership (Koh 2010). It enabled rural families, who now had their own land to enhance their productivity, send their children to school, and contribute to inter-generational equity. Therefore, land reform induced a major change in the relationship between state and society in South Korea (Huck-ju and Yi 2008).

Several characteristics of South Korean development during this transitional period, under the regime of President Syngman Rhee, are worth noting. Economic performance was significantly influenced by Rhee’s use of economic policy instruments (including allocation of foreign exchange, bank credit, import licenses, and the distribution of state-owned enterprises) to sustain and build a base of support (Haggard, Kim, and Moon 1990). Second, Rhee’s leadership style became autocratic, as hardliners within the party and the administration gained the upper hand. Third, a new group of commerce-based enterprises had emerged after WWII, mainly through the acquisition of state-owned enterprises, and sought support to diversify into manufacturing. They were able to extract various concessions from the government, which generated rents, some of which were recycled back to government officials and Rhee’s party. Consequently, corruption was widespread during this period.

The symbiotic relationship between the government and emerging big business also narrowed the space for newcomers. Most of the chaebols of the 1970s had accumulated their wealth during this period, derived not so much from returns on land but from favourable treatment by the government.

South Korea was able to embark on a steady process to industrialization. A series of demonstrations against the Rhee government in April 1960, involving a cross section of the population, including students, led to Rhee’s resignation. The opposition Democratic Party came to power in July but was soon overthrown by General Park Chung-hee, in May 1961. General Park saw his ascent to power as the occasion to initiate industrial revolution in South Korea. He committed himself to an economic development strategy based on comprehensive planning and aggressive export promotion, but based on an authoritarian display of power and control over the key institutions.

Shortly after the coup and in the context of martial law, many politicians and civil servants were forbidden to participate in politics without clearance by the military. All were cleared except 74 people, including the top leaders of political parties A number of army generals were retired and the newly formed Korean Central Intelligence Agency (KCIA) was charged with screening over 40,000 government employees. Almost 2,000 employees were found to have been involved in corruption (Haggard, Kim, and Moon 1990). In the aftermath of the investigation, the entrepreneurs (with government support) formed the Association of Korean Businessmen. The association submitted to the government a plan identifying 14 key industries, including cement, fertilizer, and steel, in which they were willing to invest if appropriate support policies were put in place. The penalties imposed for past illicit accumulations were to be invested in new plants, but the association’s plan required substantial additional funding, especially foreign capital. The government provided the necessary guarantees for foreign loans, which became a central feature of credit policy in South Korea. Constructed through a combination of coercion and inducement, as well as contestation and accommodation, the alliance between government and business became central to the South Korean growth and industrialization narrative.

Under Park’s regime, manufacturing sector output grew at an average annual rate of 17% in the 1960s and 16% in the 1970s, and its share in gross value-added rose from an average of 12% between 1953 and 1960 to 23% between 1971 and 1980. Its share in total employment essentially doubled from less than 10% in 1960 to about 20% by 1979. Meanwhile, the share of agriculture in GDP dropped from 42% to 25% over the same period (SaKong and Koh 2010).

Source: Compiled by the authors.

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2.4The Plausibility of an African Developmental StateMauritius and Botswana have been recognized as developmental states (Mbabazi and Taylor 2005; Meyns 2010) for their consistently effective socio-economic policies and good performance. Although mineral dependence is roundly blamed for distorting domestic policy and for “Dutch disease”, Botswana has been able to manage its diamond resources in recent decades, making them a solid basis for diversification and enhanced welfare. On the other hand, Mauritius has shown that it is still possible to pursue aggressive export promotion policies. Both countries have shown that developmental states need not be autocratic (Mkandawire 2001).

However, researchers have identified a number of African countries as “potential” developmental states because they have attempted approaches that emphasize industrialization, have exercised a degree of policy autonomy, and have had good economic performance for the past few decades. These countries include Ghana, Uganda (Mbabazi and Taylor 2005; Gyimah-Boadi 2009), and Rwanda (Kelsall and Booth 2010). Perhaps more germane examples are Ethiopia and South Africa, which have projected themselves as legitimate aspirants to developmental statehood in the near term (Edigheji 2011).

Ethiopia’s late Prime Minister, Meles Zenawi, had insisted that becoming democratic developmental states was the only viable development option for African countries (Meles 2011). While Ethiopia’s remarkable development performance over the past 25 years is widely acknowledged, it continues to perform poorly with respect to civil rights and the promotion of democracy, as noted by a panel of the African Peer Review Mechanism (APRM 2011)(2).

A number of African countries, including Côte d’Ivoire, Ethiopia, Kenya, Malawi, Rwanda, Tanzania, and Uganda have exhibited ‘‘developmental patrimonialism’’ during their recent history (Kelsall 2010). These states have at some point had strong, visionary leaders, a dominant political party, a competent economic technocracy, and a development strategy that was at least partially inclusive, accompanied by a sound, broadly capitalist-oriented policy framework, with support to the rural economy (Kelsall and Booth 2010). While these states have largely operated in a patrimonial fashion, they have been able to achieve significant success through the centralised capture of rents, with a relatively autonomous and emboldened civil service.

2.5The Political Economy of Developmental State EffectivenessFour themes have been identified with regard to the political and institutional arrangements that enabled the emergence of the developmental state. These are historical factors that predispose a country to success; the role of visionary leadership; the capacity of the state; and the nature of political dynamics, particularly the nature of the developmental alliance (Figure 2.1).

A critical feature of the East Asian developmental states was the strong, perhaps even obsessive, commitment to building a strong economy. Development was envisaged as a nationalist project and industrialization was considered fundamental to the success of this project. There was also a non-negotiable commitment to the role of nationals as prime movers and beneficiaries of the industrialization process. The East Asian developmental states were exceptional in their ability to generate a sense of genuinely commitment to a collective project of national development (Evans 2008). Indeed, as observed by Amsden (1989; 2013), the crucial factor in their successful structural transformation was their inherent sense of nationalism. They explicitly oriented industrial policy towards securing the home market, with governments intervening in the economy to create national industries, nationally owned (public and private) firms, and a sustaining environment that favoured the accumulation of national production skills, managerial capabilities, and technological expertise.

(2) See also Kieh (1991).

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Figure 2.1Concept of Developmental Regime

Character of political settlement

Quality of policy process

Substantive content of policy

Source: Booth (2015).

Although Japan’s “miracle” occurred between the early 1960s to the mid-70s, its success was built on the substantial institutional and political changes that occurred during the Meiji Restoration era in the second half of the 19th century—which characterized efforts to the counter the impact of the West. Funds for industrialization were raised from within the country by instituting a land tax in 1873. Japanese leaders feared that by seeking foreign capital, the country could become subservient to Western influences (Japan Ministry of Foreign Affairs, 1975). South Korea and Taiwan were also exposed to existential threats that had an influence on their subsequent behaviour-namely, the partition of Korea and the threat from a resurgent China, respectively.

The colonial experience was also a decisive factor. In South Korea for instance, Cumings (1981) argues that while Japanese colonialism was extremely predatory, it nevertheless was also quite developmental, resulting in a measure of rapid industrial growth. Cumings (1984) also contends that extensive industrial and infrastructural investments and a build-up of bureaucratic capacity under Japanese colonialism provided a good base for the subsequent industrial growth in South Korea. Kohli (1994; 2004) attributes the success of South Korea to the effectiveness of the state institutions left behind by Japan and the relationship established between the colonial state and the propertied classes. In contrast, Vu (2007) contends that the Dutch colonial influence in Indonesia left a weaker institutional legacy there than did the Japanese in South Korea, which also had an implication on the outcomes.

For Africa, the relationship between colonial experience and post-colonial political and economic development has been discussed widely, although the firm (and even sometimes positive) linkages to development found in Asia are not apparent on the continent (Young 2012). The competition for the African territory and the wish on the part of the colonial rulers to extract value drove colonial powers towards policies of “ruthless extractive action” rather construction and consolidation—the latter of which required energy and imagination. Acemoglu, Johnson, and Robinson (2001) contend that in those colonies where the colonisers were unable to settle in large numbers, due, for instance, to high mortality rates, they established highly extractive institutions. This led to vicious cycles of unstable politics and weak economies in post-colonial Africa. In the few places where colonizers were able to settle, they established more inclusive institutions that closely resembled those at home. These institutionally different approaches persisted after the colonial period.

Beyond the simple question of a colonial legacy, Cumings (1984) also highlighted the significance of the broader regional context of Japanese and, later, American hegemony in understanding the economic transformations of South Korea and Taiwan. The geopolitics accorded these countries exceptional regional significance, as a result of which they benefited disproportionately in terms of trade, capital, and technology from first, Japan and, then, the United States. This interaction with the most powerful and dynamic global economies at the time gave them an advantage that was and still is difficult to replicate.

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Leadership and vision were crucial elements of the East Asian developmental states. But although all leaders claim to be visionary, the character of political leadership varied substantially among the developmental states, with Taiwan maintaining an extensive police state system, South Korea was equally repressive until the late 1980s, while Singapore’s ruling party severely restricted political freedoms (Haggard 2004; Haggard, Kang, and Moon 1997; Wade 1990). It is therefore worth asking whether autocracy is a necessary feature of the development state. In an authoritarian system, difficult decisions are taken quickly because power is concentrated in the hands of a few key actors and/or institutions.

The issue of state-owned enterprises (SOEs) in a basically capitalist-oriented system is intriguing. The developmental states of East Asia, in spite of their high degree of state intervention and the major role of economic planning, were capitalist-oriented. Singapore, perhaps one of the most successful examples of capitalist development globally, has a very large state sector that contributes 22% of GDP. The government owns most of the land, supplies 85% of housing, and runs ‘‘one of the most draconian forced savings schemes in the world’’ (Chang 2011). SOEs contributed 10% of GDP in South Korea and 16% in Taiwan, concentrating in the capital and intermediate goods industries like steel and chemicals (Chang 2011). The moral here is that the developmental states were not constrained by any economic or political ideology.

2.6Relevance for Nigeria and Africa in GeneralIn their search for a sustainable path to economic development, Nigerian policymakers at the federal and state levels have increasingly focused on the developmental state model and the experiences of East Asia. An important attraction, as noted above, is that the developmental state model espouses policy autonomy, strong state institutions, and an alliance for development between the state and the private sector, with a focus on boosting endogenous capacities. In other words, the model derives from the needs of the country and is shaped by an endogenous capacity for policy formulation and execution(3).

What then is the likelihood of transferring the developmental state success story to Nigeria? The issue of the state as an instrument for interest group expression of power, implicit in the initial phases of the developmental state, is significant for a country like Nigeria. Over much of the country’s post-colonial history, the state has been the instrument for transforming politically dominant classes into economically dominant ones (Ohiorhenuan 1989). Nigeria has been under military rule for half the time since independence in 1960. In true Nietzschean fashion, democracy has emerged stronger, and the tolerance for human rights abuses in the name of development is today very low. Administratively, the political structure has changed from three regions at independence to 36 states and a capital territory, indicating a significantly different array of political pressure points but also the importance of the search for consensus.

Oil dependence has featured prominently in Nigeria’s political economy, for example in relation to the sharing of oil revenues among the federal government and the states, and it has led to fierce debates among the various tiers of government. It has indeed been claimed that through its macroeconomic effects—that is, the appreciation of the exchange rate—oil has been a curse for Nigeria, with negative impacts on governance across the government and other sectors of the economy. If properly harnessed, as in Botswana, natural resource wealth can contribute to economic development. However, the Nigerian story has been quite different so far: oil dependence and the associated political economy have tended to weaken rather than strengthen institutions.

The nature of state institutions and the presence of an effective development policy coordination mechanism are crucial for the sustenance of the developmental state. Nigeria is, however, not lacking in policy initiatives nor initiatives, which proliferate at all levels of government. However, these were often hastily constituted by incoming regimes, lacked resources, and did not fit well in the broader development strategy of the country, that is, they lacked policy coherence. Achieving Nigeria’s development potential will continue to depend on how well its institutions are performing in the areas of policymaking, implementation, and follow-up and whether the government is able to establish a coalition for development between itself and the private sector to ensure an autonomous growth process. However, ultimately the efficiency of state institutions depends on the nature and strength of the country’s political leadership. With deficient leadership, little can be achieved. Thus, current efforts at policy differentiation at the state level in Nigeria, where some state governors (Lagos State is a case in point) are providing innovative solutions, are good pointers to the future.

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(3) Vadia (2016) has suggested in a comparative study of oil-rich African countries, including Nigeria, that there is a case for “petro-developmental states” that would make their vast oil resources work for the economy and the population.

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Externally, developing countries face a different set of challenges today in building global competitiveness than was the case in the past. Globalisation has changed the relationship between local and global capital and weakened the control by states over their national economies, particularly with respect to the three major agreements overseen by the World Trade Organization (WTO). The General Agreement on Trade in Services (GATS) and the agreement on Trade-related Investment Measures (TRIMs) together limit the authority of developing country governments to constrain the choices of companies operating in their territory, while the agreement on Trade-related aspects of Intellectual Property Rights (TRIPRs) requires governments to rigorously enforce the property rights of foreign firms. As Wade (2003) observes, these agreements make illegal many of the industrial policy instruments used in East Asia during the evolution of their developmental states.

It is clear that the strategies used by East Asia’s developmental states to promote domestic industries and secure domestic markets in their bid towards global competitiveness (Amsden 1994; Yoo 2011) cannot be directly replicated in Africa today. However, today’s global realities present a different set of opportunities for Nigeria; the question is whether the Nigerian state is capable of seizing these opportunities through the creation of relevant institutions and supportive policies. For example, the TRIPS agreement does not prohibit publicly funded research and development (R&D) or ownership of businesses by public institutions, nor does it prohibit access to publicly funded R&D.

Most analysts agree that the success of East Asia’s developmental states lay in their ability to reinvent rather than merely copy. Therefore, the transfer of lessons from developmental states to Nigeria will require adaptation, not simply adoption. Johnson (1982) argued that the essence of the Japanese model was its ability to build on pre-existing assets rather than dogmatically adopting external models. He advised countries that were seeking to emulate Japan “to fabricate the institutions of their own developmental states from local materials.” It has also been argued that the ability of East Asia’s developmental states to reinvent rather than to copy was vital to their success. Hence, he submits, the idea of transferrable lessons should only be seen as “an invitation to indigenous innovation that takes advantage of the underlying analytical logic of East Asian institutions”. Thus, the message for Nigeria is to promote indigenous innovation at all levels while using the underlying logic of growth-promoting policies of East Asia’s developmental states (Hayashi 2010).

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CONTENTS

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22 22

MACROECONOMIC PERFORMANCE AND SUSTAINABILITY

Chapter III

22

3.1Introduction 23

3.2Civilian Rule and Resulting Economic Policy and Planning 23

3.3From Economic Frailty to Reform, Growth, and Rising Confidence 24

3.4Changes in Economic Structure, 1981-2017 28

3.5The Macroeconomics of Transition 29

3.6Impact of Financial Sector Reform in Nigeria 33

3.7The Labour Market and the Unemployment Conundrum 34

Appendix I 36

Appendix II 37

References 38

23


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3.1Introduction In 2017, some six decades after independence, Nigeria’s population was close to 200 million and its GDP was well over half a trillion US dollars. The country is roundly considered to be a future pillar of growth in Africa. In addition, as a major producer of oil—first discovered in the 1950s—Nigeria has geo-political significance in the rest of the world. However, the Nigerian economy is less diversified and less competitive than comparable emerging economies, with its economic and social heterogeneity both a strength and a weakness. In spite of its strategic location vis-à-vis the consumer markets of Europe and the United States and its vast human and physical resources, Nigeria is still mainly an exporter of raw materials and has not been able to embark on large-scale export-oriented manufacturing à la East Asia.

While oil and gas production comprise a diminishing fraction of Nigeria’s GDP today, oil revenues still contribute the bulk of federal government receipts (and by implication those of the states) and oil price fluctuations impose undue impact on the rest of the economy through foreign exchange receipts (and the value of the naira). The country’s infrastructure, whose development is financed by oil revenues and external borrowing, is quite extensive in urban areas, but is weak and fragmented in states outside the growth centres of the economy, to the south west.

Reviews of the Nigerian economy often laud its reservoir of technical and financial innovations, private sector acumen, and abundance of management skills, and hence its growth potential (UNDP 2016). However, they also point to a number of structural and policy impediments to growth—including governance challenges at the federal and state levels, low capacity for resource mobilization, ineffective national planning, and inadequate skills development—that require attention (Vadia 2016). These have prevented the country from accumulating wealth and investment and addressing social exclusion and urban and rural poverty. Although South Korea embarked on its growth quest in the early 1960s from roughly the same level of GDP per capita as Nigeria and many other African countries and comparable poverty levels, today, more than 50 years later, the picture is completely different. In 2016, Nigeria’s GDP per capita was estimated at US$2,200, while that of South Korea was at some US$27,500, or more than 10 times larger (World Bank 2016). South Korea also enjoyed a more equitable distribution of income, its social well-being was comparable to that of advanced Western economies, and the incidence of poverty had diminished markedly.

This chapter undertakes an overview of the Nigerian economy in recent decades, including a how policymakers have addressed external shocks related to the country’s oil dependence and the institutional rigidities arising from its governance structures, which have alternated between civilian to military leaders for much of the country’s independence history.

3.2Civilian Rule and Resulting Economic Policy and Planning Nigeria became independent in 1960, with Alhaji Abubakar Tafawa Balewa as prime minister. Although Nnamdi Azikiwe was appointed the first president of Nigeria in 1963, his government was overthrown by Major General Chukwuma Kaduna Nzeogwu in 1966, ending the first republic and ushering in military rule. Decades of political instability and military interventions followed, derailing federal government programs and sapping the entrepreneurial energies of the population. Between independence and 2017, Nigeria has had 29 years of military rule and 28 years of civilian rule. The years of civilian rule have comprised four republics, as follows: the First Republic, 1963-1966, was led by Nnamdi Azikiwe, as mentioned above; the Second, 1979-1983, was led by Shehu Shagari, 1979-1983; the Third, 1993, was led by Ernest Shonekan; and the Fourth, ongoing, has included Olusegun Obasanjo, 1999-2007; Umaru Yar’Adua, 2007-2010(4); Goodluck Jonathan 2010-2015; and Muhammadu Buhari 2015 to the present.

(4) President Yar’Adua is remembered for his crisp Seven-Point Agenda, which he was unable to implement due his sickness and untimely death but which had some elements of the developmental state approach: transport sector; power and energy; food security; national security, Niger Delta, and energy security; education and human capital development; and wealth creation.

2424


24

With the arrival of the Fourth Republic in Nigeria, there has been a notable return to political stability in the country, as evidenced by the relatively smooth handover of power between regimes and, generally, the absence of military power takeovers. Nigeria is now reclaiming its economic and political pre-eminence in Africa as well as capturing the interest of domestic and foreign investors (Adewale 2011).

3.3From Economic Frailty to Reform, Growth, and Rising Confidence Emerging from the civil war of the late 1960s, Nigeria was socially and economically frail. However, it had vast oil resources, and the price of oil on the international markets saw unprecedented increases for much of the 1970s, boosting the country’s foreign exchange reserves and its import-substitution drive. Rising oil revenues helped Nigeria repair its socio-economic infrastructure, begin to redress the spatial inequalities, and expand the federal and state public sectors. New states were created in a bid to bring public services nearer the people. The federal government prioritized housing, industries, transportation, and agriculture. The Kaduna oil refinery was completed in 1980, a number of steel plants were established, and ambitious road projects began. During the boom of the 1970s, Nigeria’s prospects appeared limitless. With large oil inflows and the desire for the whole country to benefit, the government reduced the payment of revenues and royalties to the states of origin from 30% to some 2%, unleashing a flood of discontent that persists to this day.

By the late 1970s and early 1980s, the negative effects of oil dependence in Nigeria began to be felt—first, through the debilitating effects of the oil boom on agricultural performance, and second, through its macroeconomic impact on the rest of the economy via the phenomenon of Dutch disease. While agriculture and livestock production had been the pillars of the economy, they were now competing with food imports, while the oil boom had raised the costs of production throughout the country, increasing domestic wages and the cost of services.

The decline of oil prices in the early 1980s (reaching US$20 a barrel) saw sharp declines in economic growth (Figures 3.1 and 3.2) and rising inflation, especially of food and transport prices, and the population became restless. The government had instituted subsidies across the whole socio-economic spectrum—including fuel, utilities, transport, and school fees—which the population had begun to view as entitlements. It was almost impossible for the government to roll them back without serious social consequences. Although the civilian government embarked on an economic stabilization program, the result was inadequate.

Figure 3.1Nigeria: Economic Growth, 1982-2017 (%)

20,00

15,00

10,00

5,00

0,00

-5,00

-10,00

-15,00

Real

Gro

wth

per

ann

um (%

)

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: Central Bank of Nigeria.

25


25

In early 1983, the economically besieged government decided to expel millions of unskilled workers from neighbouring countries, the bulk of whom came from Ghana. Not unexpectedly, this did not eliminate the economic crisis, which deepened with the departure of the casual workers, who had also been consumers of goods and services. The year 1983 saw a decline in GDP of over 10 percent. During 1980-1987, Nigeria’s GDP per capita declined by an estimated 9.8%. In 1989, the World Bank officially designated Nigeria as a “low-income country”, hence making it eligible for loans from the Bank’s concessionary window (IDA).

Figure 3.2Nigerian Growth Components: Oil versus Non-Oil (1981-2013)

20,00

15,00

10,00

5,00

0,00

-5,00

-10,00

-15,00

Gro

wth

Rat

e (%

)

Oil Non-oil

1981

1982

1983

1984

1985

1986

1987

1988

1989

1988

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: Central Bank of Nigeria, Statistical Bulletin (2014).

The Nigerian economy can be broadly classified into oil and non-oil. Figures 3.1 and 3.2 show that the Nigerian economy swung dramatically according to the dictates of the oil sector’s performance in the 1980s and the early 1990s. This was also when the government embarked on structural adjustment policies supported by the international donor community, and attempted “radical” reforms. These included the introduction of the second-tier forex market (SFEM) for the encashment of export receipts and the import trade. The unification of the second-tier rate and official exchange rate in July 1987 resulted in a 30% devaluation of the naira, the national currency. The political economy of petrol pricing in Nigeria is discussed in Box 3.1.

The period since the early 2000s has witnessed steadier growth, thanks to greater diversification of the economy, improvements in utility services, and the growth and increased sophistication of the financial sector. Notably, the Nigerian economy has shown considerable resilience to external shocks. The sharp increase in oil prices in 2003 and other external shocks did not have the large (excess demand) impact on overall performance that they would have previously, and the subsequent declines in oil prices and government revenues do not seem to have seriously impaired growth (Figures 3.1 and 3.2) in recent decades. In 2000s, Nigeria was considered a leading example of Africa’s growth renaissance.

25

2626


Box 3.1The Political Economy of Petrol Pricing in Nigeria, 1985-2017

Fuel price changes in Nigeria provide an insightful measure of how policymakers are responding to broader economic challenges and whether they are unduly beholden to their political constituencies. These price changes also reveal that even the most strongly held political perceptions are revised in the face of economic pressures. In 1985 the price of a litre of petrol was fixed at 20 kobo (0.2 of a naira, then about US$0.25) (see below). The price changed only marginally even as the exchange rate depreciated. In 1992 a litre of oil cost 70 kobo (or 0.7 of a naira, about US$0.10 at the official rate.

1985-1992: Low fuel prices as entitlement.

26

Cps

t of P

etro

l per

Litr

e (N

aira

) 0,8

0,6

0,4

0,2

0

0,2 0,2

0,4 0,4 0,4 0,4 0,4 0,42

0,6 0,6 0,6 0,60,7 0,7 0,7 0,7

Jan. Dec.Dec. Jan. Dec. Jan. Dec. Jan. Dec. Jan. Dec. Jan. Dec. Jan. Dec. Jan. Dec.1985 1985 1986 1986 1987 1987 1988 1988 1989 1989 1990 1990 1991 1991 1992 1992

However, the laws of supply and demand soon kicked in and the price of fuel leapt at the end of 1993 to 3.25N a litre. After a year of no adjustment, and the virtual disappearance of fuel on the domestic market, the government tripled the price of fuel in December 1994 to N11 a litre (see below)—less than US$0.30. However, having started from a low base, these fuel price increases offered producers little incentive. The refining capacities of the parastatal sector were crippled, and Nigeria began experiencing the ultimate irony of an oil exporter short of domestic petrol.

1993-1999: Slow upward adjustment

Cps

t of P

etro

l per

Litr

e (N

aira

)

30

2015

5

00,7

11

Jan. Dec. Jan. Dec. Jan. Dec. Jan. Dec. Jan. Dec. Jan. Dec. Jan.1993 1993 1994 1994 1995 1995 1996 1996 1997 1997 1998 1998 1999 1999

25

103,25 3,25

11 11 11 11 11 11 11

2520 20

27


2727

Cps

t of P

etro

l per

Litr

e (N

aira

)

4030

10

0

20

Jan. Dec. Jan. Dec. Jan. Dec. Jan. Dec. Jan. Dec. Jan. Dec. Jan.2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006

50

2022

40 40 40 40 40

22 2226 26 26

40 40 40 40

Dec.2006

Jan.2007

Dec.2007

At the beginning of 2012, fuel prices jumped to N141 a litre, an increase of over 100%. This caused a public uproar, and the government was forced to knock off more than half the increase, with the price settling at N97 a litre for the next two years. In early 2015, the incumbent government cut prices by another N10 in the run-up to elections. At the end of 2016, petroleum prices were hiked to N145 (see below). While the more recent adjustments imply bold steps to rectify pricing challenges and enhance the availability of fuel, the government still considers domestic fuel price setting a strategic consideration. Given the socio-economic implications of fuel prices, they will continue to be watched closely by the government as well as by Nigerian consumers.

2008-2017: Liberalizing the fuel market

Cps

t of P

etro

l per

Litr

e (N

aira

)

8060

200

40

Jan. Dec. Jan. Dec. Jan. Dec. Jan. Dec. Jan. Dec. Jan. Dec. Jan.2008 2008 2009 2009 2010 2010 2011 2011 2012 2012 2013 2013 2014

140

40

Jan.2015

Jan.2016

Jan.2017

Dec.2014

Dec.2015

Dec.2016

100120

160

40 40

65 65 65 65 65

141

97 97 97 97 9787 87 86,5

145 145


Box 3.1The Political Economy of Petrol Pricing in Nigeria, 1985-2017 (Cont.)

In retrospect, fuel price liberalization in Nigeria was inevitable. Price fixing had come to represent all the negative aspects of the economy—over-regulation, over-subsidization, corruption in the import and export chains, and public-sector rent-seeking activities. Still, the oil sector and the domestic fuel economy have a host of interest groups, and meeting their demands and needs has not been easy. During much of the 2000s, Nigeria still enjoyed some of the cheapest fuel in the world. At the end of 2007 (see chart), the price of fuel remained at the December 2003 rate of only US0.30—just a slight increase over that of earlier years.

2000-2007: Onset of fuel price reform

282828

3.4Changes in Economic Structure, 1981-2017 Like many other African countries, Nigeria has emphasized the diversification and modernization of the economy, but the pace on both counts has been slow and subject to reversals. Figure 3.3 provides a summary of the structural changes in the Nigerian economy over 1981-2017. During those four decades, the share of industry in the Nigerian economy, which includes oil and gas production and manufacturing and accounted for over 50% of GDP in 1981, has plunged to less than 25%, and the slack has not been picked up by manufacturing.

The slow growth of manufacturing in Nigeria (and other African countries) calls into question the robustness of the underlying growth momentum and the possibility of economic transformation in the medium term. While the collapse of SOEs during structural adjustment programs is partly to blame for the “de-industrialization” of African countries, the challenge is how to revamp the private sector in Africa, including the enhancement of domestic capacities, to ensure sustainability of the transformation process. Previous industrialization policies were eclectic.

The increase in the agricultural sector’s share of the Nigerian economy is something of an aberration, as economic development generally dictates a long-term decline in agriculture’s share. In Nigeria, the agricultural sector, along with the rest of the economy, had long been subjected to the vagaries of the oil sector and related domestic politics—the consumption and demonstration effects of oil affluence. But Nigerian agriculture has seen a recent revival thanks to better targeted federal and state policies and favourable macroeconomic policies that have made domestic production of food and inputs into the agroindustry profitable. For example, while Nigeria became a rice importer during the days of oil affluence in the 1970s and 1980s, it is now on the verge of rice self-sufficiency with considerable scope for exports. From barely a 12% share of GDP in 1981, agriculture claimed over 20 percent in 2017.

The service sector in Nigeria—including public services, finance, information, telecommunications, and entertainment, has seen phenomenal growth over the past 15 years, from 30% to over 55% in 2017. Deregulation of the telecommunications sector in 2000 was an important contributor, although the rebasing of the Nigerian economy a few years ago to include economic activities such as the country’s film industry (Nollywood) was also significant.

However, in reference to the developmental state model, the question of sustainability surfaces once again. Given Nigeria’s youthful population, it is doubtful whether the service sector—including the large banks—will be able to generate the many jobs required. In East Asia, jobs were created by the rapid expansion of manufacturing. It is thus essential to link the economy to a robust industrialization process, underpinned by an export-oriented and innovative manufacturing sector. This will require a vast increase in foreign direct investment as well as domestic investment targeted to manufacturing and allied activities.

Figure 3.3Nigeria: Sector Shares in Economy, 1981-2017 (%)

70

Shar

es in

Eco

nom

y (%

)

60

50

40

30

20

10

19810

1985 1990 1995 2000 2005 2010 2015 2017

Agriculture Industries ServicesSource: Central Bank of Nigeria, Statistical Portal.

29


29

3.5The Macroeconomics of Transition Addressing the many challenges the Nigerian economy has faced in recent decades has required considerable innovation by the country’s monetary and fiscal authorities, including the creation of a number of agencies to implement and monitor policies. As part of a broad reform process, the Central Bank of Nigeria (CBN) was granted full autonomy in the conduct of monetary policy in 2007 through an Act of Parliament (Federal Republic of Nigeria 2007). An elaborate set of institutions including the Monetary Policy Committee (MPC), Monetary Policy Technical Committee (MPTC), Monetary Policy Implementation Committee (MPIC), Fiscal Liquidity Assessment Committee (FLAC), and Liquidity Assessment Group (LAG) are in place to ensure that monetary policy is conducted in a timely and efficient fashion.

The CBN’s autonomy has been challenged by policy makers and other stakeholders, largely reflecting disagreements about key aspects of economic policy(5). Some have also argued (Adeyeye, Ayorinde, and Ajinaja 2013) that to be credible policy autonomy must be accompanied by transparency and accountability—which a number of critics suggest has not been the case. Although the policy rate has declined in recent decades, in the view of some stakeholders, the CBN has been unable to lower lending rates to “reasonable” levels (Figure 3.4). On the other hand, the government has not given the CBN a truly free hand in setting the naira’s exchange rate. In recent years, the CBN has re-adopted a multiple exchange rate regime to resolve balance of payments challenges caused by declining oil prices. But this did not work well in the past(6). The greater challenge is the extent to which the CBN can garner sufficient credibility to shift behaviour in the credit and financial sector setting the monetary policy rate. Like central banks in bigger economies, the CBN adopted a policy of quantitative easing after the financial crisis of the late 2000s, reducing the policy rate to single digits after it had risen to 25% in 1993.

(5) Former Governor of the Central Bank Sanusi Lamido Sanusi probably best epitomized the tension between central bank independence and the political economy of rent-seeking within the financial and oil markets. At the center of the matter was whether the Central Bank of Nigeria could resist demands to bankroll the state. See, for example, his lecture at Warwick University, 12 February 2012.(6) For example, in 2017 the Central Bank of Nigeria listed 41 goods that could not be allocated foreign exchange under any circumstances.

Figure 3.4Nigeria: Monetary Policy Rate, 1990-2018 (%)

30

25

20

15

10

5

0

Mon

etar

y Po

licy

Rate

in %

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

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2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

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2014

2015

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2017

2018


29

3030

The extent to which fiscal policy has been coordinated with monetary policy in Nigeria is debatable, given the politically tinged issues that have arisen between the Ministry of Finance and the CBN in discussions of economic policy, especially on the “affordability” of credit. Still, the government has created a number of agencies and departments to manage its finances, including the Nigerian Custom Service (NCS), the Federal Inland Revenue Service (FIRS), and the Nigeria National Petroleum Corporation (NNPC). The problem is how to ensure that they are pulling in the same direction to ensure policy coherence.

As noted earlier, oil revenue has been a significant though dwindling source of federal government receipts. However, during the 2000s, budget deficits and their financing became a perennial concern. The contribution of oil to government revenue continued to fluctuate owing to low oil prices (with an unprecedented 70% drop in 2014, for example) and wide-spread oil theft and pipeline vandalism in the oil-rich Niger Delta. Though the country had capacity to produce more than 2 billion barrels a day, actual production was only about 1.3 million barrels a day in 2009. The production volume has improved in the past few years to an estimated 2.7 million barrels a day, thanks to higher oil prices and better security in the oil-producing regions, which boosted investment and facilitated rehabilitation of production capacities.

Figure 3.5Nigeria: Budget Deficit (% of GDP), 2008-2017

Budg

et D

efic

it as

% o

f GD

P

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

-0,3

-3,3

-2-1,8

-1,3 -1,4

-0,9

-1,6

-2,1

-4,3

Source: Central Bank of Nigeria and International Monetary Fund.

Nigeria has a relatively modest non-oil revenue base that, in percent of GDP, is one of the smallest among leading oil producers. The government sought to rectify this through targeted legislation including the Company Income Tax Act, the Capital Gains Act, the Petroleum Act, and the Petroleum Profits Tax Act.

The difficult revenue situation of recent decades had a silver lining: the government has imposed austerity measures, while seeking alternative revenue sources. While the persistence and size of the deficits worried stakeholders, they were not excessive—hovering on average around 2% of GDP during the past decade (Figure 3.5). However, the recent sharp fall in oil prices and oil revenues saw the budget deficit rise to over 4 percent of GDP in 2017. There is a fear that unless the economy returns to robust growth or borrowing is reduced drastically, Nigeria could well reach debt of over 30% of GDP in the short term.

30

31


31

Figure 3.6Nigeria: Debt as % of GDP, 1990-2023*

80

Deb

t as

% o

f GD

P

70

60

50

40

30

20

1990

10

0

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

Source: Central Bank of Nigeria; *projections for 2018-2023 from International Monetary Fund.

Though disparaged, external borrowing has been key to sustainability. Although the government has attempted homegrown austerity measures, including the postponement of large and capital-intensive projects, it ultimately has had to borrow from the markets to make ends meet. In 2005, the government reached resolution (60% debt forgiveness) with the Paris Club on the US$30 billion debt owed to members of the oil cartel. In 2006, the government was able to pay off the rest of the debt—a total of US$12.4 billion—in cash. This brought the debt to GDP ratio to below 8% in 2007, a historical low, compared to over 70% in the 1990s (Figure 3.6). This Paris Club debt operation was generally considered a master stroke as it brightened the country’s prospects considerably.

As in other African countries, lower debt levels immediately raised Nigeria’s sovereign ratings. After the Paris Club debt resolution, Nigeria received BB ratings from both Fitch and S&P (although these have been lowered in recent assessments as the economic picture became less attractive). In 2011, Nigeria launched a 10-year US$500 million Eurobond. It was considered to be more of a “benchmarking” exercise to assess the markets’ perception of the country. Although the bond was oversubscribed, its coupon rate of over 13%, when international bond rates were in the lower single digits, indicated that the markets were still very cautious about lending to Nigeria and that Nigeria’s recent history of economic mismanagement loomed large.

In 2013, the government returned to the markets for a US$1 billion offering, split into a 5-year US$500 million bond and a 10-year US$500 million bond, with coupon rates of 5.375% and 6.625%, respectively. Four years later, in 2017, the government issued a 15-year US$1 billion Eurobond, with a coupon rate of 7.875%. In the space of less than a decade, the Nigerian financing situation has become diversified and quite sophisticated. The government has actively sought to rebalance the debt profile of the country from short to longer term, and with the appropriate mix of domestic and foreign debt instruments. The corporate sector has taken a leaf from the government’s book and is also issuing Eurobond debt, although it is not clear whether the implications have been factored into the broader macroeconomic framework.

31

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Box 3.2Exchange Rate Policy in the Era of Socio-Economic Turbulence

The exchange rate has been a constant fixture in Nigeria’s economic debates. At independence in 1960 the naira was set at par with the pound sterling, but this only lasted until 1966, when the naira was set at 0.714 to US$1. This fixed peg to the dollar was discontinued during the alignment of international currencies in the 1970s. By the end of the decade, the naira was instead pegged to a basket of 12 currencies. And it was not until the structural adjustment policy era of the 1980s and 1990s that Nigeria embarked upon full liberalization of the exchange rate.

A fully liberalized exchange rate (i.e., floating) was considered by the international community as the pillar of structural reform, especially because it removed the anti-export bias inherent in artificially inflated exchange rates favoured by governments in Africa. These policies led to hoarding and/or arbitrary allocation of foreign exchange. Under the floating exchange rate regime, the argument went, market forces determined the prevailing exchange rate—which was then efficient. However, since the dawn of development economics, foreign exchange was considered a scarce resource to be guarded jealously. In Nigeria, as in other Africa countries, not having the exchange rate in the government’s control caused political unease.

The agreed compromise was the introduction of multiple exchange rates, with the government determining the level of flexibility exercised at each window. The thinking was that “essential” imports and activities would be allocated (by fiat) the most favourable exchange rate, with the rate escalating toward the market-determined rate for goods considered “inessential.” Acronyms emerged to describe these mechanisms, including the autonomous foreign exchange market and inter-bank foreign exchange market. These two approaches were still quite restrictive and failed to eliminate the parallel markets for foreign currency. In 1987, the Dutch Auction System (DAS) for foreign exchange was introduced and helped reduce some of the pressure. However, it was replaced in 2002 by the Retail Dutch Auction System (RDAS) with the aim of squeezing the parallel market premium further. The Wholesale Dutch Auction System (WDAS) was introduced in 2006 as an innovation of RDAS, although the government reverted after a couple of years back to the RDAS. The general conclusion was that government attempts to mimic the workings of the foreign exchange markets through these innovative mechanisms ultimately failed to bring a lasting calm to the foreign exchange market. Many influential individuals and firms had managed to cut corners.

In August 2014, following the sharp decline of oil prices, and then again in February 2015, the CBN undertook adjustments of the exchange rate, ultimately bringing the rate to N197 to the US$. This rate was preserved for the following 16 months. The CBN’s focus on allocating foreign exchange to essential imports of goods and services, including raw materials, plant and equipment, and petroleum products reputedly helped to eliminate “speculators and rent-seekers from the market.” Controversially, a list of 40 products was banned from receiving officially allocated foreign exchange, although they could be imported using funds from the parallel market. According to the CBN, local production of these items has expanded in recent years (with lack of official allocation of forex helping market forces to kick in). According to the CBN, the approach helped the country navigate through a difficult period while keeping a reasonable level of foreign exchange reserves (5 months’ import cover) and preserving the value of the naira.

The CBN has innovated further in recent years, bringing the foreign exchange system toward a “managed float.” To alleviate pressure on the spot demand for foreign exchange, a naira-based foreign exchange futures instrument was created to be traded freely. Despite these market conforming proxies introduced by the CBN, a 20% gap between the official and parallel exchange rates remained in early to mid-2018: i305N versus 360N to the dollar, respectively. It seems that until the market is convinced that bureaucratic interventions will not obstruct access to foreign exchange, the foreign exchange market will not be unified easily. The gap is a measure of the credibility deficit.


32

33


3333

3.6Impact of Financial Sector Reform in Nigeria Although structural adjustment was unpopular in Nigeria and other parts of Africa, it served a useful purpose in some specific cases. One was the reform of the financial sector in Nigeria, taken largely on own initiative—but following a push from international lending agencies. Until 1986, the bulk of Nigeria’s financial sector was under tight government control and was fairly limited in terms of size and ambition—how it would contribute to modernization and development. This changed with the introduction of structural adjustment in the second half of the 1980s, which hinged, among other things, on the reform and deregulation of the financial sector (Anyanwu, 1992). With the opening up of the financial sector, the number of banks tripled from 45 banks in 1986 to 129 in 1991.

This rapid expansion of the banking sector was not without challenges—which accumulated quickly, threatening to stifle the economy. Banks competed with each other by extending loans to clients with little business experience and insufficient collateral. The banks were inadequately capitalized and insider lending proliferated. The banking system had a low return on assets, the high lending rate was causing a liquidity glut, a problem that the CBN had little or no regulatory experience in dealing with. Moreover, there were many politicians or their relatives on the banks’ boards—indicating weak corporate governance and potential for the accumulation of a high volume of non-performing loans (NPLs). In some institutions, the publication of accounts was delayed by years and, in others, deferred entirely. A number of institutions relied heavily on attracting government deposits. The reform of the financial sector became both a technical and a political problem for the country.

It is to the CBN’s credit that the second round of the financial sector reform proceeded despite strong opposition from stakeholders. In anticipation of the reforms, Nigeria Deposit Insurance Corporation (NDIC) was set up in 1988 to protect depositors in the liberalized financial environment (Umoh 2010). In 1991, a Central Bank of Nigeria Decree (Federal Republic of Nigeria 1991a) and a Banks and Other Financial Institutions Act (Federal Republic of Nigeria 1991b) were enacted to address the serious challenges facing the financial sector. With the various amendments undertaken in the 1990s, the two Acts provided the basis for the sector’s reform and led to its relative vibrancy today. In 2005, the CBN, using the powers vested in it by the Decree and Act mentioned above, introduced a regulatory and supervisory framework for microfinance policy for Nigeria, hitherto a rather neglected area. A number of institutional reforms were undertaken within the framework of structural adjustment policies introduced in 1986 to address challenges across the various sectors of the economy (Iganiga 2010).

The banking sector has been a key target for major reforms since the launch of Project Alpha by the CBN in 2008 to eradicate weaknesses and the fragmentation of the financial system and the banking sector in particular. The goal of project was fourfold: enhancing the quality of banks, establishing financial stability, enabling healthy financial sector evolution, and ensuring that the financial sector contributes to the economy. Industry remedial actions were introduced, including the enhancement of data quality and the introduction of risk-based supervision and new macroprudential rules at the CBN. Furthermore, corporate governance principles were strictly adhered to and a flexible interest rate regime was introduced. The goal was to bring the level of operations and quality of the financial sector to that of the government’s development ambitions (Bello 2012).

First, the CBN consolidated the banking system, encouraging mergers that saw the number of banks contract from over 80 institutions to 24 stronger and better capitalized institutions, and a parallel streamlining was undertaken for the insurance industry. Second, the CBN strengthened its own capacity to supervise the financial sector in an increasingly complex environment and to allow for the effective operation of indirect monetary instruments. Notably, it began the process of migrating from a prudential system of supervision to a risk-based approach along the lines of Basel II (a set of international banking regulations put forth by the Basel Committee on Bank Supervision, which leveled the international regulation field with uniform rules and guidelines. Third, the government sold its stakes in the commercial banks to the private sector, which also helped reduce quasi-fiscal operations. It was crucial to bring the financial sector players up to speed on the new instruments such as swaps, leveraging, and sub-prime loans that were driving the industry. Fourth, digital or cashless banking was promoted—as a means of increasing coverage and reducing cost.

3434


34

Other reforms included the introduction of the universal banking model in 2001, with the aim of diversifying the Nigerian banking industry and increasing competition, even in the countryside. The model allowed banks to diversify into non-banking financial business, while non-financial institutions could also undertake some financial activities, such as accepting deposits on behalf of commercial banks. However, a 2008 review of universal banking in Nigeria concluded that institutions should focus more on their core banking activities. To allow the orderly resolution of non-performing assets, the government created the Asset Management Corporation of Nigeria (AMCON) in 2010, which provided a mechanism for mitigating the impact of non-performing loans on the economy.

There are indications that the financial sector is deepening, with increasing credit to the private sector as well as greater competition between the various institution. A recent IMF Article IV consultation mission to the country (IMF 2018) concluded that the risks in the financial sector are moderate, although much needs to be done via greater transparency to ameliorate the risk of adverse perceptions.

3.7The Labour Market and the Unemployment ConundrumJob creation is one of the pillars of Nigeria’s National Economic Empowerment Development Strategy. It is also a key consideration of the developmental state model. However, as noted above, the share of industry (and manufacturing) in the Nigerian economy has been declining since the early 1980s—implying that job opportunities were instead being created in the service sector and to a lesser extent agriculture. The links between industrialization and employment that provided a powerful spark to development in South Korea are still frail in Nigeria. Although unemployment in Nigeria has been rising in recent years across all states the process was uneven, illustrating differences in the structure and strength of the local economies (Figure 3.7).

Figure 3.7Unemployment Rates in Nigerian States (%), 2001 and 2011

45

Une

mpl

oym

ent r

ates

(%) 40

3025

1510

0

Abia

35

20

5

Abuj

aAd

emaw

aAk

wa

Ibon

Anam

bra

Bauc

hiBa

yesla

Benu

eBo

rno

Cros

s Ri

ver

Delta

Ebon

yiEd

oEk

itiEn

ugu

Gom

be Imo

Jigaw

a

Kano

Kadu

na

Kats

ina

Kebb

iKo

giKw

ara

Lago

sNa

ssar

awa

Nige

rO

gun

Ond

oO

sun

Oyo

Plat

eau

Rive

rsSo

koto

Tara

baYo

beZa

mfa

ra

2001 2011Source: Nigeria, National Bureau of Statistics.

35


3535

A cross-section of unemployment rates for Nigeria’s 36 states (including the Federal Capital Territory and a few other cities) for two specific years (2001 and 2011) offers insights. Many states throughout the country registered relatively low levels of unemployment in 2001. Unemployment was lowest among states in the South-West (Ogun at 4.9%, Oyo at 5.4%, Lagos at 5.3% and Osun at 7.5%), South-Eastern and Niger Delta (Anambra at 5%, Bayelsa at 7.5%, Edo at 9.9% and Cross River at 9.8%) and some states in the Centre and the North (Nassarawa at 2% (the lowest level among all states for 2001), Plateau at 4%, Niger 4.6%, Sokoto at 5.7%, Kwara at 7.1%, Kaduna at 6.9%, Borno at 8.2%, and Gombe at 8.9%). Conversely, high unemployment was found in the Niger Delta (Imo at 31.5% and Rivers at 22.8%), and in other states, where neighbours had performed better than the national average: Zamfara at 22.4% and Kebbi at 29.4%. Unemployment in Abuja was 10.4%. Two important dynamics were at play: relatively good oil prices at the turn of the 1990s and the boom in agricultural production caused by the liberalization of the economy under the new civilian-led government.

Ten years later, in 2011, the situation had changed dramatically. Unemployment was high in most states (above 10%), a result of the oil crisis as well as the global financial crisis. The regional pockets of relatively good employment performance had disappeared, especially in the North and the Centre. Nassarawa’s unemployment rate was now 36.5%, Niger 39.4%, Zamfara 42.6%, Gombe 38.7%, and Kaduna 30.3%. However, in a relative difficult labour market, Lagos State and others in its proximity performed relatively well: Lagos 8.3%, Osun 3% (the lowest state unemployment rate in 2011), and Oyo 8.9%, while Kwara posted 7.1%. The variance in unemployment rates, even in regions such as the Niger Delta that have many similarities, points to lingering structural obstacles—including inadequate access to markets, employment, and training opportunities.

Figure 3.8Nigeria: Unemployment by Level of Education, 2013

14

Une

mpl

oym

ent i

n (%

)

10

8

12

6

4

2

0Post Secondary Secondary Never Attended Below Primary Primary

Source: Nigeria, National Bureau of Statistics.

In its 2013 report, the National Bureau of Statistics of Nigeria depicts the education levels of the unemployed in the country (Figure 3.8). Not surprisingly, given the low rate of modern job creation in Nigeria, the highest unemployment rates were registered by those with post-secondary education, whose numbers have increased since the expansion of tertiary level education in recent decades, although not necessarily their employability—which is linked to skills rather than education. The pursuit of white-collar jobs pervades tertiary education in most African countries, in contrast to East Asia, where specialized technical training at the secondary level was sufficient for employers’ needs.

In South Korea, as noted earlier, the pursuit of education for its own sake was discouraged, and skills accumulation was strongly linked to available current and future job opportunities. Figure 3.8 gives the false impression that the labour market in Nigeria is uniform, which is not the case. In Nigeria, as elsewhere, labour markets are segmented—especially when the informal sector is taken into account. The needs of these various segments, notably the market for educated individuals, offer insight in the search for solutions. It will not be possible to industrialize the country with employees who have only primary school education or none at all (Akande 2014).

363636

1. Rice

2. Cement

3. Margarine

4. Palm kernel/Palm oil products/vegetables oils

5. Meat and processed meat products

6. Vegetables and processed vegetable products

7. Poultry chicken, eggs, turkey

8. Private airplanes/jets

9. Indian incense

10. Tinned fish in sauce (Geisha)/sardines

11. Cold rolled steel sheets

12. Galvanized steel sheets

13. Roofing sheets

14. Wheelbarrows

15. Head pans

16. Metal boxes and containers

17. Enamelware

18. Steel drums

19. Steel pipes

20. Wire rods (deformed and not deformed)

21. Iron rods and reinforcing bard

22. Wire mesh

23. Steel nails

24. Security and razor wine

25. Wood particle boards and panels

26. Wood fiber boards and panels

27. Plywood boards and panels

28. Wooden doors

29. Toothpicks

30. Glass and glassware

31. Kitchen utensils

32. Tableware

33. Tiles-vitrified and ceramic

34. Textiles

35. Woven fabrics

36. Clothes

37. Plastic and rubber products, polypropylene granules, cellophane wrappers

38. Soap and cosmetics

39. Tomatoes/tomato pastes

40. Eurobond/foreign currency bond/ share purchases

Source: Central Bank of Nigeria (2005).

Appendix I Central Bank of Nigeria: List of Items (Imported Goods and Services) Not Eligible to Be Allocated Foreign Exchange at Official Windows

37


37

Appendix II Unemployment Rates (%) in Nigerian States, 2001/2011

2001 2011

Abia 16.0 11.2

Abuja 10.4 21.1

Ademawa 18.2 33.8

Akwa Ibon 17.4 18.4

Anambra 5.0 12.2

Bauchi 15.1 41.4

Bayelsa 7.5 23.9

Benue 12.9 14.2

Borno 8.2 29.1

Cross - -

River 9.8 18.2

Delta 16.3 27.2

Ebonyi 13.1 23.1

Edo 9.9 35.2

Ekiti 14.3 12.1

Enugu 16.0 25.2

Gombe 8.9 38.7

Imo 31.5 26.1

Jigawa 14.5 35.9

2001 2011

Kaduna 6.9 30.3

Kano 26.8 21.3

Katsina 23.7 28.1

Kebbi 29.4 25.3

Kogi 16.1 14.4

Kwara 12.5 7.1

Lagos 5.3 8.3

Nassarawa 2.0 36.5

Niger 4.6 39.4

Ogun 4.9 22.9

Ondo 20.1 12.5

Osun 7.5 3.0

Oyo 5.4 8.9

Plateau 4.0 25.3

Rivers 22.8 25.5

Sokoto 5.7 17.9

Taraba 18.1 12.7

Yobe 12.0 35.6

Zamfara 22.4 42.6 Source: Nigeria, National Bureau of Statistics.

3838

References

Adeyeye, P., O. Ayorinde, and T. Ajinaja (2013) “Effects of the Proposed Removal of CBN Autonomy on the Nigerian Economy: An Informed Analysis”, Journal of Business and Management Review, Vol. 1, No. 2, pp. 79-88.

Adubi, A. (2004) “Agriculture: Its Performance, Problems and Prospects”, in B. Imamand and I. Obadan (eds.) Management in Nigeria’s Fourth Republic 1999-2003. Lagos, Nigeria: CLGARDS.

AfDB, OECD, UNDP, and UNECA (various issues) African Economic Outlook. Tunis, Paris, New York, and Addis Ababa.

Akande, T. (2014) “Youth Unemployment in Nigeria: A Situation Analysis”, Africa in Focus, 23 September. Washington DC: Brookings Institution.

Anyanwu, J. (1992) “President Babangida`s Structural Adjustment Programme and Inflation in Nigeria”, Journal of Social Development in Africa, Vol. 7, No. 1, pp. 5-24.

Adewale, A. (2011) “The Political, Economic and Social Dynamics of Nigeria. A Synopsis”, Policy Brief No. 39. Pretoria: Africa Institute for South Africa (AISA).

Bello, Y. (2005) “Banking System Consolidation in Nigeria and Some Regional Experience: Challenges and Prospects”, Bullion, Central Bank of Nigeria, Vol. 29, No. 2. pp. 46-53.

Central Bank of Nigeria (2018a) Nigerian Payments System, Risk and Information Security Management Framework. Abuja, Nigeria: Banking and Payments Department.

Central Bank of Nigeria (2018b) “Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for Fiscal Years 2018/2019”, Monetary Policy Circular, Vol. 42, January.

Central Bank of Nigeria (various issues) Annual Report on Federal Government State Finances, Abuja, Nigeria.

Central Bank of Nigeria (2014) 2014 Statistical Bulletin. Abuja, Nigeria.

Central Bank of Nigeria (2005) Microfinance Policy, Regulatory and Supervisory Framework for Nigeria. Abuja, Nigeria: Central Bank of Nigeria

Federal Republic of Nigeria (2007) Central Bank of Nigeria Act No. 7, 2007. Official Gazette, Vol. 94, No. 55. Abuja, Nigeria: The Federal Government Printer.

Federal Republic of Nigeria. (1991a) Central Bank of Nigeria Decree, 1991. Decree No. 24, Laws of the Federation of Nigeria. Abuja, Nigeria: The Federal Government Printer.

Federal Republic of Nigeria (1991b) Banks and Other Financial Institutions Act, 1991 (as Amended in 1997, 1998, 1999, and 2002). Laws of the Federation of Nigeria. Abuja, Nigeria: The Federal Government Printer.

Iganiga, B. (2010) “Evaluation of the Nigerian Financial Sector Reforms Using Behavioural Models”, Journal of Economics, Vol. 1, No. 2, pp. 65-75.

National Planning Commission (2012) Performance Report on the Nigerian Economy. Abuja, Nigeria: The Presidency.

National Bureau of Statistics (2014) Statistical Report on Women and Men in Nigeria, 2013. Abuja, Nigeria: The Presidency.

National Bureau of Statistics (2005) Nigerian Statistical Fact Sheet on Social & Economic Development. Abuja, Nigeria: The Presidency.

National Bureau of Statistics (various issues) Poverty Profile for Nigeria. Abuja, Nigeria: The Presidency.

Sanusi, L. (2012) “Banking Reform and Its Impact on the Nigerian Economy”, Lecture at the University of Warwick’s Economic Summit, 17 February 2012. Warwick, United Kingdom: University of Warwick.

Umoh, P. (2010) “Bank Customer Protection through Deposit Insurance”, NDIC Quarterly, 4.

UNDP (2016) Nigeria: National Human Development Report. UNDP: Abuja, Nigeria.

Vadia, J. (2016) The Petro-Developmental States in Africa: Making Oil Work in Angola, Nigeria, and the Gulf of Guinea. London: Hurst.

World Bank (2016) World Development Indicators. Washington DC: World Bank.

MANAGING NATURAL RESOURCES

Chapter IV

39

4.1Introduction 40

4.2Overview of Conceptual Issues 40

4.3Natural Resources and Economic Development: Paradox of Plenty? 43

4.4Managing Natural Resource Wealth in Nigeria 45

4.5Looking Ahead 48

References 49


40

4.1Introduction This chapter discusses the challenges associated with Nigeria’s management of its natural resources, notably oil and gas. While natural resources are a boon to developing countries, providing a stream of rents that contribute to economic development, they have also proven to be sources of economic and political weakness, sapping the energies of the public sector and distorting the macroeconomic environment. It has been argued in the literature that natural resources belong not only to current but also future generations; hence their exploitation should ensure an infinite flow of benefits.

Nigeria is endowed with vast natural resources. In addition to oil and gas, the country has an array of mineral resources—including bitumen, topaz, lignite, coal, tin, columbite, iron ore, gypsum, barite, and talc. Mining activities, which are largely informal and vary with the country’s topology, are concentrated in particular regions of the country: metallic minerals are mostly found in the middle belt, coal is found in the south east and middle belt, and bitumen is predominantly mined in the south west. Crude petroleum and natural gas are found in the southern areas of the country, notably the Niger Delta.

Nigeria’s proven reserves of crude petroleum amount to well over 37 billion barrels, while reserves of natural gas are estimated at over 187 trillion standard cubic feet. This pattern of regional mineral and materials endowment has helped to facilitate inter-regional trade within Nigeria. In addition, the country has vast land, forestry, and water resources. The latter are supplied by Niger and Benue rivers—which divide the country into three major geographical designations: East, West, and North—Lake Chad to the north, and many other smaller rivers and lakes.

The rest of the chapter proceeds as follows. Section 4.2 looks at a number of conceptual issues related to the exploitation of natural resources. Section 4.3 extends the discussion by looking briefly at the paradox of plenty, where natural resources tend to counteract economic development. Section 4.4 examines aspects of natural resource wealth management in Nigeria and the stresses linked to sharing revenues at the national level.

4.2Overview of Conceptual Issues The possession of a large amount of natural resources, while initially a source of pride for governments and the population, has often led to political discord and economic misery, as new-found wealth raises social and macroeconomic stresses, and inequality. Conceptually, natural resources are stocks of physical assets, which are valuable because they are used to generate a flow of goods, services, or other (e.g., locational) benefits that can be used in production, trade, or consumption (AfDB 2007; Olakojo and Folawewo 2013).

Generally, natural resources are classified according to their rate of regeneration as renewable, semi-renewable, or non-renewable (Table 4.1). Renewable resources are regenerated on a human time scale and renewed periodically in ecological cycles. Examples of renewable resources are water, fisheries, wildlife, and forests. While their use can be increased, they are susceptible to overexploitation. However, if their exploitation is optimal and not exhaustive, renewable resources can be used for an infinite period, by current and future generations. For resource use to be sustainable in this way, their consumption rate must remain within the capacity of the natural system to regenerate (or renew) the resource in a plausible period.

41


Table 4.1Broad Classification of Natural Resources

Natural Resource Type Designation Description

Renewable materials(a) Living Living resources that can re-stock/renew

themselves, e.g., fish, and forests.

(b) Non-living Resources that can renew themselves, but are non-living, e.g., soil and water.

Non-renewable materials

(a) Metal IIncludes non-ferrous, base, and precious metals

(b) Non-metalIncludes ferrous and non-ferrous minerals and industrial minerals as well as precious stones and uranium

(c) Fossil fuel Coal, oil, and natural gas

Environment/media(a) Air (b) Water (c) Land (d) Soil

Generally self-reproducing but could be polluted or degraded

Space (a) Land area Includes space for human settlement, infrastructure, industry, mineral extraction, agriculture and forestry.

Flow resources(a) Geothermal (b) Wind energy (c) Tides (d) Solar energy

Renewable resource that do not depend on humans for regeneration

Source: Echeme and Ubani (2010) adapted from EEA: https://www.eea.europa.eu/themes/natural/intro

41

Renewable resources are interconnected within ecological systems; for example, water is needed for forest growth and fisheries. The renewable resources may have a permanent character (for example, solar and wind energy) and are then labelled flow resources. While flow resources cannot be depleted, they often require intermediate inputs or resources to be exploited usefully. For example, energy, materials and space are needed to build wind turbines or solar cells.

Semi-renewable resources, such as land, cover an intermediate stage between renewable and depletion, depending on how they are harnessed or the effects of the environment. On the other hand, non-renewable resources have a regeneration rate of zero or regenerate over a very long period (Lujala 2003). Non-renewable resources can be recyclable (for example, minerals, and oils used in plastics) or non-recyclable (for example, oils used as fossil fuel).

Nigeria has many of the natural resources described above but has, for a host of reasons discussed in this book, not been able to transform them into vehicles for human development. Moreover, investment and consumption patterns and nature of international markets, have largely skewed the use of the country’s natural resources in favour of fossil fuels. At present, the energy mix of Nigeria is dominated by oil, followed by natural gas and hydroelectricity, while other energy sources such as coal, nuclear and renewable energies currently play a relatively insignificant role in the country’s energy supply mix. The development of renewable sources of energy has been slow to take off. However, Nigeria’s Renewable Energy Masterplan (Box 4.1) and the steps pursued since its introduction in 2006 show that the country is determined to pursue a low-carbon development strategy.

https://www.eea.europa.eu/themes/natural/intro

Source: Federal Government of Nigeria, Renewable Energy Masterplan (2006).

In recent years, the federal and state governments have shown their readiness to combine their policy emphasis on energy efficiency, conservation, and renewable energy resources with practical operational steps. The goal is to ensure that Nigeria is prepared to meet future increases in the demand for power by rolling out, to the extent possible, the full exploitation of renewables.

Box 4.1Nigeria’s Renewable Energy Masterplan

In 2006, the federal government presented its vision for achieving sustainable development in the country: the Renewable Energy Masterplan. It projected a gradual move away from the country’s high dependence on fossils fuels to a higher share of renewable energy in the national energy mix.

Figure 4.1 reproduces the scenarios that the Masterplan projected: reference, high growth, and optimistic. They would all demand a sharp increase in the demand for energy, requiring the development of renewable power in sufficient quantities and at affordable prices. In operational terms, the main goal of the masterplan was to reduce the projected fossil-energy use by 20% by 2020 and covering 20% of the nation’s electricity needs from Class I renewable energy sources. The latter sources include (i) solar power; (ii) wind power; (iii) fuel cells; (iv) geothermal; (v) landfill methane gas, anaerobic digestion or other biogas derived from biological sources; (vi) thermal-electric direct energy conversion from a certified Class I renewable energy source; (vii) ocean thermal power; and (viii) wave or tidal power.

Figure 4.1Nigeria: Projected Power Needs Under Changing Scenarios, 2005-2030

300000

Proj

ect P

ower

Nee

ds (M

W)

200000

150000

250000

100000

50000

0

Reference Scenario High Growth Optimistic Scenario

2005 2010 2015 2020 2025 2030

However, developing country experience indicates that the use of renewable energy can contribute directly to poverty alleviation by providing a cheap and convenient energy source for small-scale businesses, hence creating employment. Moreover, in India and other parts of Asia, renewable energy technologies are broadly used for heating, cooking, and lighting. They have also been crucial in extending power to schools in remoter parts of countries, thus boosting learning, general security, and even the general health of the school communities. But it has been difficult to scale up these smaller interventions at the national level, owing to the cost of the technology. However, in terms of social economic sustainability, the positive effects on the environment of increased use of renewable energies more than offset the environmental and social costs tied to the extensive use of non-renewable fuels. Moreover, recent technical advances are bringing the costs of the new technologies within reach (Jairaj et al. 2015).

42

43


4.3Natural Resources and Economic Development: Paradox of Plenty?The paradox of natural resource abundance in the midst of poverty has been debated for decades (Karl 1997). Also called the “resource curse hypothesis” after Sachs and Warner (1995), it depicts a phenomenon of slow growth among resource-rich countries, if one controls for size and capacities of countries. The resource curse has been blamed for Spain’s slow growth in the 17th century when it expanded its empire and accumulated its gold hoard, while, in contrast, the Netherlands, which had fewer resources, prospered as a trading nation, basing its prosperity on technical competence and global commerce. Similarly, Japan and Switzerland, natural resource–scarce countries, recorded faster growth rates in GDP per capita in the 19th century than Russia, which was and still is rich in natural resources. Since the 1980s, few OPEC countries have been able to register positive GDP per capita growth rates(7).

However, the resource curse is by no means destiny and a number of resource-rich countries have been able to overcome it(8). For example, Australia, Botswana, Canada, Chile, Ireland, Oman, and Thailand, among others, have recorded decent growth rates in past decades, which enabled them to diversify their economies. And although the per capita incomes of Indonesia and Nigeria were almost identical in the early 1960s, their development paths have since diverged. Some 50 years later, Indonesia’s per capita income is four times that of Nigeria. There are also ample empirical studies that have refuted the existence of paradox of plenty. The paradox of plenty is inconclusive and requires further thorough investigation.

The inconclusive debates on the resource curse syndrome are linked to a poor understanding of how the curse affects the economy and the channels of propagation—especially since some countries are affected more severely than others. In discussing differences in performance, the nature and performance of domestic institutions have come to assume centre stage. For example, although they are different in all aspects apart from being well-endowed in natural resources, Botswana, Norway, and Malaysia have performed well across a range of measurements because they have well-developed governance institutions, which have allowed debates on economics policy, and have sought the common good and discouraged malfeasance and self-aggrandisement of their leaders.

(7) The literature on these issues is broad. See the following for an overview: Gelb (1998);; Oyinlola, Adeniyi, and Raheem (2015). (8) See, for example Arezki and van der Ploeg (2007) and Berument and Ceylan (2007).

43

Box 4.2Cross River State: A Global Bio-Diversity Hotspot with Minerals

Given its unique hydrology and ecology, Cross River State is designated as one of the 25 global bio-diversity hotspots. The state is located along the corridor of the tropical rainforest belt, with an annual average precipitation of 1500mm to 4000mm. It is bordered to the south by the Atlantic Ocean, to which tributaries of the Cross River flow, rendering the land along the path very fertile and rich in fish and other aquatic resources. The Cross River State is completely within the river’s catchment area and hence shares a unique ecology with neighbouring Cameroon, characterized by enormous water resources. The Obudu-Oban hills form critical watersheds, giving rise to other rivers such as the Aya, Afi, Ukpon, Okwo, Calabar, and Great Kwa. Other rivers in the state include the Amire, Okon, and Akpa-Yafe. Such an abundance of water resources has come with the challenges of river siltation owing to overexploitation as well as storm water flooding in cities near the major rivers during the rainy seasons.

The state has five ecological zones: the rainforest region (Biase, Boki, Ikom, Etung, Obubra, Odukpani, and Akamkpa); derived savannah (Abi, Yakurr, parts of Obubra, Ikom, and Biase); guinea savannah zone (Ogoja, Yala, Bekwarra, Obudu, and Obanlikwu); swamp forest zone (Akpabuyo, Odukpani, and Calabar), and the montane zone (parts of Obanliku and Obudu highlands). These unique eco-zones provide a diverse species of plants and animals, many of them endemic to the Cross River catchment area. The CRS National Park comprises 1000 plant species.

However, aside from its ecology, the state has abundant mineral resources including oil and gas, clay, salt, tin ore, opal, gypsum, titanium, limestone, kaolin, barite, and quartzite. The mining is done by formal firms as well as by a vast array of informal scale operations. The latter have no means of undertaking the required environmental protections, while the formal firms avoid the measures required to undertake the required mitigations. The environmental impacts in the state have included deforestation, erosion, water pollution, destruction of aquatic life, acidic rains, and oil spills.

In discussing the macroeconomic effects of the resource curse, reference is often made to the threat of Dutch disease, which refers to the appreciation of the exchange rate as the natural resource sector booms, leading to the contraction of the tradable sector in the economy, often harming manufacturing and/or agriculture as consumers switch some of their demand to imports. Another contraction comes about through the labour market as resources are drawn from manufacturing and/or agriculture to the booming sector—this is called the resource movement effect (Oyinlola, Adeniyi, and Raheem 2015). Also important is what has come to be known as “encashment” or “demonstration” effects as elite consumers show preference for imported luxury goods (such as champagne and aged whisky), and producers adopt import-intensive production technologies. However, when the boom ends, the structural shifts cannot be reversed. The labour that moved to a booming sector simply joins the pool of the urban unemployed, while the associated physical capital becomes moribund.

The volatility of oil prices is a key demonstration of the resource curse, especially in an environment of institutional weakness. Countries that are resource dependent are susceptible to a higher frequency of macroeconomic shocks than average. The swings in resource flows make it very difficult for the government to establish credible policies, as their policies are often invalidated. When commodity prices are above the set budget threshold, governments tend to overshoot in terms of expenditure projects, while downward adjustments of prices are often unmatched by adjustments to expenditure. The gap is often filled by domestic and external borrowing. This volatility makes it very difficult to plan or implement effective counter strategies. In the case of Nigeria, an excess crude oil account (ECA) was created by the Obasanjo administration to provide a savings vehicle for the windfall receipts. The goal was to use the savings during the oil bust, hence helping to stabilize spending, especially on services. This never quite worked as planned. In an environment of endless needs for cash the government came under immense political pressure to spend the funds on a number of urgent needs.

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4.4Managing Natural Resource Wealth in NigeriaA decade after independence, the government embarked on the indigenization (as opposed to full nationalization) of the oil and gas sector through the enactment of the Petroleum Decree No. 51 of 1969. The government took equity in all the oil companies then operating in the country, while also encouraging direct Nigerian participation in the industry. Under the Petroleum Decree/Act of 1969, the ownership and control of oil and gas assets anywhere in Nigeria were vested in the state (Federal Republic of Nigeria 1969).

These latter provisions were restated in the 1999 Constitution (Federal Republic of Nigeria 1999), which underlined that “the National Assembly shall take into account the allocation principles especially those of population, equality of states, internal revenue generation, land mass, terrain as well as population density.” It was unequivocal that the principle of derivation could not be overridden. It “shall be constantly reflected in any approved formula as being not less than 13% of the revenue accruing to the Federation Account directly from any natural resources”. While these constitutional provisions went a long way toward righting actual and perceived injustices of the past, the issue of sharing natural resource revenues with the rest of the country continues to be politically sensitive in Nigeria, especially in light of weak statistics.

The maximization of local content in Nigeria has been a major political concern, with the government devising a range of measures—from royalties and direct taxation to downstream monitoring and regulation—to ensure that the country benefitted as much as possible from its oil resources (see Nwapa 2007, for example). A number of institutions were created to manage policy and regulatory aspects of the oil and gas industry in Nigeria (Box 4.3).

Box 4.3Policy, Regulatory and Management Institutions Linked to Oil and Gas in Nigeria

x Department of Petroleum Resources — ensures that operations within the industry are regulated to a specific standard. It issues permits and licences for all activities connected with petroleum exploration, refining, storage, marketing, transportation, and distribution. It also enforces environmental regulations.

x Federal Ministry of Environment, Housing and Urban Development — responsible for approving environmental impact assessment reports with respect to oil and gas projects.

x Federal Ministry of Petroleum Resources — the overall political head of oil- and gas-related issues and supervises a number of the agencies listed here.

x Joint Development Authority — responsible for the supervision of petroleum activities within the Nigeria–São Tomé and Príncipe cooperation framework, including provision of capacity building and other technical support.

x Niger Delta Development Commission — provides basic infrastructure and amenities in the Niger Delta (and mitigate some of the resistance from the local population).

x Nigerian Content Development and Monitoring Board, — responsible for ensuring compliance with respect to local content stipulations.

x Nigerian National Petroleum Corporation — through which the state participates in the petroleum industry; has exclusive responsibility for upstream and downstream development.

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Box 4.3Policy, Regulatory and Management Institutions Linked to Oil and Gas in Nigeria (Cont.)

x Nigerian National Petroleum Investment Management Services — supervises and manages government investment in the oil and gas industry.

x Oil Mineral Producing Areas Commission — the government’s eyes and ears on the ground.

x Petroleum Products Pricing Regulatory Agency — regulates the rates for the transportation and distribution of petroleum products.

x Revenue Mobilization Allocation and Fiscal Commission — a statutory agency that manages natural resource revenue allocation.

Natural resources often come from areas far from the capital and with limited capacity to influence decisions at the centre, especially with respect to revenue sharing (Omorogbe 2002). The wealth that flows from oil exploitation is apt to go to the country’s elite through its political and business networks, which in Nigeria included the military and the oil companies. Moreover, human rights and the challenges of environmental degradation were only paid scant attention after the fact. Partly as a reflection of the democratic dispensation in the country, but also out of genuine concern over revenue entitlements, protests and agitations have provoked strong reactions from the federal government, which is concerned about the risk of disruptions to oil and gas production, and hence the related revenue(9). The state has sought a political solution in the affected regions, even setting up institutions such as the Oil Mineral Producing Areas Development Commission and the Niger Delta Development Commission to provide infrastructure and amenities and hence mitigate the disaffection at the local level.(10). The federal government raised the “derivative” share for oil-producing states to 13%, although that is sent to the state government and not to the host communities per se.

Although controversial and often resented, multinational companies have played an important role in the development of the oil and gas industry in Nigeria. It seems that foreign oil companies were able to strike an elite bargain with the Nigeria authorities with the various governments (military or civilian) intent on protecting the oil sector and the assets of the producing companies. Shell struck oil in commercial quantities in the Niger Delta in 1956, setting the stage for the entry of other companies in subsequent decades, including Mobil, Texaco, Esso, Agip, and Safrap. In the industry’s early years, there was little Nigerian state participation; the government simply collected rents and taxes. The international oil companies were able to exercise a monopoly over oil technology and considerable leverage in terms of management expertise and capital. Moreover, the political backing from their home bases in the United States and European Union buttressed their positions in the country.

Given the size and power of the multinational companies and the institutional and governance issues in Nigeria cited above, regulation of the oil and gas industry is an uphill task. Equally difficult has been the maximization of local content, as international oil companies increasingly depend on contracting the tasks of construction, installation, and oil prospecting to specialized transnational oil service companies in which they also have substantial interest. During the era of structural adjustment in the 1980s and 1990s, the government sold off some of its downstream equity participation and also commercialized the Nigeria National Petroleum Corporation (NNPC). Through a package of incentives, the government sought to attract more investment to new oil blocks in the deep offshore and onshore sectors and boost exports and revenue. However, the government was not able to sell the four refineries, as its fuel pricing policies did not indicate that it would be profitable to produce fuel domestically. Hence one of the more anachronistic outcomes of Nigerian public policy—subsidized fuel—continued to prevent domestic fuel self-sufficiency in a major oil producer.

(9) In recent years, this has included the kidnapping of oil company workers and executives.(10) See Aneke (2002).

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Lagos State is the only state in Nigeria with a full-fledged ministry of energy and mineral resources. The concerns and policies pursued by this ministry reflect those at the federal level. They include institutional and governance structures to boost—as well as devising monitorable operational policies targeted at increasing—the efficiency of delivery and increasing focus on environmental sustainability. For example, the mandate of the power department includes the development of energy policy for the state; implementation of state-wide energy conservation and efficiency measures; searching for alternative energy development strategies, including renewable and low carbon transportation fuels; offering policy advice to power companies; fostering private investment in new energy sources; and, as an element of social responsibility, supplying solar power to education institutions.

Lagos State has achieved sharp increases in revenue collection with respect to energy supply, following improvements in tariff and collection procedures. There has also been a notable reduction in illegal mining activities thanks to rigorous monitoring and sanctions. But perhaps most influential has been the establishment of liquefied petroleum gas (LPG) as the fuel of choice for domestic use through the Eko Gas Scheme, launched in 2013. Under the scheme, LPG will have been extended to one million homes over five years, partly thanks to the free distribution of cylinders. The Lagos State government has used social media to educate citizens on the environmental and economic benefits of LPG. In 2014, it established the ‘’Lagos Energy Academy’’ in Ikeja to provide comprehensive technical training for young people in the areas of power, public lighting, and energy development.

An example of the Lagos State leadership’s innovative approach to maximizing the benefits of oil and gas for the population was its creation of the IBILE Oil and Gas Corporation in 2013, which commenced operations in 2016(11). Its objectives are fivefold: (1) to become an autonomous self-sustaining corporation; (2) to provide energy security for Lagos State; (3) to provide job security; (4) to become a key player in the oil and gas field; and (5) to increase the internally generated revenue of Lagos State. The question is whether this intervention will have better results than similar ones previously undertaken at the federal level.

As indicated earlier, the East Asian experience indicates that collaboration between state and non-state actors, especially in business, is crucial to the sustainability of policy reforms and innovations. A notable example in the natural resources area is the creation of a support centre, the Kaduna Chamber of Commerce, Industries, Mines and Agriculture (KADCCIMA), to facilitate trade and business activities as complement to similar support at the state level, including offering advice to investors. The centre has organized annual trade missions in collaboration with state officials to a number of countries including China, South Korea, and Japan. It also organizes the Kaduna International Trade Fair.

KADCCIMA has tried to help resolve multiple taxation challenges, and has helped organize meetings between investors and local business cooperatives and larger business entities. It has set up committees at the various levels of state government, which have helped to maintain a high level of interaction and dialogue, for example with respect to Export Promotion Zones. This collaboration has been very beneficial and a KADCCIMA desk will be set up in each of the relevant state ministries.

While considerable attention has been directed at attracting foreign investors, much more needs to be done to provide incentives to local firms. Linkages in the local value chains are weak, with few local companies able to engage owing to excessive bureaucracy, low levels of business literacy, inadequate access to finance, and inadequate infrastructure—notably power. There are opportunities for potential collaboration among local and foreign firms in cement and steel production and gemstone polishing that could prosper under a broad business alliance between state, local, and foreign business interests.

(11) The name IBILE is derived from the five divisions of the state: Ikeja, Badagry, Ikorodu, Lagos, and Epe.

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4.5Looking AheadThere seems to be a general consensus on two issues about Nigeria’s natural resource endowments. First, Nigeria is very well endowed in natural resources, notably oil and gas, but the revenues accruing from their exploitation have not had the desired impact nor has the welfare of households been enhanced as expected. Second, the solution lies not so much in revenue maximization as in creating the institutions required for effective policy formulation and implementation, as well as follow-up to ensure the optimal use of scarce resources. In the absence of well-articulated and enforceable long-term strategies, revenue inflows will continue to be used indifferently, with the states where the oil and gas are derived continuing to feel disgruntled, while the rest of the country feels that “national resources” are not flowing sufficiently to the less developed parts of the country (Nkechi 2016).

In retrospect, Nigeria’s mineral revenue was not all wasted, as the structures in the country’s new capital, Abuja, would attest. However, the question is whether the resources could not have had a bigger impact on Nigeria’s socio-economic transformation than is evident today. After decades of efforts directed at “taming” the oil and gas sectors in Nigeria, a dynamic and export-oriented sector is yet to emerge. On its own, the government’s effort to indigenize the oil and gas sector might not be enough to unleash its potential as a development motor. An alliance for development between the government and other stakeholders will have to be established based on concrete commitments and deliverables according to the developmental state model. Nigeria’s resource abundance must work for the country’s economic independence, not its dependence(12).

(12) See Poelhekke and van der Ploeg (2007)

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References

Aneke, P. (2002) “The Role of Major Operations in the Development of Local Content in the Nigerian Oil and Gas Industry”, paper presented at a seminar of equipment leasing and contract financing in oil and gas. Port Harcourt, Nigeria.

AfDB (2007) African Development Report. Oxford University Press: African Development Bank.

Arezki, R., and F. van der Ploeg (2007) “Can the Natural Resource Curse Be Turned into a Blessing? The Role of Trade Policies and Institutions”, IMF Working Paper WP/07/55. Washington, DC: International Monetary Fund.

Berument, N., N. Ceylon, and N. Dogan (2010) “The Impact of Oil Price Shocks on the Economic Growth of Selected MENA Countries” Energy Journal, Vol. 31, No. 1.

Echeme, I., and E. Ubani (2010) “A Correlation of Natural Resource Management and Level of Developing Countries: A Case of Nigeria”, Report and Opinion, Vol. 2, No. 7, pp. 24-34.

Federal Republic of Nigeria (1999) Constitution of the Federal Republic of Nigeria. Abuja, Nigeria: Federal Republic of Nigeria Government Printer.

Federal Republic of Nigeria (1969) Petroleum Decree (Act) 51 of 1969. Lagos. Government Pinter.

Federal Government of Nigeria, Renewable Energy Masterplan (2006), Abuja.

Gelb, A., and associates(1988) Oil Windfalls: Blessing or Curse? New York: Oxford University Press.

Jairaj, B., P. Deka, S. Martin, and S. Kumar (2017) Can Renewable Energy Jobs Help Reduce Poverty in India? Washington DC: World Resources Institute.

Karl, T. (1997) The Paradox of Plenty: Oil Booms and Petrol States. Berkeley, CA: University of California Press.

Lujala, P. (2003) “Classification of Natural Resources”, Department of Economics paper, April. Dragvoll, Norway: Norwegian University of Science and Technology.

Nkechi, A. (2013) “New Revenue Sharing Formula Clamour by the Nigerian State Governors: Propelling Factors and Matters Arising”, Public Policy and Administration Research, Vol. 3, No. 2.

Nwapa, L. (2007) “Nigerian Content Development in the Oil and Gas Industry”, Paper read at the FNCCI Conference, 20 November.

Olakojo, S., and A. Folawewo (2013) “Institutions and Growth Drag: Evidence from Major Crude Oil Producing African Economies”, Nigerian Journal of Economic and Social Studies, Vol. 55, No. 3, pp. 25-47.

Omorogbe, Y. (2002) “The Legal Framework for Public Participation in Decision-Making in Mining and Energy Development in Nigeria: Giving Voices to the Voiceless”, in D. Zillman, A. Lucas, and G. Pring (eds.) Human Rights in Natural Resource Development: Public Participation in the Sustainable Development of Mining and Energy Resources. Oxford: Oxford University Press.

Oyinlola, M., O. Adeniyi, and I. Raheem (2015) “Natural Resource Abundance, Institutions and Economic Growth”, African Journal of Economic and Sustainable Development, Vol. 4, No. 1.

Poelhekke, S., and F. van der Ploeg (2007) ‘‘Volatility, Financial Development and the Natural Resource Curse”, CEPR Discussion Paper No. 6513. London: Centre for Economic Policy Research.

Sachs, J., and A. Warner (1995) “Natural Resource Abundance and Economic Growth”, NBER Working Paper No. 5398. Cambridge, MA: National Bureau of Economic Research.

NATIONAL PLANNNING AND ECONOMIC GOVERNANCE

Chapter V

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5.1Introduction 51

5.2Overview of Development Strategies 51

5.3Economic Governance and Institutional Quality in Nigeria 53

5.4Getting Reform Messages Across: Challenges of Fiscal Federalism 57

5.5Changing the Incentive Structure in the Civil Service 59

References 62

5.6The Role of Civil Society 60

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5.1Introduction This chapter discusses the interrelated issues of governance, national planning, institutional reform, and decentralization in Nigeria. At best, policy coordination and national planning are difficult in most countries, given their inherently political nature. They demand patience, compromise, and farsightedness. In Nigeria, however, the size of the country and population, its historical record of economic and political adversity, the heterogeneity of the regions, and dependence on oil have made its institutional framework both complicated and fractious. However, Nigeria is also a proud country that sees itself as an economic and moral leader in both West Africa and further afield.

The developmental state model suggests that while macroeconomic and structural policies—and how they are sequenced and implemented—are important in the development process, they can only have the desired impact if pursued within a consistent and effective governance framework. This is not a new finding and only sounds novel today because some countries, such as those of East Asia, have succeeded in creating institutions and governance structures that have catapulted their populations from poverty to affluence in a matter of decades while many other countries are left behind. Since Nigeria’s return to civilian rule, the issues of good governance and institutional reform have returned to the policy agenda. It is plausible that a politically stable Nigeria, with a functioning economy and effective governance institutions, would present a powerful example to other African countries in the decades ahead. It would be a country worth emulating because it would have overcome much socio-economic adversity.

The rest of the chapter proceeds as follows. Section 5.2 looks broadly at institutions and governance in Nigeria and their evolution during recent decades using international governance indicators. The discussion draws comparisons with the experience of South Korea. Section 5.3 looks at decentralization and the issues of governance at the state level.

5.2Overview of Development Strategies This chapter discusses the interrelated issues of governance, national planning, institutional reform, and decentralization in Nigeria. At bes Nigeria has formulated a host of social economic strategies in the past few decades meant to steer the economy towards sustainable development(13).The National Economic Empowerment and Development Strategy (NEEDS) was launched in 2004 (Federal Republic of Nigeria 2004b) and provided the basis for state level efforts to define their own local strategies (referred to as SEEDS) taking into account their structural peculiarities and needs. Similarly, state governments have drafted their own vision documents based on the Nigerian government’s Vision 2020 (Federal Republic of Nigeria 2009) and other documents such as the Agricultural Transformation Agenda. In addition, the states of Lagos, Cross River, and Kaduna have, like other states in the country, formulated their own plans and policies geared at meeting local needs and reflecting the diversity of Nigeria as a country and the sharp variation in economic opportunities (Table 5.1).

The states, despite resource constraints, have created a number of institutions at the local level to implement policies and ensure effective monitoring and evaluation. In the Lagos State government structure, for example, the responsibility for piloting the state’s development plan is assumed by the Ministry of Economic Planning and Budget, the Office of the Head of Service, the Office of Transformation, and the Ministry of Finance. With support from other organs of the state, such as the Ministry of Justice, Office of Public Private Partnerships, and the Office of the Auditor-General, the state’s goal is to create jobs in a globally competitive economy. There is a focus on good governance, quality administration, accountability, and transparency and support for close collaboration with the private sector, civil society, and development partners.

(13) See for example the following: Federal Republic of Nigeria reports and related: 2014a, 2014b, 2012a, 2012b; the Vision statement (2009); and the economic strategy, NEEDS (2004b).

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Poverty reduction and rapid development have been the key pillars of the federal and state-level strategies. They have been accompanied at both levels by public financial management reforms—which have involved the introduction of independent procurement and audit agencies, as well as frequent value for money audits across their functions.

However, despite their autonomy—indeed, probably because of it—fiscal reforms have not been pursued consistently. Moreover, the state-level development strategies referred to above have lacked a real anchor, as financing is not well linked to results, and many states are still beholden to the federal level for financial resources/bridging finances.

Table 5.1Examples of Plans and Institutional Initiatives at State Level: Lagos, Cross River, and Kaduna State

Recent Plans and Institutional Initiatives Comments

Lagos State

x Ten-Point Agenda, 2003-2007

x State Economic Empowerment and Development Strategy (LASEED), 2005-2007

x State Governance Change Programme (2010-2011)

x Lagos State Vision 2020

x State Development Plan, 2012-2025

x Medium-term Sector Strategy; Medium-term Budget Framework and Medium-term Expenditure Framework.

x The Ten-Point Agenda addressed poverty and water supply, education, transportation, environment, roads, food security, revenue generation, employment, security, and health.

x Lagos State, which hosts the Lagos Metropolitan area, has a broader source of income than many other states in Nigeria. This has enabled it to embark on ambitious economic and infrastructure development plans, mimicking those at the federal level, and to implement policies at a faster and more consistent basis than its peers.

x However, little could have been done without determined leadership, which in many ways has been exemplary. It could well be that the transfer of the capital to Abuja forced the leadership of Lagos State to search earnestly for other ways (other than state largesse) to ensure that their population saw real improvement in welfare. There was an elite bargain between the leadership of the state and the business community of Lagos City.

x The state adopted medium-term budget and expenditure frameworks to enhance flexibility in fiscal planning and execution. The result has been better coordination, improved governance, increased prioritization and strategic responses to financial and other shocks.

Cross River State

x Cross River State Vision 2020

x Cross River State Economic Empowerment and Development 2005

x Cross River State Economic Blue Print (Governor’s Seven- Point Development Agenda)

x Public-Private Partnerships and Privatization, ongoing

x Given its rich natural resource endowments and its location, Cross River State could serve as a key crossroads for that part of Nigeria. This ambition is outlined it its plans and policy pronouncements, not least its Vision 2020 and Governor’s Agenda.

x However, there has been a consistent gap between policy pronouncements and implementation. This could be blamed on financial inadequacies, but also on institutional weakness and poor governance. The state government is very much aware that to attract the private sector will require an attractive business environment.

Kaduna State

x Kaduna State Agricultural Development Program (drawing on the National Program for Food Security, 2008-2011)

x Agricultural Transformation Agenda (state-level initiatives)

x Kaduna State Economic Empowerment and Development

x Kaduna State Development Plan (KSDP)

x Agriculture is a priority sector in Kaduna State, the basis of its livelihood. Kaduna has the second highest population of farming households in Nigeria. The state has evolved an effective economic infrastructure and framework for agricultural production, including input production and distribution, rural infrastructure and related support services, and output marketing. Its higher institutions of learning undertake research related to agricultural production.

x However, the state’s plans and strategies have underlined the importance of economic diversification. There has therefore been much emphasis on valued addition in agriculture and mining. Education and health, and human development more generally have also been emphasized.

Sources: Cross River State Planning Commission 2009a, 2009b, and various issues; Kaduna State Government 2007, 2012, 2013; Lagos State Government 2007, 2010, 2013.

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5.3Economic Governance and Institutional Quality in NigeriaIn recent decades, a number of indices have been developed by various international agencies to bring some concreteness to measures of institutional capacity and governance. Although some of the measures are subjective and contextual, based on perceptions of individual and groups that could vary from country to country, they have proven useful in systematizing discussions of bureaucratic shortcomings and the interventions required. However, institutional structures in a country like Nigeria are complex and the assessment attempted here is only an approximation of what happened during a period of democratization and institutional reform in a vast country.

The discussion in this section is based on Figure 5.1 as well as Table 5.1. They include indicators of governance within the following six areas: voice and accountability, political stability and absence of violence, government effectiveness, regulatory quality, rule of law, and control of corruption. The World Governance Indicators are compiled by the World Bank and contain over 200 individual country entries. Scores for each individual item of governance range from -2.5 ( “weak”) to 2.5 (“strong”). The overall impression from the exercise is that Nigeria’s performance on institutional and governance issues, despite having shown improvement over the past two decades, falls below that of many countries—some of which have lower levels of GDP per capita. The outcomes for each measure are discussed more extensively below.

Voice and Accountability. Panel A in Figure 5.1 shows that general perceptions of voice and accountability in Nigeria have been improving, with a jump in the late 1990s, during the transition from military to civilian rule, the promulgation of the 1999 Constitution, and the strengthening of the democratic dispensation in the country.

Political stability and absence of violence. Panel B indicates that in terms of political stability and absence of violence, Nigeria has not experienced a democratic dividend. Perceptions on this score have been declining since the late 1990s. There has been considerable civil strife in many parts of the country: in the Niger Delta, the Movement for the Emancipation of the Niger Delta (MEND) and allied groups have carried out attacks on the assets of oil companies and their personnel, while kidnappings have been rampant. In North-East Nigeria, the insurgent group Boko Haram has unleashed terror on civilians, which has also affected neighbouring countries, notably Chad and Cameroon.

Government effectiveness. Panel C shows that on the whole perceptions of the effectiveness of the public service in Nigeria have not improved since the late 1990s—with clear tendencies toward deterioration during or leading up to political transitions. Overall, the governance challenges, including corruption, did not decline by as much as expected. In particular, government effectiveness declined considerably following the departure of President Obasanjo in 2007. Overall, the trend for the whole period was negative.

Regulatory quality. Panel D shows that, following a sharp decline between the late 1990s and 2006, perceptions of regulatory quality (indicating the extent to which fiat is contrasted with market considerations in regulating the economy) improved. This was most noticeable with respect to fuel prices, adjustments to the exchange rate, and financial sector reform more generally. The trend on this index was positive for the period.

Rule of law. Panel E shows that the trend for the rule of law was only slightly positive (with fluctuations around the trend), in spite of the return to democracy.

Control of corruption. Panel F shows that the fight against corruption is perceived to have declined towards the end of military rule in the 1990s and did not recover until the early 2000s. It then seemed to have declined from 2008 onwards, showing improvement with a new regime in power in 2015. On the whole, the trend is only weakly positive.

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Figure 5.1Nigeria: Governance Indicators During a Period of Economic Reform and Democratization, 1996-2017

Source: World Bank, World Governance Indicators.

0

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Figure 5.1 indicates that Nigeria’s scores fall in the lower 50% of the distribution; a comparison of where the country lies in comparison to others in the sample (some 200 countries) and the changes achieved between periods might be instructive. This is done in Table 5.2 for all the governance indicators, contrasting Nigeria’s ranking in 1996 with that in 2012.

Table 5.2Nigeria: Governance Indicators, 1996 and 2012 (%)

Governance type 1996 2012

Voice and accountability 7% 35.96%

Political stability and absence of violence 15.96% 6.67%

Government effectiveness 18.03% 12.5%

Regulatory quality 17.31% 18.27%

Rule of law 9.55% 13.94%

Control of corruption 8.6% 13.46%

Source: World Bank, World Governance Indicators.

Nigeria’s ranking on voice and accountability was some 7% in 1996, at the height of military rule, but had risen to 36% by 2012. As indicated earlier, this was the direct result of the democratization process in the country. Political stability and absence of violence fared poorly, declining from 16% to about 7%. This is largely explained by the government’s failure to contain the insurgencies ravaging parts of the Niger Delta and the North-East. Despite reform efforts, Nigeria’s ranking on government effectiveness declined from 18% in 1996 to 12.5% in 2012. This generally reflect the fact that while the various policy initiatives were well-crafted and ambitious, implementation was difficult and inconsistent owing to lack of institutional capacity. The ranking on regulatory quality hardly changed between 1996 and 2012 (17.31% versus 18.27%), while those for the rule of law and control of corruption moved upwards by a few percent.

Box 5.1Institutions to Fight Against Corruption in Nigeria

Corruption is a particularly debilitating affliction of the Nigerian body politic, which most governments, military and civilian, have set out to fight, with only modest results. This has bred a level of indifference among the population, who have instead designed survival strategies of their own such as withholding taxes or engaging in parallel economies. In recent decades, the government has created institutions to fight corruption in pursuit of the imperatives of good governance—elusive thus far—of participation, rule of law, transparency, responsiveness, consensus building, equity and inclusiveness, effectiveness and efficiency, and accountability in public life.

In 2000, as a display of its wish to give the country a “clean” start, the new civilian government established the Independent Corrupt Practices Commission (ICPC), which in the first three years had close to 950 petitions from the public. However, due to a lack of resources and perhaps political will, the ICPC only prosecuted a handful of ranking politicians. As expected, political motives were cited by the public for the slow pace of the investigations and the small number of culprits sent to jail. In 2003, the government created the Economic and Financial Crimes Commission (EFCC) to fight financial crimes, notably the notorious advance fee fraud (also called 419 fraud) as well as money laundering and related activities (Federal Republic of Nigeria 2004a). The EFCC became one of the most respected financial crime fighting institutions in Nigeria. However, Nigeria continues to rank on global corruption indices as one of the most corrupt countries in the world. This is not a good profile for a country that is aspiring to become a developmental state.

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Box 5.1Institutions to Fight Against Corruption in Nigeria (Cont.)

The government that assumed power in 2015 has made fighting corruption a key pillar of its strategy, starting with the strong belief that it was possible to build a coalition of the willing in the country between the government and the public to address corruption. Among the institutional innovations to support this is the Open Government Partnership (OPG), which encouraged broad participation to address systemic corruption—including an annual OPG week. The government believes that corruption in Nigeria is “an existential issue—threatening the very fundament of our existence.”

The government adopted a two-step approach: first, put a stop to grand corruption (often carried out with impunity); and second, create a self-motivating system that assures increasing transparency and accountability. An important basis for fighting corruption is the National Action Plan of 2016, which has been accompanied by a Presidential Initiative on Continuous Audit in the Ministry of Finance, to clean up the federal payroll and pensions system (which has been linked in turn to the Integrated Payroll and Personnel Information System, IPPIS). The institutional refinements have reputedly eliminated ghost worker salaries and benefits worth N200 billion. On the side of public procurement, the Bureau of Public Procurement created the National Open Contracting Platform (NOCOPO) to ensure a transparent and open process.

However, as in the past, there is a real question about the long-term effectiveness and longevity of these new anti-corruption initiatives. Can they be carried from one regime to the next? On their own, anti-corruption measures in Nigeria are not new. If they are institutionalized and become resistant to political shifts, as is evident in other developmental states, that would be progress.

Source for recent anti-corruption efforts: Africa.com (2018).

Institutional impediments to government effectiveness can be illustrated by Nigeria’s budgetary process in recent years. Nigeria’s fiscal year is aligned with the calendar year, but the budgetary process is subject to serious delays. It goes through five phases: drafting, executive council approval stage, legislative approval, implementation and monitoring, and evaluation. However, despite this streamlined set of steps, part of the budgetary process in Nigeria takes place during the fiscal year itself. The main reason—a peculiarity due to the nation’s budgetary process—is the open-ended nature of the National Assembly approval process; delays that the various members of the Assembly impose on the process are not sanctionable.

Figure 5.2 shows the time that has elapsed between the submission of the budget to Parliament and the eventual assent for the period 2000-2013. On average, budget deliberations took a four months to complete. However, on seven occasions the process took between 5 and 6 months to complete. Only in 2001 was the process completed in a single month. Besides raising public cynicism about the parliament and the government, these delays have real costs for the integrity of the budget process and the spending profiles of the federal and state governments. Such delays may hinder firms and individuals from meeting their contractual obligations with spillovers to the rest of the economy.

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Figure 5.2Nigeria: Time from Government’s Submission of Budget to National Assembly to Assent, 2000-2013 (months)

7

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Source: Compiled by authors based on Nigeria Economic Summit Group (2013).

However, although budgetary process delays have not decreased in recent decades, Olomola (2012) has noted improvements in budget execution by the federal government. He notes that the level of wasteful spending as determined by ex post monitoring and evaluation has decreased, and there has been greater emphasis on “value for money” accounting. Accordingly, budget transparency and accountability have increased, albeit from a low base.

Politics also tends to affect planned outlays of the budget. There is an ex ante emphasis on capital expenditure, such as the construction of roads, hospitals, technical and scientific equipment, and schools. The government often borrows quite heavily to ensure that that it maintains a high capital expenditure profile. However, government budgets have proved to be fungible and capital expenditure has been converted to current expenditure in some cases. Since the latter is easier to divert to private political projects, it has come to dominate budget execution.

5.4Getting Reform Messages Across: Challenges of Fiscal FederalismNigeria is a federation consisting of a federal government, 36 state governments plus the federal capital territory (FCT), and 774 local governments. These 812 political authorities are connected through a web of revenue-generation, public spending, intergovernmental transfers, and other administrative relations. Since the return to democratic rule in 1999, the fiscal federalism debate has intensified as resource rights, revenue entitlements, and fiscal jurisdiction have come under greater scrutiny.

Nigeria, like many other African countries, has undertaken a number of institutional reforms in recent decades, covering many aspects of the economy. However, given its size, federal character, and patterns of governance, strategy formulation and execution have been much more demanding, requiring collaboration and coordination between the federal and state governments, donor agencies, the private sector, civil society, and non-governmental organizations. In anticipation of the coordination challenges, a number of oversight institutions were created: The National Council of State, the National Economic Council, the National Council on Development Planning, and the Joint Planning Board. A host of sector-focused institutions such as the National Council of Education, Health and Agriculture, were formed. In contrast to the Economic Planning Board of South Korea, the roles of these Councils were not exclusive or focused, with broad mandates and diffuse accountability.

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Two factors inform the interplay between the three tiers of government—the federal, the state, and the local government authorities (LGAs): commitments to public service delivery and revenue sharing/allocation mechanisms. However, because of the states’ dependence on the oil revenue collected at the federal level, fiscal decentralisation is a major challenge in Nigeria (Ohiorhenuan 2014). The current revenue sharing formula allocates a larger share of resources to the federal government than to states and to local governments. Moreover, the lowest level, LGAs, have few sources of income generation, and dependence on the centre has reduced their policy autonomy. The ability to generate local revenue has led to sharp divergences in the quality of service delivery. Some states, such as Lagos, have attained high levels of fiscal self-reliance and their effectiveness in the delivery of social services differs sharply from the less endowed states that are further from urban centres.

The assignment of responsibilities and functions to the tiers of government is stipulated by the Nigerian Constitution (Federal Government of Nigeria 1999), and is well delineated (Table 5.3). However, execution is encumbered by lack of financial and human resources—especially at the lowest level. In this scheme, the federal and local governments have no shared responsibilities, implying a degree of distance and remoteness between the two. However, since outcomes in such areas as education, health, infrastructure, and agriculture are measured at the local level, the lack of linkages and follow-up between the federal and the local levels have a negative impact on overall policy and program coherence. It is noteworthy that local governments are assigned responsibilities for economic planning and development, which would require direct reporting to the planning and statistical functions at the top level.

Table 5.3Expenditure Responsibilities among the Three-Tier Government Structure in Nigeria

Level of Government Expenditure Category

Federal only

Defence; shipping; federal trunk roads; aviation; railways; posts, telegraphs and telephones; police and other security services; regulation of labour, interstate commerce, telecommunications; mines and minerals; social security; insurance; national statistical system; national parks; guidelines for minimum education standards at all levels; water resources affecting more than one state.

Federal-state (shared) Antiquities and monuments; electricity; industrial, commercial and agricultural development; scientific and technological researches; statistics and surveys; university, technological and post-primary education; health and social welfare.

State-local (shared) Primary, adult, and vocational education; health services; development of agriculture and non-mineral natural resources.

Local governmentEconomic planning and development; cemeteries, burial grounds; homes for the destitute and infirm; markets; sewage and refuse disposal; roads, streets, street lighting, drains, other public facilities.

Source: Khemani (2001), based on1999 Constitution and various sector policy reports.

In terms of empowerment, arrangements at the LGA level are inadequate. Political structures at this level are at the discretion of the Local Government Chairpersons, who are most often handpicked by the state government and not democratically elected. This makes LGAs more extensions of the state governments, unable to pursue local issues and challenges, than independent entities in their own right. This must change if LGAs are to acquire the developmental credentials they need to effect change and boost local welfare.

In summary, fiscal federalism largely determines Nigeria’s political economy, particularly the competition for fiscal space among the federal, state, and local governments. Striking a balance between expenditure responsibilities (development assignments) and revenue rights/powers across the three levels of government is contentious and complicated. The concerns about Nigeria’s fiscal federalism include “excessive” centralization of resources and powers, at the expense of sub-national levels of government. Other issues include vertical fiscal imbalances (i.e., mismatch of revenue means and expenditure needs) and horizontal fiscal imbalances (i.e., inconsistency between revenue-raising ability and revenue needs). Another problem is misallocation and wastage of resources arising from overlapping and uncoordinated expenditure responsibilities among different levels of government (Ekpo 2004; Jimoh 2003).

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595959

Box 5.2Sharing Revenue Between the Federal, State, and Local Governments in Nigeria

One of the key features of fiscal federalism in Nigeria is the distribution of revenues among federal, state, and local governments. There have been a number of changes to the revenue distribution formula as the authorities reacted to pressures from the population (Khemani 2001).

In 1999, the democratic government inherited the revenue allocation formula in existence since 1992. The formula gives 48.5% to the federal government, 24% to state governments,20% to local governments, and 7.5% to special funds (distributed as follows: FCT, 1%; ecology, 2%; stabilization, 1.5%; and natural resources, 3%). Following the return to democratic government in 1999, the Revenue Mobilization, Allocation and Fiscal Commission (RMAFC) recommended the following formula to the National Assembly: federal government, 41.3%; state governments, 31%; local governments, 16%; and special funds 11.7% (to be shared as follows: FCT, 1.2%; ecology, 1%; natural resources, 1; agriculture and solid mineral development, 1.5%; and basic education, 7%).

Amid the debate on the RMAFC recommended formula, there was the Supreme Court verdict in April, 2002 on the Resources Control Suit, which nullified provision of Special Funds in any given Revenue Allocation Formula. In May 2002, the federal government invoked an Executive Order to redistribute the revenue as follows federal government, 56%; state governments, 24% and local governments, 20%. Following criticisms, the federal government in July 2002, reviewed the Executive Order as follows: federal government, 54.68%; state governments, 24.72%; and local governments, 20.60% (with 13% going to oil-producing states). In March 2004, the federal government issued a modification that increased the state governments’ share to 26.72% and reduced that of the federal government to 52.68%. This formula remains in force until the National Assembly legislates on a new revenue allocation formula.

5.5Changing the Incentive Structure in the Civil ServiceIn the developmental state, the civil service is accorded a special position as the coordinator of economic development. Its treatment in South Korea, as a prestigious state institution with enhanced incentives, differs markedly from that in many African countries. However, many governments in Africa now realize that little progress can be made without improving the quality of the civil service, notably its ability to plan and implement government initiatives.

In Nigeria, civil service reform was prompted by the need to enhance governance, improve public service delivery, and restore public confidence in government institutions. The reform focused on boosting transparency, fighting corruption, and ensuring that services reached the poorest segments of society.

Misaligned wages and other remuneration have been a key impediment to efficiency in Nigeria’s civil service. The culture of fringe benefits had led to wide disparities between those with access to government-supplied houses and cars and those without. The government thus focused on monetizing the benefits accruing to civil servants to raise efficiency in delivery while reducing malfeasance and measurement errors. The reforms, which took effect in 2004, eradicated the provision of residential houses, domestic workers, and overseas medical treatment for senior officers and instead provided a monetized allowance for accommodation, furniture allowances, vehicle loans, and transport allowances.

Moreover, as mentioned earlier, anti-graft agencies were created to combat malfeasance in the public service in general and the civil service in particular. In 2004, the government introduced a new pension scheme, to which civil servants contributed 7.5% of their salary, with the government contributing the same. A similar framework has been extended to the private sector. However, despite its clear advantages as a way to encourage national savings and generate capital and mutual funds, it has not quite taken off owing due to its ad hoc introduction, and limited ownership among civil servants because of the low effort put into consultation with stakeholders.

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The health benefits scheme has proved to be more attractive. It was launched in 2005 partly to reduce the costs of delivery of healthcare but also to bring scale economies to bear. The National Health Insurance Scheme (NHIS) is partly funded by a compulsory drawing of 5% of all civil servants’ basic salary. This in turn gives them and their designated dependents access to healthcare. These reforms have had ripple effects in the rest of the economy; a number of schemes have been introduced, and healthcare institutions constructed in the past decade.

However, it is still unclear whether these reforms of the incentive structure have had a real impact on the productivity of the civil service in Nigeria. The real test will be whether the country can launch itself into a developmental state with the civil service playing the crucial role of pilot. During the depth of the economic crisis, a civil service job was seen as a safe haven from which to transact side businesses as things improved elsewhere in the economy, but it is possible today to pursue a professional career in the civil service. Morale is inching up, and governance issues, while still critical, have shown improvement—incentives and market factors have been shown to work in the public service.

Governance concerns at the federal and state levels in Nigeria revolve critically around the robustness of the public financial management system reforms and the ability of the institutions to implement the provisions while sanctioning non-compliance. In Kaduna State, for example, governance reform has included the establishment of the Kaduna State Data Centre to manage the Human Resource Management Information System (HRMIS) and the Budget, Accounting and Treasury Management Information System (BATMIS). The state government plans to use the data centre to monitor recruitment and eradicate ghost workers and other forms of corruption. It is also hoped that it will help the state to prepare more realistic and timelier budgets and avoid unnecessary delays in disbursements. However, raising local capacities through training has been a challenge. The weakness of the state bureaucracy has affected the pace of investment as well as the efficiency of spending, with no value for money assessments. The United Kingdom’s Department for International Development (DFID), has, through various projects, provided technical support to the implementation of the state’s development plan, the state’s Change Program, and a number of e-government interventions, among others.

5.6The Role of Civil SocietyCivil society has had an important role to play in forcing through anti-corruption measures by reluctant governments and acting as a buffer when the interests of vulnerable groups are threatened by government or private sector action. Its activities expanded with the end of military rule in 1999, although even then its influence on government actions was limited. Given the complex issues that Nigeria has confronted in past decades, civil society has been unable to coalesce over a specific set of issues on which to engage the government. In some instances, the multiplicity of issues has tended to split civil society along ideological and even parochial lines.

The pressure from civil society has nevertheless been critical to the introduction of a range of legal provisions for fighting corruption in Nigeria. The Public Procurement Act, 2007 (Federal Republic of Nigeria 2007) set up a National Council of Public Procurement with 6 members drawn from civil society, including professional associations, media, and the Nigerian Bar Association. The Money Laundering (Prohibition) Act (2011), a revision and strengthening of previous Acts, is also a concession to broad demands to address illicit financial outflows, which had reached unimaginable levels (hundreds of billions of naira) according to the Central Bank of Nigeria—with implications for policy credibility and security of the country. The Freedom of Information Act (2011) ensures access to all public records, while the Whistle-Blower Act (2016) and similar instruments before it have helped the government to recoup sizeable amounts of money that would have been lost to corruption.

At the state level, a number of non-state actors have varying levels of influence on policy formulation. In Cross River State, for example, public service labour unions have been very effective—virtually keeping government offices under lock and key during their industrial actions. In other states, faith-based organizations, mosques, and/or churches have influence on policies, with state governments taking care not to contradict their wishes. However, among the most influential have been groups monitoring infrastructure costs and performance, as well as those seeking greater budgetary transparency and accountability.

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In terms of direct intervention, NGOs and other members of civil society are constrained by a serious lack of human and financial resources, for which they are dependent on donor agencies and even the government. They have, nevertheless, been successful in leading resistance to deregulation and privatization of the oil industry, notably through the removal of the fuel subsidy and hikes of fuel prices. Civil society opposition helped moderate fuel prices increases, but the process did not carry over to weightier policy issues such as poverty reduction or addressing rising inequality.

The media is an important arm of civil society in Nigeria and was greatly boosted by the promulgation of the Freedom of Information Act in 2011, as noted above. The goal of the Act was to make public records and information more freely available while protecting the right to privacy. The Act was itself the product of a campaign by the Media Rights Agenda, the Nigeria Union of Journalists, and the Civil Liberties Organisation, begun in 1993. Although the legislative process for the Act was initiated in 1999 and was passed by both chambers of the House of Parliament in 2007, it was vetoed by the president. The bill returned to the House after the change of power and was finally passed into law on 28 May 2011. The Act and the policies that have emanated from it are already having an impact on information dissemination—and when combined with other legislation such as the Money Laundering (Prohibition) and the Whistle Blower Act will have some positive impact on the ground (Sowunmi et al. 2009).

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References

Africa.com (2018) “VP Osinbajo: Buhari Administration Will Continue to Ensure Transparency, Accountability in Governance”, Speech delivered by Vice President Yemi Osinbajo at the Open Government Partnership Week, Monday May 7. Available at: https://www.africa.com/buhari-administration-will-continue-to-ensure-transparency-accountability-in-governance/.

Cross River State Planning Commission (2009a) Cross River State Economic Empowerment and Development Strategy. Calabar, Nigeria.

Cross River State Planning Commission (2009b) Cross River State Vision 2020. Calabar, Nigeria.

Cross River State Planning Commission (various issues) Socio-Economic Development Survey Report. Calabar, Nigeria.

Ekpo, A. (2004) “Intergovernmental Fiscal Relations: The Nigerian Experience”, Paper presented at the 10th

Anniversary of the Financial and Fiscal Commission of South Africa, Cape Town, South Africa, 10-12 August 2004.

Federal Government of Nigeria (2012a) Performance Report on the Nigerian Economy. Abuja, Nigeria: National Planning Commission, The Presidency.

Federal Republic of Nigeria (2012b) Agricultural Transformation Agenda. Abuja, Nigeria: Federal Ministry of Agriculture.

Federal Government of Nigeria (2014a) The Mid-Term Report of the Transformation Agenda (May 2011-May 2013): Taking Stock, Moving Forward. Abuja, Nigeria: The Presidency.

Federal Government of Nigeria (2014b) Public Sector Reforms in Nigeria (1999-2014): A Comprehensive Review. Abuja, Nigeria: Office of the Secretary to The Government, The Presidency.

Federal Republic of Nigeria (2009) Federal Republic of Nigeria: Vision 20:2020. Abuja, Nigeria: Federal Republic of Nigeria, September.

Federal Republic of Nigeria (2007) Public Procurement Act, 2007. Abuja, Nigeria: Federal Republic of Nigeria Government Printer.

Federal Republic of Nigeria (2004a) Economic and Financial Crimes Commission (Establishment) Act, No. 1, 2004. Abuja, Nigeria: Federal Republic of Nigeria Government Printer.

Federal Republic of Nigeria (2004b) National Economic Empowerment and Development Strategy (NEEDS). Abuja, Nigeria: Federal Republic of Nigeria Government Printer.

Federal Republic of Nigeria (1999) Constitution of the Federal Republic of Nigeria. Abuja, Nigeria: Federal Republic of Nigeria Government Printer.

Filani, M. (2012) The Changing Face of Lagos: From Vision to Reform and Transformation. Lagos, Nigeria: Cities Without Slums.

Greif, A., and D. Laitin (2004) “A Theory of Endogenous Institutional Change”, American Political Science Review, Vol. 98, No. 4, pp. 633-652.

Haque, M.S. (2004) “Governance and Bureaucracy in Singapore: Contemporary Reforms and Implications”, International Political Science Review, Vol. 25, No. 2, pp. 227-240.

Jimoh, A. (2003) “Fiscal Federalism: The Nigerian Experience”, paper presented at the Ad-Hoc Expert Group Meeting on Policy and Growth in Africa: Fiscal Federalism, Decentralisation and the Incidence of Taxation. Addis Ababa, Ethiopia: United Nations Economic Commission for Africa.

https://www.africa.com/buhari-administration-will-continue-to-ensure-transparency-accountability-in-governance/



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Kaduna State Government (2013) Kaduna State Development Plan (2014-2018). Kaduna, Nigeria: Ministry of Economic Planning.

Kaduna State Government (2012) Report on the Review of Mandates of Ministries. Kaduna, Nigeria: Office of the Head of Service.

Kaduna State Government (2007) Kaduna State Economic Empowerment and Development Strategy. Kaduna, Nigeria: Office of The State Government.

Khemani, S. (2001) “Fiscal Federalism and Service Delivery in Nigeria: The Role of States and Local Governments”, Paper Prepared for the Nigerian Public Expenditure Review (PER) Steering Committee, Abuja, Nigeria.

Lagos State Government (2013) Lagos State Development Plan 2012-2025. Ikeja, Nigeria: Ministry of Economic Planning and Budget.

Lagos State Government (2010) Lagos State Gross Domestic Product Survey: 2010. Ikeja, Nigeria: Bureau of Statistics, Ministry of Economic Planning and Budget.

Lagos State Government (2007) Lagos State Economic Empowerment and Development Strategy. Ikeja, Nigeria: Ministry of Planning.

Obuah, E. (2010) “Combating Corruption in a ‘Failed’ State: The Nigerian Economic and Financial Crimes Commission (EFCC)”, Journal of Sustainable Development in Africa, Vol. 12, No. 1, pp. 27-53.

Ogunyeni, B., S. Tella, and B. Venditto (2005) “Non-State Actors under the Current ACP-EU Cooperation Agreement: A Sectoral Review of the Nigerian Context”, paper for Instituto di Studi Sulle Società del Mediterraneo (ISSM), November.

Ohiorhenuan, J. (2014) “Institutions, Institutional Reform and Economic Development: The Visible Hand of Corruption in Nigeria”, Nigerian Journal of Economic and Social Studies , Vol. 56, No. 2.

Ohiorhenuan, J. (2005) “Capacity Building Implications of Enhanced African Participation in Global Trading Rules-Making and Arrangements”, in T. Oyejide and W. Lyakurwa (eds.) Africa and the World Trading System. Trenton: Africa World Press Inc.

Olomola, A. (2012) “State Budgetary Allocations: An Appraisal of Budget Implementation and Effects in Nigeria”, Research Seminar Series, Nigerian Institute of Social and Economic Research.

North, D. (1990) Institutions, Institutional Change, and Economic Performance. New York: Cambridge University Press.

Sowunmi, F., A. Raufu, F. Oketokun, M. Salako, and O. Usifoh (2009) “The Role of Media in Curbing Corruption in Nigeria”, Research Journal of Information Technology, Vol. 2, No. 1, pp. 7-23.

World Bank (various years) World Governance Indicators. Washington DC: World Bank.

AGRICULTURE, RURAL DEVELOPMENT, AND SPATIAL INCLUSION

Chapter VI

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6.1Introduction 65

6.2Decades of Agricultural Sector Development Strategies in Nigeria 65

6.3Agricultural Policy Initiatives in the Era of Globalization 67

6.4Agriculture and Rural Development: Challenges in Lagos State and Kaduna State 68

References 71


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6.1IntroductionThis chapter looks at the role of agricultural and rural development policies in Nigeria’s economic development and how the authorities at the federal, state, and local levels have addressed the structural impediments to agricultural productivity and the welfare of farm households (Dim and Ezenekwe 2013, African Development Bank 2013, and Gollins, Parante, and Rogerson 2002). As in many African countries, government policies in Nigeria have attempted to straddle the divide between agriculture, which is based in rural areas, and modern industry, based in urban areas, to safeguard rural households and ensure that they are included in the modernization project. Agricultural projects and schemes have included the provision of equipment and fertiliser subsidies, infrastructure development, and sometimes outright political mobilization. There is, however, no grand strategy and many contradictions have arisen from these multifarious attempts at agriculture and rural development. How they are resolved, which in some cases will require careful research and analysis, will determine whether Nigeria can truly become a developmental state.

The chapter proceeds as follows. Section 6.2 reviews agricultural development policies in Nigeria and the projects for enhancing the sector from previous decades. Section 6.3 looks at agricultural initiatives during the era of structural adjustment and globalization. Section 6.4 examines the challenges of agriculture and rural development in Lagos State and Kaduna State.

6.2Decades of Agricultural Sector Development Strategies in NigeriaAccording to Olayemi (1998), Nigeria’s agricultural development strategies have been characterized by a range of approaches, depending on the state of the economy and the nature of the government but including the following: exploitative, agricultural project, direct government involvement in production, integrated rural development, and, more recently, market-driven or commercialized approaches.

The exploitative strategy characterized much of the colonial period. The strategy was premised on the “vent-for-surplus” thesis first suggested by Adam Smith and further elaborated by Myint (1958). This thesis argues that there is surplus productive capacity in agriculture, the “subsistence sector”, from which resources can be drawn in favour of the “modern sector” without much disruption to its output. Adubi (2004) argues that this thinking was the basis for much of the agricultural strategies pursued in Nigeria and other African countries in the 1950s and the 1960s. Typically, governments extracted the rural surplus by imposing levies on export crops such as cocoa, groundnuts, palm oil, and cotton, which thus provided revenue for the development of the modern sector.

The period after the achievement of self-government in the late 1950s until 1968 saw the establishment of extension farms and research institutes but no integration of agriculture into the modern economy. Schemes targeted at training peasants to become modern farmers were initiated, and agricultural development corporation projects, often promoting tree crop plantations, were embarked upon. However, it was presumed that small farmers required no special attention and hence they bore the brunt of agricultural development efforts (Mgbenka and Mbah 2016). Agriculture as a whole was deemed to have the necessary linkages to other sectors and hence needed no special assistance. During this phase, government intervention in agriculture was minimal.

A decentralized approach to agriculture meant that policy initiatives were left to the regions and the states, while the federal government played only a supportive role. For their part, regional governments pursued largely ad hoc policies, programmes, and projects dictated by resource availability (Sanyal and Babu 2010). This period witnessed a decline in export crop production and incidences of food shortages. Agriculture’s share of GDP declined from 66% in 1959 to 50% in 1970 in favour of industry and services. The period also saw increasing food importation (Kwanashie, Ajilima, and Garba 1998).

With the oil boom of the 1970s, the government embarked on direct involvement in agricultural production (Olayemi 1998). Macroeconomic policies were adjusted accordingly to support agricultural production in the country. Budgetary allocations to agriculture were increased to meet expanding capital and recurrent expenditures. The government introduced income tax relief for new agricultural enterprises. A unified wage structure was introduced to end wage discrimination between public sector workers in agriculture and those in other sectors. And, finally, the government sought to reduce agricultural businesses’ capital costs by introducing a concessionary agricultural loan rate of 6 percent a year. The reasons given at the time for these interventions included the need to rehabilitate and restructure agriculture following the civil war through massive public investment, which the country could afford thanks to the oil boom. In addition, state intervention in agriculture and allied activities—such as rural development—was still in vogue, a decade before the onset of structural adjustment policies (Adubi 2004).

The 1970s witnessed the creation of the National Accelerated Food Production Project (NAFPP) to undertake research and the Nigerian Agricultural Cooperative Bank (NACB) to provide financing. Commercial and merchant banks were required to provide a minimum of 6% of their loan portfolio to agriculture. Perhaps most significant, export duties on scheduled export crops were abolished in 1973 in a bid to expand agricultural exports.

By the mid-1970s, the government realized that the strategy of direct agricultural production had borne little fruit and hence shifted to an emphasis on integrated rural development—including the promotion of off-farm activities. Under this strategy, the government embarked on multipurpose rural development programmes, including the establishment of the following: Agricultural Development Projects (ADPs), River Basin Development Authorities (RBDAs), the Directorate of Food, Roads and Rural Infrastructure, the National Agricultural Land Development Agency (NALDA), the Operation Feed the Nation (OFN), and the Green Revolution. In 1977 the government launched a rural banking scheme and established an agricultural credit guarantee scheme. A similarly multi-pronged effort was used during the era of structural adjustment in the 1980s, although in both cases there was a lack of coherence. What was the overarching strategy, and how would the government know that it was being achieved? There were no ready answers to these questions, given the intricate political economy and structural impediments on the ground (Oyakhilomen and Zibah 2014; Wiggins 2009).

The government’s adoption of structural adjustment policies with support from the international community in 1986 was a tacit admission that its previous policies and efforts in agriculture, based on direct intervention and control, had not worked. The approach had been ad hoc without a grand vision or philosophy. The structural adjustment policies aimed to revamp the country’s agriculture to diversify Nigeria’s exports and diversify the structure of production and consumption (Adubi 2004). In 1988, the Federal Ministry of Agriculture, Water Resources and Rural Development produced an overarching and long-term agricultural policy for Nigeria, looking ahead as far as 15 years (Olayemi 1995). Aside from laying out elaborate policies on food crops, livestock and fish production, industrial raw materials production, and forest products and wildlife, it also introduced policies on an elaborate list of support services—including extension, technology and mechanization, credit and insurance; water resources; rural infrastructure; statistics and databank; investment and management advisory services; and manpower development and training. The document assigned roles and responsibilities to the federal, state, and local levels of government while incorporating a mechanism for periodic monitoring and review.

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Figure 6.1Nigeria: Agricultural Growth (%), 1982-2017

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However, structural adjustment policies did not have the impact in agriculture that policymakers had hoped for. Although the distribution of farm incomes improved, agricultural productivity and growth stagnated (Kwanashie, Ajilima, and Garba 1998). Owing to inflation, real agricultural producer prices did not change significantly, and there was a notable decline in the export crop subsector output. This raised the country’s dependence on crude oil exports for foreign exchange between 1988 and 1992 (Ego 2008; Colman and Okorie 1993).

With a new government taking power in Nigeria in 1999, agriculture came into the limelight once again at the turn of the millennium. It was felt that a new push in agriculture by a determined civilian government was in order (Olomola 1998). While there were adjustments to departments at the ministerial level, key steps included the scrapping of the National Agricultural Land Development Authority, Federal Agricultural Coordinating Unit and an Agricultural Projects Monitoring and Evaluation Unit. A new Projects Coordinating Unit was created which was later transformed into the National Food Reserve Agency (NFRA). Further consolidation saw the emergence of the Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB) from the merger of the Nigerian Agricultural Cooperative Bank, the Peoples Bank and the Family Economic Advancement Programme (FEAP).

6.3Agricultural Policy Initiatives in the Era of GlobalizationThe fuel, food, and financial crises of the late 2000s got policymakers all over the world thinking about how best to contain future shocks by building economic buffers—especially with respect to food supplies. In Africa, the African Union had a framework on the ground called the Comprehensive African Agriculture Development Program (CAADP) which advocated for national agricultural development programs and strategies. Nigeria’s response was in the form of an elaborate investment plan (the National Agricultural Investment Plan (NAIP) based largely on the National Program for Food Security (NPFS) developed during 2008-2011 proposing a private sector-led approach to agricultural development, with the government playing a facilitating role. The government endeavoured to provide critical services in five areas: Input support (e.g., fertiliser and seeds), quarantine services, irrigation infrastructure, farm association and cooperatives, and research and development.

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In contrast to previous efforts, the government took care to consult broadly with stakeholders in the agriculture and water sectors when devising NAIP, which adopted a value chain approach (e.g., production, storage, processing and marketing) in developing business components in agriculture, e.g., crops, livestock (including poultry) and fisheries. A novel aspect of the NAIP was the introduction of public-private partnerships in agriculture (Ango 2014; Federal Ministry of Agriculture and Rural Development 2010, 2012). The private sector entered various schemes with the government on the basis of competitive bidding. Moreover, the government was open to partnership programs with donor agencies—for example, the Nigeria-France project on agricultural development. Root and tuber program initiatives were emphasized as key to improving food security, and a national cocoa development committee sought ways to revive that once important sector as a source of income for farm households in Nigeria. Furthermore, new ventures with great promise such as fish farming were encouraged.

This most recent phase of the agricultural strategy has seen some real gains on the ground. Food imports have fallen from 14.5% of total imports in 2010 to 5% in 2014. Moreover, presidential initiatives targeted at specific agricultural commodities such as cassava and rice have gained momentum, with potential for increasing exports and public-private partnerships, following an unprecedented boom in production in 2002, thanks to policy enhancements and good weather (Figure 7.1). During 2006 and 2008, Nigerian agriculture grew on average by over 6%, while its share of GDP was a commanding 41.5%—mostly the output of smallholder farmers.

A critical examination of reforms and policies and their implementation over the years shows that policy instability, inconsistency, lack of transparency, poor coordination of implementation, and rampant mismanagement of agricultural projects have inhibited progress. The supply of agricultural inputs has been haphazard, while the bulk of agricultural institutions for training technicians and demonstrations farms were ineffective to the point of being moribund. Many basic objectives of the reforms such as rural infrastructure development and access to affordable credit have not been realized, nor has the volume of foreign investment expanded at anywhere at the pace required to transform agriculture (AfDB 2013). And despite few objectives and targets of the agricultural plans and strategies having been achieved, new ones have been added to the agenda without examining the causes of the poor results.

6.4Agriculture and Rural Development: Challenges in Lagos State and Kaduna StateWhile rural development is discussed rather abstractedly at the federal level in Nigeria, it has much relevance at the state and local government levels. However, as in many other countries in Africa, there have been many uncoordinated attempts, poorly linked to the broader state or national development plan. This section provides examples of how two states, Lagos and Kaduna, with vastly different ecological as well as economic conditions, approached the challenges of rural development and how they have achieved a degree of policy coherence in addressing the needs of rural communities while satisfying urban households’ food and related requirements.

6.4.1 Lagos State

Given its urban setting, agriculture has only accounted for 2% of the Lagos’s GDP in recent years. Lagos State only produces 10 percent of its food needs and is an important importer of food from other states. The state is keen to guarantee food security, as food plays an important role in calming prices and moderating wage demands. However, agriculture in the state faces numerous challenges, including shortage of financing sources for projects and programmes; limited land for agriculture and serious competition from non-agriculture over traditional agricultural spaces. Part of the problem is the absence of a framework for sustainable agriculture in the state. The lack of data and other information has made analysis and planning exceptionally difficult. An additional problem is the relatively low education levels of the local farmers, which limits their ability or willingness to absorb new farming techniques. And finally, the rural infrastructure, including power, roads, and access to potable water, even in this, the country’s most urbanized state, is poor.

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Nevertheless, there have been innovations in the agriculture/food sector, with the state government encouraging the development of fish farms and piggery, poultry, and vegetable facilities with emphasis on value chain approaches. The state has thus put considerable emphasis on training schemes and youth involvement in designing projects. With state encouragement, over 12,000 cooperative societies had been registered by 2012, with assets of over N40 billion (or about N350,000 each). This is the largest concentration of cooperative societies in the country, despite of agriculture’s modest contribution to the state’s income.

Despite agriculture’s limited role in the Lagos State economy, the proliferation of institutions for agricultural development is palpable. For example, the ministry of agriculture has eight departments, covering agriculture proper, as well as fisheries, forestry, and veterinary services, and four independent agencies: Lagos State Agricultural Development Authority; Agriculture Land Holding Authority; Lagos State Coconut Development Authority; and Lagos State Agricultural Input Supply Authority. As noted earlier, since these institutions tend to cover the same areas, there is a risk of competition over resources at the expense of a coherent policy.

In addition, the state operates three vocational training institutions: the Agricultural Youth Empowerment Scheme; the Service and Entrepreneurial Centre in Oko-Oba, Agege; and the Fishermen Vocational Training School, in Yovoyan, Badagry.

Policies and strategies for agriculture and rural development in Lagos State are guided by a number of state, federal, continental, and global-level documents: the State’s Ten-Point Agenda, the federal National Agricultural Policy, the African NEPAD, and global policy intervention via the Millennium Development Goals (MDGs)(14). Although repetitive, these documents emphasize four main objectives: (1) develop a well-formulated agricultural strategy, with a viable implementation plan; (2) improve the access of agricultural households to credit and new technologies; (3) improve agricultural and rural infrastructure, notably access to power; and (4) boost the welfare of rural households, through better nutrition and access to services. These are to be achieved by increasing food production, building strategic food reserves, improving access to safe and nutritious food, and ensuring that agriculture is linked to economic development.

The involvement of the private sector has also become a key consideration. The private sector has been involved in agricultural and rural development as part of the state’s strategy. This has included projects in fisheries development; youth empowerment (notably the Rice for Job initiative and an agricultural youth empowerment project); livestock development (introduction of mechanized abattoirs); crop development (initiatives in coconut rehabilitation, land conservation, and farm mechanization); facilitation services (bringing services closer to farmers); credit mobilization along the value chain; agricultural input supply; development of and support for cooperatives; and collaboration with external parties, including the federal government and the international development agencies.

6.4.2 Kaduna State(15)

In contrast to Lagos State, agriculture is by far Kaduna State’s dominant sector, accounting for over 75%of the economy in 2015. However, the sector depends almost exclusively on small-scale producers, with low access to modern technologies, and hence low productivity. The farmers earn little and the incidence of poverty in the state is high (National Agricultural Extension Research and Liaison Services & Federal Department of Agriculture 2014). There is a dearth of extension workers in the state, only one for every 4,200 farmers—or a total of about 150 workers for the whole state (consisting over 606,000 farm families). Although the government has introduced an elaborate program to support farmer access to farm inputs, especially improved seeds, actual delivery has been inadequate. Fluctuating commodity prices have been disruptive, especially for the small-scale farmers who have little ability to hedge against shocks. Likewise, storage facilities are poorly developed in Kaduna, leading to loss of annual harvests, in some cases as high as 30%.

(14) The documents include the following official publications: State Gazette Establishing the Lagos State Ministry of Agriculture, No 7 of July, 2001; Ten-points Agenda (T-PA) for the Development of Lagos State; Lagos State Economic Empowerment and Development Strategy (LASEEDS) Economic Charter; New Economic Partnership for Africa Development (NEPAD); The state’s Vision 2020; Millennium Development Goals (MDGs), Goals 1 and 7; and National Agricultural Policy, 2006.(15) See also Isah (2011) and Ojeley (2015).

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Given the strategic importance of agriculture in Kaduna state, the state government has taken a very active interest in agricultural development. It has focused on the promotion and adoption of modern production technologies and the provision of extension services and key farming inputs (including high-yield, pests and draught resistant seeds, fertilizers) at subsidized prices. However, many farmers in the state do not actually receive these supplies, and have to make do on their own. This is a result of generally poor capacities for planning and delivery at the local level—with inputs sometimes arriving too late in the crop season to be of any use.

The Kaduna Agricultural Development Programme (KADP) is the implementation arm of the state ministry of agriculture. It provides inputs, including fertilizer and subsidized machinery, through farmers’ representatives and traditional rulers. The state also provides animal feeds, drugs, and vaccines to encourage modern livestock production. The state, with support from the federal level, is involved in a project to support farmers. In addition, the state subscribes to the Nigeria Agricultural Insurance Corporation to insure farmers against natural hazards.

The government also supports research in agriculture through the National Agricultural Extension and Research Liaison Services (NAERLS), the National Research Institute for Chemical Technology (NARICT), and the Institute for Agricultural Research (IAR). The Bill and Melinda Gates Foundation has also supported research on women in agriculture. Generally, the research has sought to enhance local crop varieties and to use local produce in animal food chains, notably poultry feed. The Neem Project supports the production of a range of essential chemical products from the Neem tree, including insect repellent.

The KADP also coordinates and implements agriculture programmes sponsored by national and international development partners. Examples include the Sassakawa Global 2000 involvement in the following projects: Tropical Legume Programme, International Institute for Tropical Agriculture (IITA), New Rice for Africa (NERICA) Project, and N2 Africa Project, which boosts soya bean yields. Kaduna State has largely depended on strategies and policies derived from the federal government, notably the Federal Ministry of Agriculture, although the state has recently completed a comprehensive state agricultural policy, with multi-stakeholder involvement.

Kaduna State rolled out a number of projects and programs, tailoring federal government policy initiatives. It introduced an intensive root and tuber expansion program and completed three phases of the National Fadama Development Programme—focused on rural development. Progress on the New Rice for Africa Project (NERICA) has also been notable, as has been a grain silo project to protect harvests from pests and the elements. The commercial agricultural development project has taken advantage of rising demand for food produced within Nigeria, also linked to the government’s emphasis on food security. Later , 60 locations in the state were selected for the construction of irrigation schemes , which will allow farmers to enhance their yields by ensuring year-round access to water sources. Finally, a “back to the farm” loan scheme for retired civil servants and active and retired military officers, introduced by the government recently, is proving a boon for agriculture, taking advantage of retirees’ good education levels combined with their capacity to absorb new farming and marketing technologies.

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References

African Development Bank (2013) Federal Republic of Nigeria: Country Strategy Paper (2013-2017). Tunis: Operations West Department, AfDB.

Adubi, A. (2004) “Agriculture: Its Performance, Problems and Prospects”, in B. Imam and I. Obadan (eds.) Management in Nigeria’s Fourth Republic 1999-2003. Lagos, Nigeria: CLGARDS.

Ango, A. (2014) “Agricultural Transformation for Industrial Development: The Role of Public–Private Partnership (PPP) Approach”, Paper presented at the 35th Kaduna International Trade Fair, March 2014. (Published in Kaduna Chamber of Commerce, Industry, Mines and Agriculture Newsletter, No. 2).

Colman, D., and A. Okorie (1993) “The Effect of Structural Adjustment on the Nigerian Agricultural Export Sector”, Journal of International Development, Vol. 10, No. 3, pp. 341-355.

Dim, C., and U. Ezenekwe (2013). “Does Agriculture Matter for Economic Development? Empirical Evidence for Nigeria”, Journal of Finance & Economics, Vol. 1, No. 1, pp. 61-77.

Ego, E. (2008) “Macroeconomic Environment and Agricultural Sector Growth in Nigeria”, World Journal Agricultural Science, Vol. 4, No. 6, pp. 781–786.

Federal Ministry of Agriculture (2012) Technical Report on Agricultural Transformation Agenda Program. Abuja, Nigeria: Federal Ministry of Agriculture.

Federal Ministry of Agriculture and Rural Development (2010) National Agricultural Investment Plan (2011-2014). Abuja, Nigeria, September.

Gollins, D., S. Parente, and R. Rogerson (2002) “The Role of Agriculture in Development”, American Economic Review, Vol. 92, No. 2, pp. 160-164.

Isah, S.I. (2011) “An Empirical Analysis of Vertical and Horizontal Income and Non-Income Inequality in Nigeria: A Case Study of Kaduna State”, unpublished PhD thesis submitted to the Department of Economics, Ahmadu Bello University, Zaria, Kaduna State, Nigeria.

Kwanashie, M., I. Ajilima, and A.G. Garba (1998) “The Nigerian Economy Response of Agriculture to Adjustment Policies”, AERC Research Paper 78. Nairobi,

Kenya: African Economic Research Consortium, March.

Mgben, R, and E. Mbah (2016) “A Review of Smallholder Farming in Nigeria: Need for Transformation”, International Journal of Agricultural Extension and Rural Development Studies, Vol. 3, No. 2, pp. 43-54.

Myint, H. (1958) “The Classical Theory of International Trade and the Underdeveloped Countries”, Economic Journal, Vol. 68, No. 270, pp. 317-337.

National Agricultural Extension Research and Liaison Services and Federal Department of Agriculture (2014) Reports on Agriculture Performance Surveys of 2010, 2011, 2012 and 2013 Wet Season in Kaduna State. Abuja, Nigeria: Federal Republic of Nigeria Government Printer.

Ojeleye, O. (2015) “Analysis of Farm Household and Community Food Security in Kaduna State, Nigeria”, unpublished PhD dissertation submitted to the Department of Agricultural Economics and Rural Sociology, Ahmadu Bello University, Zaria, Kaduna State, Nigeria.

Olayemi, J. (1995) “Agricultural Policies for Sustainable Development: Nigeria’s Experience”, in A. Ikpi and J. Olayemi (eds.) Sustainable Agriculture and Economic Development in Nigeria. Arlington, VA: Winrock International Institute for Agricultural Development.

Olomola, A.S. (1998) “Analysis and Management of Agricultural Sector Performance and Inter-sectional Linkages”, paper presented at Training Programme on Sectoral Policy Analysis and Management, Abuja, Nigeria, June.

Oyakhilomen, O., and R. Zibah (2014) “Agricultural Production and Economic Growth in Nigeria: Implications for Rural Poverty Alleviation”, in Quarterly Journal of International Agriculture, Vol. 53, No. 3, pp. 207-223.

Sanyal, P., and S. Babu (2010) Policy Benchmarking and Tracking the Agricultural Policy Environment in Nigeria. Nigeria Strategy Support Program Report No. NSSP 005. Abuja, Nigeria: International Food Policy Research Institute.

Wiggins, S. (2009) “Can the Smallholder Model Deliver Poverty Reduction and Food Security for a Rapidly Growing Population in Africa?” FAC Working Paper No. 08, July. Brighton, United Kingdom: Future Agricultures Consortium

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THE DEVELOPMENTAL STATE IN ZAMBIA:Plausibility, Challenges, and Lessons from South Korea

INDUSTRIALIZATION, THE PRIVATE SECTOR, AND ENABLING INFRASTRUCTURE

Chapter VII

72

7.1Introduction 73

7.2Nigeria’s Quest for Industrialization 73

7.3The Business Environment and Private Sector Development 76

/.4Enabling Infrastructure 79

References 85

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7.1Introduction This chapter looks at issues of industrial development in Nigeria, including the provision of supportive infrastructure and the positive response of the private sector to their provision. Rapid industrialization, supported by well-targeted government structures, the creation of wealth through an alliance between the public and private sectors, and a focus on improved social welfare, are the main ingredients for a development state, as demonstrated by many East Asian economies (United Nations Economic Commission for Africa 2011). However, the move to a development state was far from automatic and required the careful construction of supportive policies and institutions, including an attractive business climate. The chapter looks at these issues in the Nigerian context, and how the country is developing innovations of its own to build coalitions that will spur local, state, and national development. It also discusses the financial and human resources challenges that need to be addressed (Ajakaiye and Jerome 2015).

The chapter proceeds as follows. Section 7.2 reviews Nigeria’s quest for industrialization, beginning with its first national development plan in 1962 and provides a snapshot of the country’s manufacturing sector. Section 7.3 looks at Nigeria’s business environment and its impact on the private sector, with particular focus on the Lagos Megacity. Section 7.4 discusses the current infrastructure, notably transport; power; information, communications, and technology (ICT); and water and sanitation, and how the federal government and the states are responding.

7.2Nigeria’s Quest for Industrialization Nigeria’s quest for industrialization is decades long. Its performance is closely linked to its oil resource flows, which have simultaneously provided opportunities and posed risks—via macroeconomic distortions and the disincentives of the oil boom on export-oriented manufacturing. Industrialization was high on the agenda of the First National Development Plan (1962-1968) (Federal Republic of Nigeria, 1962), which emphasized the need to “conserve foreign exchange” by embarking on power projects and import-substituting industrialization (known as ISI). Nigeria was not unique in promoting power and industry at this early stage; many other developing countries had adopted a similar approach. But the inward-looking nature of ISI meant it was incapable of generating mass employment, and it was quickly abandoned by countries like South Korea and Taiwan, which focused instead on export-oriented industrialization (Hall and Jones 1999).

In the 1970s, Nigeria, just emerging from domestic conflict, embarked on the nationalization of broad swathes of the economy. The ambition was reflected in the Second National Development Plan (1970-1974) (Federal Republic of Nigeria, 1970) and the Act on Indigenization of Enterprises Operating in Nigeria of 1972 (replaced by the 1977 Nigerian Enterprises Promotion Act). The focus was on transferring ownership of firms to Nigerians, creating opportunities for “indigenes”, and shifting foreign investor interest away from oil to more sophisticated areas of the economy.

However, the government’s emphasis on adding value in the oil industry had not yielded much before the 1970s oil boom hit, simultaneously raising both domestic expectations and the state’s capacity to extend patronage to all sectors of the economy, not just industry. The Third National Development Plan (1975-1980) (Federal Republic of Nigeria 1975), at N42 billion, promised eight times the real public investment commitment compared with the Second National Development Plan outlay of N3.2 billion. Nigerian entrepreneurs could agree on projects with international vendors with little intervention from the government, whose previous concern over the use of foreign exchange had been eliminated by the oil boom. But this intensification of import-substitution strategy meant Nigeria would suffer serious macroeconomic and structural shocks during the 1980s recession, whose . external shocks virtually killed the Fourth National Development Plan of 1981-1985 before it could be implemented. The period was characterized by a sharp decline in manufacturing output, high levels of unemployment, and the spectre of mass poverty.

Industrialization policies as practiced since independence, emphasizing import-substitution and the conservation of foreign exchange, changed radically in the late 1980s as the country embarked on structural adjustment policies. The government sought to inject dynamism into the process of industrialization by introducing science and technology as a key factor in development. Underlying the arguments by the government was the importance of transferring technology to local firms and the importance of research and development. The government created an institution—the Standards Organization of Nigeria—to ensure that the country’s industrial products met international standards. However, the science and technology strategies were conducted in silos and not as a broader and unifying strategy for the development of the country, as practised by the developmental states. Notably, the R&D undertaken at universities and other institutions in Nigeria had little impact on innovation in domestic manufacturing—leaving both sides disappointed. This differed from the experience of South Korea, where research institutions were seen as national champions, prestigious sources of innovation in the various branches of industry; Korean universities actually designed their courses with a view to boosting such institution-industry dynamics.

The end of the 1980s witnessed broad-based financial liberalization in Nigeria, with the goal being a competitive financial sector responsive to the needs of the industrial sector. In the 1990s, the government of Olusegun Obasanjo introduced a consolidated approach to economic development in Nigeria. The National Economic Empowerment and Development Strategy (NEEDS) became the framework for development at all levels—federal, state, and local. Similarly to South Korea, the Bank of Industry (BOI) became the linchpin between the financial sector and local industry(16). However, unlike in East Asia, support in Nigeria was not premised on mutually set performance targets, and frequently took the form of generalized subsidies to “key” or “strategic” sectors of the economy, with fairly arbitrary assessments of the importance to the economy of the sector requesting support, be it sugar or cement. Tax relief was often offered, as well as a designation of “pioneer status”, which provided tax holidays to first movers. These attempts failed to revive the fortunes of the manufacturing sector, whose share of GDP has steadily declined from about one third in the early 1980s to less than one tenth in 2017 (Figure 7.1). Crude oil production aside, Nigeria has experienced a steep process of de-industrialization.

(16) The Bank of Industry was owned by the ministry of finance (58.86%), central bank (41.12%), and others (0.02%). Its vision was to help generate a self-sustaining, well-managed, and competitive industrial sector in Nigeria and to integrate the Nigerian industry into the global economy.

Figure 7.1Nigeria: Manufacturing as Proportion of GDP, 1981-2017

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Source: National Bureau of Statistics, Statistical Portal.

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The BOI was reconstructed from the National Industrial Development Bank, which was established in 1964 with the support of the International Finance Corporation (IFC). The IFC assumed 75% of the former bank’s shares and the government the rest. The BOI includes the Nigerian Industrial Development Bank; the Nigerian Bank for Commerce and Industry; the Industrial and Insurance Brokers; and the Leasing Company of Nigeria Limited The goal was to promote long-term financing of the industrial sector and to promote indigenous entrepreneurship.

Nigeria’s manufacturing sector during 1981-2015 was dominated by the food, beverage, and tobacco sector and the textile, apparel, and footwear (Table 7.1). Cement, and wood and wood products follow, albeit with much lower shares. Oil refining was a minor contributor but its share has increased in recent years. All these five subsectors can be characterized as relatively low-tech. Other than cement and oil refining, Nigeria has few truly heavy industries.

The chemical and pharmaceutical industry is showing promise, while electrical and electronics and motor vehicle assembly (once a promising subsector) are quite small. The motor vehicle industry had benefited from the import-substitution strategy but fell on hard times during economic liberalization and now commands less than 1% of manufacturing output. Basic metal, iron, and steel is picking up, but still accounts for less than 3 percent of total manufacturing.

Table 7.1Nigeria: Changes in Manufacturing Activity 1981-2015 (% share of manufacturing)

1981 1985 1990 1995 2000 2005 2010 2015

Manufacturing 100 100 100 100 100 100 100 100

Oil refining 0.63 1.13 1.11 1.11 1.58 5.15 7.13 3.05

Cement 3.27 7.22 5.78 5.78 2.92 3.99 6.18 9.05

Food, beverage, and tobacco 56.14 61.22 70.16 70.16 70.54 66.59 64.23 44.59

Textile, apparel, and footwear 29.90 15.43 13.58 13.58 13.12 11.96 9.85 21.60

Wood and wood products 0.91 1.55 1.37 1.37 1.70 2.91 3.45 3.12

Pulp, paper, and paper products 0.39 0.65 0.60 0.60 0.79 0.74 0.68 0.81

Chemical and pharmaceutical products

0.75 0.48 0.38 0.38 0.78 0.69 0.70 2.29

Non-metallic products 0.98 1.64 1.49 1.49 1.93 1.74 1.66 3.45

Plastic and rubber products 0.45 0.76 0.67 0.67 0.88 0.79 0.95 3.23

Electrical and electronics 0.90 1.59 0.18 0.18 0.06 0.06 0.07 0.08

Basic metal, iron, and steel 0.57 0.91 0.85 0.85 1.16 1.02 1.24 2.55

Motor vehicles and assembly 3.20 4.21 0.92 0.92 0.76 0.69 0.61 0.80

Other manufacturing 1.91 3.22 2.92 2.92 3.77 3.67 3.25 5.37

Source: Nigeria, National Bureau of Statistics, Statistical Portal.

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Despite the design of numerous significant strategies, including the National Industrial Revolution Plan, and the creation of many supporting institutions in recent decades, no pilot agency (à la South Korea) was designated to coordinate Nigeria’s industrialization efforts and sequence implementation of the incentives the government had put in place. The government wanted to strike an elite bargain with the private sector/industrial sector of the type witnessed in East Asia, but there was no mechanism forcing businesses to justify their requests for official support with any degree of specificity nor was there a commitment to specific actions from them. As a result, there were many uncoordinated players in Nigerian industry, each individually engrossed in solving some serious challenges in the sector or economy, but lacking the overall coordination required to achieve the critical mass that enabled the East Asian economies to raise governance, improve efficiency, and raise export capacities—while at the time raising employment, enhancing technological capacities, and boosting competitiveness (Deyo 1987). It can be argued that the biggest impediment to Nigerian industrialization lies in this absence of coherence—i.e., the ability to respond to what is needed and figure out how to get it done (Babatunde et al. 2013).

The continuation of an inward-looking, as opposed to an export-oriented strategy, can be illustrated by the 2010 National Strategic Industrial Development Master Plan. Coming on the heels of the consolidation of civilian rule, the policy emphasis seemed to be more on bailing out domestic firms than on strengthening the export resolve of the stronger companies. For example, the government planned to bail out textile producers to the tune of N100 billion while allowing them access to subsidized credit following their consolidation. This assistance was not linked to export or employment targets. Similarly, the government agreed to supply fuel oil to manufacturers at subsidized rates—again without an explicit counterclaim by the government. This absence of reciprocity is a major difference between the Nigerian approach and that of the East Asian economies.

It was illustrative that a 21-person Trade Facilitation Taskforce(17) set up by the government in 2010 to review trade issues did not have much private sector representation nor indeed did it consider exporting a priority. It focused on measures to restrict imports and was especially concerned by smuggling. This certainly was not the pilot agency needed to link policies to increased exports and industrialization based on inter-sectoral linkages.

However, in the past decade, Nigeria has seen changes in some sub-sectors thanks to coordinated policy approaches and the determination of entrepreneurs. The policy question is why these experiences are not being replicated in other areas of manufacturing (Manca 2003). Three areas have shown rapid development: sugar, cement, and cassava production. Companies in these categories have been able to raise value addition across the chains of production and have boosted exports. For cement in particular, the progress is credited to a policy of “cement backward linkage,” which enhanced local capacity and value added. The energy-intensive cement sector has been given access to power at reasonable cost. And the government launched a “cassava masterplan” that has seen the production of this smallholder crop expanding rapidly.

7.3The Business Environment and Private Sector DevelopmentIn terms of indicators such as access to credit or ease of doing business, Nigeria’s industry and the private sector seem to operate under serious constraints, in spite of recent improvements in some areas. Access to credit rose sharply during the 1970s oil boom and declined during the 1980s following structural adjustment (Figure 7.2). However, there was a spectacular increase in credit supply during the second half of the 2000s, which was related to quantitative easing but also had speculative features and led to the distress of the financial sector—and likely hampered industrial development.

(17) Representatives came from the ministries of commerce and industry, ministries of transport and finance, Nigeria Customs Service, Nigerian Shippers Council, Nigerian Ports Authority, National Agency for Food and Drug Administration, Standards Organization of Nigeria, Nigerian Quarantine Service, Central Bank of Nigeria, and National Association of Clearing and Forwarding.

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Figure 7.2Nigeria: Domestic Credit to the Private Sector in % of GDP

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In terms of the business environment, the World Bank’s 2018 Ease of Doing Business provides a broad commentary on the attractiveness of the Nigerian business environment. In 2018, Nigeria ranked 145 of 190 countries surveyed, with a number of countries in Africa that have much more fragile economic situations being ranked higher than Nigeria. Although such rankings are subjective and controversial, and tend to be embraced when they put the country in a good light and rejected when not, many African countries are using them as a basis for assessing the progress they are making in creating an attractive business environment and few countries ignore these indices entirely.

Figure 7.3Nigeria: Nigeria: Ease of Doing Business Rankings, 2018 (1=highest; 190= lowest)

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0 20 40 60 80 100 120 140 160 180 200

Resolving Insolvency

Enforcing Contracts

Trading Across Borders

Protecting Minority Investors

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Registering Property

Getting Electricity

Dealing with Construction Permits

Starting a Business

Source: World Bank, Ease of Doing Business (2018)

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The only category in which Nigeria ranked highly in 2018 was access to credit—where the country ranked 6 out of 190 (Figure 7.3). The rest of the rankings—notably registering property, trading across borders, getting electricity, or registering property—are way below average. Although the large size of the Nigerian economy is an attraction in itself, policymakers need to ask themselves why they are not getting better rankings from the business sector (whose members are the main respondents to the World Bank’s Ease of Doing Business surveys). It can be inferred that an alliance between the government and the business sector would be very difficult to devise without an improvement of the private sector’s view of the situation on the ground (Mailafiya 2015).

Box 7.1Constraints to Rapid Industrialization: The Case of Lagos State

Lagos State is located on a narrow plain of the Bight of Benin, in the south-western part of Nigeria. Physically, it is the smallest state in the country, covering 3,577 sq. km. or less than half a percent of Nigerian territory. It was built around Lagos, which was the capital city until 1991, when the capital was formally moved to Abuja. The Lagos Metropolitan area is believed to host close to 10 percent of the population of the country(18) and is estimated to account for one fifth of national GDP. Despite its urbanization, Lagos State has good arable land and a substantial amount of agricultural activity, focused on feeding Lagos City. Manufacturing is an important sector, as are transport, construction, and social services, notably health and education.

Given the state’s economic vibrancy, large investor interest, and an educated and well-connected elite, it has the potential of spearheading development for Nigeria as a whole. It has sought to implement developmental-state like policies and to fast track development by means of a government-private sector alliance—bringing it in sharp contrast with the rest of the country(19).

However, Lagos State is not an island and will have to contend with the policy and structural challenges facing the rest of Nigeria. Lagos State appreciates its role as the commercial gateway to the rest of the country, hence its heavy investment in socio-economic infrastructure. It has focused on improving its Ease of Doing Business scores, including by reducing turnaround times at its ports, which in years past were a serious deterrent to businesses locating in the city. A key objective is to raise occupancy rates in its industrial estates to 90 percent. However, the 2018 World Bank report on doing business, based on results from the city, shows that the registration of a business goes through eight separate steps: online reservation of a unique company name at the Corporate Affairs Commission; payment of stamp duty (amounting to 0.75% of share capital); signature of the declaration of compliance before a commissioner of oaths; registration of company at the Corporate Affairs Commission and payment of registration fees; preparation of a company seal; registration for income tax and VAT; registration for payment of pay as you earn taxes for employees at the State Tax Office; and registration of the business premises with the state government and payment of a business premises levee. Lawyers can undertake to complete the processing for clients at a cost of not less than N60,000. There are then separate procedures for acquiring construction permits, while the cost of standard warehousing, for example for imported equipment, is prohibitive.

Lagos State has created 10 large and well-serviced industrial estates, each accommodating over a 100 medium- and large-scale enterprises and in the near vicinity of air and sea ports. They employ thousands of people, including from neighbouring states. The state’s long-term plan is to raise the share of manufacturing to 40% of its GDP and become the preferred investment destination in sub-Saharan Africa. With this in mind, the ministry of commerce and industry started the development of enterprise zones (targeted at the youth) in several parts of the state, agro-industrial parks (targeting MSMEs) in Imota, Ikorodu, Igbonla, and Epe and the construction of the Lekki Free Zone and the Lekki-Epe Airport targeted at export-oriented enterprises.

(18) Owing to infrequent population surveys, the figure of 20 million residents of the City of Lagos and its surrounding is disputed.(19) Lagos State has created several agencies to manage the “aesthetic” aspects of its development, especially in Lagos Megacity (Filani 2012). They include Signage and Advertisement (which licenses external advertising in Lagos, and censures unaesthetic postures); Waste Management (which removes scrapped vehicles and animal carcasses from the roads and plans waste collection and management; Wastewater Management; Environmental Protection; and Parks and Garden Agency. Among the innovations is the compulsory participation of citizens in cleaning their areas of residence on designated days of the month.

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Box 7.1Constraints to Rapid Industrialization: The Case of Lagos State (Cont.)

The state has designed a 10-year development plan, worth some US$50 billion, which will be implemented with the support and involvement of the private sector. It has embarked on the issuance of debt instruments as well as the design of public-private partnerships. Cognizant of the constraints that the lack of electricity imposes on businesses, the state plans to provide independent power producers permission to set up projects in clustered industrial areas.

However, Lagos State also epitomises the challenges facing Nigeria’s industrialization ambitions. While the larger firms have been able to establish themselves reasonably well, the micro, small, and medium-scale enterprises are still constrained by lack of access to credit. Federal efforts to increase credit, including via a Micro Finance Bank, have barely scratched the surface. On the supply side, a number of impediments related to collateral, identification of borrowers, and the high risk of default remain. Commercial lending rates are prohibitive.

Lagos State has seen a vast improvement in its infrastructure but shortcomings persist—mostly in the area of power and port congestion, where improvements have so far been incremental. Lagos State consumes between 45% and 50% of the electricity generated in the country but generates only 20% of its electricity supply. While Lagos Megacity requires 6,000 megawatts of electric power, only a sixth of that is being supplied by the Power Holding Company of Nigeria. Drainage and sanitation are persistent challenges. Several drains in the city have been rehabilitated or reconstructed, while canals have been unclogged, with the result that the communities adjoining these canals do not experience as much flooding as in the past.

Unlike in South Korea, where an “imbedded but autonomous” bureaucracy led the charge on institutional reforms, in Lagos State the bureaucracy has sometimes been the problem rather than the solution. Some of the regulations and way of doing things are still archaic and self-serving and have little positive impact on the state’s industrial and commercial activities. However, the bureaucrats of Lagos State have been praised in recent years for bringing some order to a historically chaotic city—beginning a dynamic process of change that the political and economic constituencies are beginning to believe in.

7.4Enabling InfrastructureInfrastructure development is a key pillar of the national and state-level development strategies in Nigeria. It is an overarching concern that relates to economic welfare and contributes to citizens’ access to work and social services while reducing the cost of doing business for the private sector. Infrastructure development in Nigeria has focused on power generation, transport, ICT, water, sewage, sanitation and drainage, and waste management. The federal government has maintained control over aviation.

However, in a federally administered country, the centre shares some responsibilities for infrastructure provision with the states, which in turn also share some with local governments. For example, the federal government is responsible for shipping, federal trunk roads, aviation, railways, posts, telegraphs and telephones, telecommunications, mines and minerals, and water resources affecting more than one state. On the other hand, the Nigerian states share the following infrastructure responsibilities with the federal level: electricity, industrial infrastructure, agricultural infrastructure, scientific and technological research, and universities. At the local level, the authorities are solely responsible for markets, sewage and refuse disposal, local road infrastructure, street lighting, drains, and other public facilities, including burial grounds.

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A — Transport

Nigerian aviation is overseen by three agencies: the Federal Airport Authority of Nigeria, the National Aviation Management Agency, and the National Civil Aviation Authority. There are three international hubs in Nigeria (Lagos, Kano, and Abuja) and 34 airports with paved runways. The Nigerian aviation industry has experienced steady growth since the gradual liberalization of the industry by government several decades ago, evidenced by the growing number of airline operators, increased movement of passengers and cargo, and increased utilization of airport facilities. However, a global airline company based in Nigeria has not yet emerged.

While trains are popular means of transport in many countries, they have not functioned well recently in Nigeria. The system is 120 years old, and was largely based on the narrow gauge, although some 500 kms have been converted to standard gauge over the past three decades. Poor planning and low investment over the years have meant that the system lacks human esources, has an insufficient number of locomotives, and the rails, equipment, and signalling equipment are obsolete. The strategic rail vision for Nigeria launched some 25 years ago must be revisited.

In Lagos State, the goals of infrastructure development have been fivefold: to link the various parts of the state with quality roads (up to 100 road projects are ongoing), including the revitalization of water transportation; to create an effective mechanism for the repair and upgrading of roads, drainage systems, and bridges; to base the design and plans for road construction on professional advice and consultation; and to ensure that roads are cleaned regularly.

The Lagos Metropolitan Area Transport Authority was established in 2003 with the mandate of providing efficient public transportation—through proper policy formulation, planning, coordination, and implementation of investment and operations. The agency has developed a strategic transport master plan for the state, specifying the details of the modal routes required by the Megacity by 2020. The strategy builds on an integrated multi-modal approach that allows for seamless switches from one mode to the other. The system will build on a rapid transit bus system, a light rail transit, and water transportation corridors(20). These initiatives will require bureaucratic efficiency during implementation, as well as an effective outreach strategy to communities that will be affected during the construction process.

In Kaduna State, much like in Lagos State, the transport sector is managed by a number of institutions, raising issues of competing agendas, coordination, and responsibility(21). While the Ministry of Works and Transport assumes prominence in infrastructure matters, it does not have the resources to supervise the other agencies. The proliferation of infrastructure institutions is often the cause of serious policy incoherence. For example, the Kaduna State Transport Authority’s policy objective is “to provide comfortable and safe transport service to the people of Kaduna State and Nigeria in general”. However, it has little or no role to play in setting aviation policy in the state, which is handled at the federal level, as indicated above.

In many parts of Nigeria, transport infrastructure has continued to operate under pressure. In Cross River for example, limited resources for maintenance and failure to install axle-load control measures have caused serious deterioration of parts of the road network. Although the federal government is responsible for maintenance of about 20% of the state’s infrastructure (which is part of the classified federal road network), repairs are invariably delayed, thus affecting the main transport arteries into and out of Cross River. For example, the Calabar-Ikom-Vandeikya highway remains in poor repair. The state has attempted to raise transport efficiency in the capital by introducing the Calabar Monorail.

Ultimately finances are an important constraint, with costs escalating rapidly in recent years. However, evidence-based policy approaches have been emphasized in tackling the issues of traffic congestion and pollution. Cross River created a dedicated organ, the Department of Public Transport, to assume responsibility for planning and executing transport policy in the state. Poor air quality was considered to be a key impediment to the state’s ambition to develop its tourism sector. Hence, the state banned motorcycles as public transport and insisted on the use of newer cars and buses.

(20) The water transportation corridors are as follows: Badore, Badore-Admiralty-Osborne-Marina, Ikorodu-Oworonsoki-Marina, Ijegun-Egba, Oke-Afa-Festac-Mile 2-Marina, and Iddo-Ota area-Marina. (21) The Ministry of Works and Transport, Kaduna State Public Works Agency; Kaduna State Development and Property Company and Kaduna State Transport Authority.

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For coastal states such as Lagos and Cross River, ports and maritime transport are key for transport, employment, and international trade. Currently, Nigeria has 13 major ports (the two largest are Apapa in Lagos and Onne in Port Harcourt) and 11 oil terminals. The two largest ports are Lagos (Apapa) and Port Harcourt (Onne). However, inland waterways also have great potential for boosting transport: they span some 3,000 kilometres and consist of 50 rivers, including the Niger, Benue, Cross River, Kaduna, Imo, Ogun, and Sokoto, and Lake Oguta and Lake Chad. They will require considerable investment in structures and dredging to bring them to full utilization.

B —Water and Sanitation

The Federal Ministry of Water Resources is responsible for the formulation and coordination of national water policies, management of water resources, including water rights allocation between states, and approval of water development projects. The federal government controls the supply of bulk water, mainly for irrigation, from the 11 River Basin Development Authorities (RBDAs) created in the 1970s and 1980s. The most important legislation concerning water resources in Nigeria is the Water Resources Decree 101 of 1993. Other relevant documents include the National Water Supply and Sanitation Policy 2000, the Water Sanitation Policy 2004, and the Water Resources Management Policy 2006.

The objective of the National Water Sanitation Policy was to ensure that all Nigerians had access to adequate, affordable, and sustainable water and sanitation services. This would, however, involve the active participation of federal, state and local governments, NGOs, development partners, the private sector, local communities, households, and individuals. In reality, few local governments have the technical and financial capacity to put together these coalitions. It still requires direct intervention from the state and federal levels to get a steady supply of rural water and sanitation services to many parts of the country.

The full involvement of communities in the design and implementation of water and sanitation strategies and their willingness to pay for services are crucial to designing interventions at the local level. However, it not clear whether the communities would have a veto on specific programs and how disputes would be settled. Similar ambiguities pervade many such rural initiatives elsewhere in Africa, with little redress from the centre. It is assumed that NGOs would alleviate some of the challenges by helping with advocacy and resource mobilisation, as well as training and capacity building of members of the community.

The private sector is a direct beneficiary of improved infrastructure services. However, the National Water and Sanitation Policy sees it as a partner in infrastructure development, with the following responsibilities: involvement in the planning, design, and operation of water and sanitation projects; provision of financing, training and capacity building; and undertaking monitoring and evaluation. A number of public-private partnership–type projects have been suggested, although the private sector has been cautious owing to lack of clarity on how its costs would be recouped. Development partners are key financiers of water and sanitation projects in Nigeria, while also supporting analytical and capacity building work.

The state is responsible for 25% of capital costs and 10% of operational expenses for rural water supply (Table 7.2). For small towns’ water supply, the state is responsible for 30% of capital costs. And, for urban water supply, the state is responsible for 100% of operational costs and 60% of capital costs. The rationale for the different levels of cost-sharing is unclear but, an underlining assumption is that it is easier to appeal to communal sensibilities at lower levels of governance structures than at higher ones. But these cost-sharing stipulations have existed mainly on paper. Local government authorities have been unable to meet their shares, while counterpart funds from higher up in the hierarchy have invariably been delayed. A major challenge is therefore how to design a pro-poor financing approach that is able to deliver water and sanitation to communities that are not in a position to meet their running costs.

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Table 7.2Nigeria: Cost-Sharing Formula for Capital Investment and Operations and Maintenance in Water Supply

Agency Rural Water Supply Small Towns Water Supply Urban Water Supply

Share of Capital Investment

Federal government 50% 50% 30%

State government 25% 30% 60%

Local government 20% 15% 10%

Community 5% 5% Nil

Share of Costs for Operations and Maintenance

Federal government Nil Nil Nil

State government 10% Nil 100% - tariff

Local government 20% Nil Nil

Community 70% 100% Nil

Source: Federal Republic of Nigeria, National Water Supply and Sanitation Policy (2000).

C — Land, Construction, and Urban Development

Access to land and dealing with construction permits or hiring business premises are key determinants of the ease of doing business in Nigeria. In many parts of the country, land is theoretically readily available. However, processing ownership and acquiring permits can be tedious, as illustrated in Figure 7.3 above. This is usually because issues related to the transfer of land are intricate—some of the land is owned communally, with burial plots in the holdings, some is not surveyed, and some has contested ownership. Few states have enough resources to manage land, construction procedures, and related issues promptly and at low cost.

With respect to construction, the cost of building materials in Nigeria is not prohibitive, but poor infrastructure makes the movement of materials between rural and urban areas cumbersome. The local price of steel and concrete is largely determined globally by large consumers such as China, although Nigeria has seen a slight increase in steel production in recent years. However, the rapid expansion in cement production in Nigeria in the past decade has moderated cement prices on the domestic market. A number of private firms have been created to provide steel and cement to the construction industry, but they are loosely regulated and quality varies considerably.

At the state level, Lagos State best illustrates the interrelated challenges of land processing, physical planning, and urban development in Nigeria. The progress achieved in the state in the past decade is partly thanks to the attention that it has paid to these issues—with systematic follow-up and the ability to form effective alliances between bureaucrats and beneficiaries. First, the state government created four main agencies: the Lagos State Physical Planning Permit Authority, the Lagos State Building Control Agency, the Lagos State Urban Renewal Agency, and the Urban Furniture Regulatory Unit. Second, and perhaps most challenging, is the issue of managing the cross-cutting issues related the development of Lagos as a megacity. Lagos is perhaps the third-largest city in the world, with an estimated population of over 15 million. With 5,000 persons/km2, it is one of the most densely populated cities in Africa. The upsurge in the city’s population growth has led to very high demand for infrastructure and social amenities and highlighted the importance of physical planning, effective city management, and security structures.

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D — Power

The lack of access to power has been a key obstacle to firms in Nigeria, raising the cost and risk of doing business in the country. The World Bank (2013) has estimated that approximately 85% of businesses in Nigeria own fuel-driven electricity generators and that privately generated power accounted for about 40% of all power. Moreover, it took some 260 days to get linked to the power grid, and once connected, blackouts are rampant. Although there have been many attempts at the federal and state level to address the power (electricity) crisis, a consolidated approach has only emerged very recently.

Nigeria had a total installed capacity of thermal and hydro generated power of some 10,000MW in 2014—the equivalent of the needs of a medium-sized European city—and only a third of that is accessible. Power sector reforms to address the country’s power deficit continue to be very high up on the government’s policy agenda. The process was set off by the Electricity Power Reform Act of 2005 (Federal Republic of Nigeria 2005) more than a decade ago to address the following problems: limited access to infrastructure, inadequate power generation capacity, inefficient usage of available capacity, lack of capital for investment, inefficient regulation, high technical losses and vandalism, insufficient transmission and distribution facilities, inefficient use of electricity by consumers, inappropriate industry and market structure, and unclear delineation of roles and responsibilities (Bureau of Public Enterprises 2011).

The 2005 Act transformed the National Electric Power Authority (NEPA) into the Power Holding Company of Nigeria (PHCN), while the bulk of electricity generation, transmission, and distribution was split among 18 successor companies (all public limited companies), incorporated into PHCN. Six companies took over power generation: Kanji, Afam, Ughelli, Geregu, Shiroro, and Sapele; the transmission company of Nigeria (TRANSCO) was put solely in charge of transmitting electricity in the country, and there are 11 distribution companies: Eko, Ikeja, Port Harcourt, Enugu, Yola, Jos, Ibadan, Kaduna, Kano, Enugu, and Benin.

The reforms succeeded in unbundling the power monopoly, putting the right investment framework in place, and potentially raising the level of competition in the industry. However, a range of constraints remain. The growth of generation capacity has been slower than anticipated, partly because of slow bureaucratic processes at the federal and state levels. There have also been constraints at the local and project levels, with company assets (including equipment and power lines) being vandalized, and access has been difficult owing to poor infrastructure maintenance. Moreover, corruption and embezzlement have been serious impediments as well.

E — Information and Communications Technology

Nigeria, like other parts of Africa, has witnessed an information and communications technology revolution in the past decade that has had an impact across most spheres of the economy and is changing the way the country does business. Within a decade, ICT has become a platform for introducing competition and raising productivity in the financial sector, transport, education, and health sectors, and has also proven ubiquitous at many levels of government—notably, in revenue collection.

Box 7.2ICT and e-Government in Cross River State

Seeing an opportunity to leapfrog in its reform of government, Cross River state has almost completed the development, deployment, and utilization of ICT in all its local government areas, including a metropolitan area network that links all the state’s ministries, departments, and agencies. A special purpose vehicle called the Cross River State Network Company Limited was created to implement the government’s ICT programme deploying CISCO and NEXTZON technologies. Today, much of the government business is e-governance-compliant.

Additionally, the state government is developing a state-wide identity management and e-payment backbone, which on completion will make Calabar the first smart city in Nigeria—a development that the state government hopes will raise the profile of Cross River State among investors and tourists. The system will allow state government to automate revenue collection and the payment of workers and servants, thereby enhancing efficiency and transparency. In addition, the project will introduce automated fare collection on public buses, electronic tolling on roads and waterways, and an integrated electronic parking system.

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The introduction of ICT had a relatively slow start in Nigeria, partly linked to the political dispensation as the military leaders feared the introduction of a technology over which government control was not assured. There has been much improvement since the deregulation of the telecommunications industry led to the introduction of Global System of Mobile (GSM) communications, and a range of mobile phone providers. There has been a boom in ICT-related services and applications, and a sharp reduction of the cost of internet access. Also important has been the introduction of e-banking and mobile money in Nigeria.

However, for a large country of some 190 million people with a mobile penetration of some 80%, the relatively low use of mobile banking services has been puzzling, at least in comparison to the much smaller economies of East Africa—Kenya and Tanzania—where mobile phone accounts exceed those in traditional banks. A comparison of Paga, the leading mobile banking platform in Nigeria, with M-Pesa of Kenya shows a wide gap in the number of account holders (20 million in Kenya in 2015, compared with 3.4 million in Nigeria) as well as in profitability. It seems that traditional banks in Nigeria have been much more successful in creating inclusive financial models for their clients—in a country with a high population density. But it could also be that the costs in the system have been a deterrent and that business will pick up as these fall in the medium term.

The federal government, through the Nigerian Communications Act 2003, has advocated for broader access to the new ICT technology in rural and other underserved areas (Federal Republic of Nigeria 2003). It set up a Universal Service Provision Fund in 2006 to provide subsidies to providers to defray high costs of delivery. Community Communications Centres have been created to provide public calling centres, cybercafés, and information and communications technology training courses at low cost. The Centres will also provide wireless internet access to the surrounding communities. In addition to connections to schools and universities, the has government promoted backbone transmission infrastructure to provide voice and data access points to local government areas. In 2006, the federal government set up he Rural Telephony Project aimed at bridging the digital divide and raising ICT penetration of rural areas.

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References

Ajakaiye, O., and A. Jerome (2015) “Public–Private Interface for Inclusive Development in Africa”, in C. Monga and J. Lin (eds.) Oxford Handbook of Africa and Economics, Vol. I. Oxford: Oxford University Press.

Babatunde, K., W. Oyeniran, O. David, and W. Ibrahim (2013) “Nigerian Investment Promotion Commission and Foreign Direct Investment in Nigeria”, Journal of Business and Management Review. Vol. 2, No. 9, May.

Bureau of Public Enterprises (2011) Overview of the Nigerian Electricity Industry (Roles, Responsibilities, Structure, Expectation): Presentation at the Nigeria Power Sector Investment Forum, - Lagos, Dubai, London, New York and Johannesburg. Abuja, Nigeria.

Deyo, F. (1987) The Political Economy of the New Asian Industrialism. Ithaca, NY: Cornell University Press.

Federal Republic of Nigeria (2005) Electric Power Reform Act, 2005. Abuja, Nigeria: Federal Republic of Nigeria Government Printer.

Federal Republic of Nigeria (2003) Nigerian Communications Act, 2003. Abuja, Nigeria: Federal Republic of Nigeria Government Printer.

Federal Republic of Nigeria, (1975) Third National Development Plan (1975-1980). Lagos, Nigeria: Government Printer.

Federal Republic of Nigeria (1970) Second National Development Plan (1970-1974). Lagos, Nigeria: Government Printer.

Federal Republic of Nigeria, 1962, First National Development Plan (1962-1968). Lagos, Nigeria: Government Printer.

Hall, R., and C. Jones (1999) “Why Do Some Countries Produce So Much More Output per Worker than Others?” Quarterly Journal of Economics, Vol. 114, No. 1, pp. 83-116.

Filani, M. (2012) The Changing Face of Lagos: From Vision to Reform and Transformation. Lagos, Nigeria: Cities Alliance.

Mailafiya, O. (2015) “Make It in Nigeria: Promoting Domestic Production for National Sustainable Economic Development”, paper presented at the Kaduna State 36th International Trade Fair Seminar, 27 April.

Manca, F. (2010). “Technology catch-up and the role of institutions,” Journal of Macroeconomics, vol. Vol. 32, No. 4 p,pp. 1041-1053.

Olugbenga, T., A. Jumah, and D. Phillips (2013) “The Current and Future Challenges of the Electricity Market in Nigeria in the Face of Deregulation Process”, African Journal of Engineering Research. Vol. 1, No. 2, pp. 33-39.

United Nations Economic Commission for Africa (2011) Governing Development in Africa - The Role of the State in Economic Transformation. Addis Ababa: United Nations ECA.

World Bank (2018) Ease of Doing Business. Washington DC: World Bank.

World Bank (2013) Nigerian Economic Report. No. 1, May. Washington DC: World Bank.

https://ideas.repec.org/a/eee/jmacro/v32y2010i4p1041-1053.html

https://ideas.repec.org/a/eee/jmacro/v32y2010i4p1041-1053.html

https://ideas.repec.org/s/eee/jmacro.html

SOCIAL SERVICE DELIVERY IN NIGERIA WITH EXAMPLES FROM THE STATES OF LAGOS, CROSS RIVER, AND KADUNA

Chapter VIII

86

8.1Introduction 87

8.2Education Provision and Capacity Development in a Changing Nigeria 88

8.3Health Service Provision in Nigeria 92

8.4Public Service Delivery in Lagos State 94

968.5Public Service Delivery in Cross River State

References 102

998.6Social Service Delivery in Kaduna State

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8.1IntroductionThis chapter looks at social service delivery in Nigeria, focusing on the array of policy and institutional reforms implemented in Nigeria since the late 1990s to enhance the supply of health, education, and related social services (Federal Republic of Nigeria 2014; Federal Ministry of Health 2013 and World Bank 2013). The production and delivery of social services are key public sector responsibilities and the developmental states of East Asia saw service provision as crucial for both human development and economic transformation, including the push for industrialization. Only a healthy and productive population could provide the base needed to raise the country’s technological capacity and sophistication.

However, in contrast to many other recently developed countries, and perhaps as a cautionary tale, South Korea ceded the running of hospitals and schools to the private sector (only primary education was exempted entirely from private ownership)—but with the state remaining as quality controller as well as ensuring equitable and effective access. The South Korean state also created a universal health insurance scheme early in the growth process, which enhanced social welfare while boosting the overall productivity of the population.

While the federal government is responsible for formulating Nigeria’s overarching development policies, the support and engagement of state-level and local bureaucrats is required for policy design and implementation and the mobilization of financial and human resources. However, economic endowments differ markedly between Nigeria’s 36 states and it is important to learn from the different outcomes and contexts. To do this, this chapter looks at the experiences of the states of Lagos, Cross River, and Kaduna in delivering services.

As the most populous country in Africa, and with the continent’s largest economy, Nigeria tends to attract several comparisons with its smaller neighbours. An area where the African giant is not necessarily leading is in the provision of social services, notably education and health. Although the statistics are contested, and the basis for comparison is often weak, few would contest the view that the quality of service provision is low, definitely not matching the country’s leadership in other areas. Average health and demographic outcomes for Nigeria compare poorly with those of its neighbours. For example, surveys covering 2007-2016 indicate that male youth literacy in Nigeria was 76%, compared to 58% for females, and male adult literacy was 61% compared with 41% for females. On the other hand, Kenya’s youth literacy was 87% for males and 86% for females, while that for adults was 84% for males and 74% for females. For Ghana, the figures for youth literacy were 88% for males and 83% for females, and those for adult literacy, 78% for males and 65% for females. In contrast South Korea has 100% literacy for all categories (UNICEF, various years;; USAID 2001).

These divergences are partly a reflection of the breadth of the country, from the affluence of parts of the south to deep poverty in parts of the north. The disparities are reflected in a relatively high level of poverty. In 2009, 46% of the population was considered to be subsisting below the poverty line (52.5% rural and 34.1% urban), and the Gini coefficient was estimated at 43, with the lowest-earning 10% of the population receiving only 2% of the income, while the highest-earning 10% got 32.7%.

The rest of the chapter proceeds as follows: Section 8.2 looks at education in Nigeria, while 8.3 looks at healthcare. Sections 8.4-8.6 look, respectively, at the provision of social services in Lagos State, Cross River, and Kaduna states.

8.2Education Provision and Capacity Development in a Changing NigeriaAll the three levels of government in Nigeria—federal, state, and local—have some responsibility for funding primary education, which, given the number of children in the system, complicates considerably both institutional arrangements and budgetary and resource allocations. However, state governments are mainly responsible for funding government-owned senior secondary schools and state-level institutions of higher education, agencies, boards, and commissions for the library system, teaching service, scholarship scheme, and mass literacy. The states support the local chapters of the State Universal Basic Education Board and the Local Government Education Authorities.

Nigeria has a reputation for pursuing academic excellence and strong educational foundations even during difficult political transitions. The years of military rule saw an expansion of the Nigerian education system. However, arbitrary policies, paucity of resources, and poor management led to the collapse of quality from the primary school to the tertiary levels. The decline was clearly visible in outcomes—including stagnant youth literacy rates and, at tertiary levels, reductions in R&D and related output.

In the 1990s, university funding declined in real terms, while the number of students in the system rose to over 400,000. The military appointed its officers as “sole administrators” at some universities in a bid to quell dissent at institutions of higher learning. The return of civilian rule saw the introduction of the Government Policy on Autonomy for Universities in 2000 and a conference took place in 2002 to discuss the road ahead. While leading universities in Nigeria were once renowned for their cutting-edge research in tropical agriculture and medicine, few have retained those reputations.

There is general incoherence between the objectives of higher education and the means used to meet them. Unlike in South Korea, the link between university-level training and R&D in Nigeria is still relatively weak. There is a need for an articulated strategy that links tertiary-level training and knowledge generation to economic growth. It has been estimated that in the early 2000s, Nigeria had some 15 scientists and engineers involved in R&D per 1 million inhabitants, compared with 168 in Brazil, 459 in China, and 158 in India (Saint, Hartnett, and Strassner 2003)(22). This means that there has been relatively low scientific output from the country’s research community to guide development à la South Korea and other developmental states.

The challenge facing Nigeria’s education today sector is twofold. First, despite or perhaps even because of the proliferation of educational and technical institutions in the country, average quality has declined across the system. There is a small percentage of highly skilled people who would hold their own anywhere in the world, but the rest are falling behind. Second, the globally competitive minority is leaving the country—causing a huge brain drain, especially affecting universities and research institutions. The government will have to address these challenges through a combination of incentives to retain staff at universities and encouraging partnerships with the private sector that could generate beneficial R&D activities. A monitoring and evaluation system will need to accompany these steps to ensure that a mechanism for self-correction and reinforcement is in place to accompany Nigeria’s ambitious development agenda.

Education has accounted for between 1% and 2% of GDP since 1980, exceeding 2% in recent years. The government has not produced continuous data on total education expenditure, but isolated observations suggest something around 5-6% of GDP in recent years.

(22) The figure for the United States was 4,103.

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Figure 8.1Nigeria: Education’s Conribution to GDP (%)*

Shar

e of

GD

P (%

)

2,50

2,00

1,50

1,00

0,50

-

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

2017

Source: Central Bank of Nigeria Data Portal. * Note that education expenditure as % of GDP was not available, but the few data points available showed that it was around 5% of GDP

However, in spite of many strategies, cross-ranging policy efforts, and a proliferation of institutions at all levels (Box 8.1), Nigeria is still challenged by low levels of educational attainment owing to disparities in access to quality education, especially at the primary level. As in health, funding education is a major challenge.

Although a number of “equitable” funding strategies have been designed at the federal level, which if implemented would result in substantial increases in education funding to states, very little money goes through the system. Aside from the bureaucratic hurdles, the main impediment is the low federal level allocation to education. As with health, the federal government allocates relatively less to education than do other countries with similar levels of GDP per capita. Considerable scope exists, therefore, for increasing federal funding of education. While recognising the many pressing demands on state governments, at least 25% of total state government funding should be devoted to education. And steps need to be taken to substantially increase funding for primary education by the relatively large number of local governments that allocate less than 25% of their federal allocations to primary education. Local governments should also be encouraged to increase significantly their funding for essential overhead expenditures at primary schools.

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Box 8.1Tertiary Education and Education Funding Initiatives

A — Expanding University Education

The number of federal universities in Nigeria had grown to 24 by 2010, but that was still not enough to serve a country of 36 states and a Federal Capital Territory. . Moreover, the new states without universities were concentrated in the north of the country. In 2010 the government introduced a policy of one university per state to address what was perceived as regional inequality. This policy was also in line with the country’s education and economic transformation agenda, which saw capacity building as a key ingredient in raising standards of living and the pace of technological adoption. In 2011 the government established universities in the states of Bayelsa (Otouke), Ebonyi (Ndifu-Alike), Ekiti (Oye-Ekiti), Gombe (Kashere), Jigawa (Dutse), Katsina (Dutsenma), Kogi (Lokoja), Nasarawa (Lafia), and Taraba (Wukari). Three years later another three federal universities were created in the remaining states: Kebbi (Birnin Kebbi), Yobe (Gashua), and Zamfara (Gusau)(23). Although the reaction to the expansion was broadly supportive, some complained about the emerging challenges of quality and funding—especially in view of the underfunding of the traditional and stronger universities.

B — Expanding University Education

Some of the funding challenges have been addressed by creating a number of funds aimed at promoting competition and excellence in service delivery and seeking to perform at the global frontier of research and academic performance.

The Tertiary Education Trust Fund (TETFUND) was established in 2011 with the mandate to rehabilitate, restore, and consolidate tertiary education in Nigeria. Assessment reports indicated that the bulk of the support went to the bureaucratic structures at the centre and the state— federal ministries, commissions, the state primary education boards, and boards of state universities. On the other hand, research, vocational training, and police/para military training received altogether less than 1% of the funds. This contradicted the egalitarian premises of the TETFUND Act.

The Petroleum Technology Development Fund (PTDF) was created in 1973 at the height of the first oil boom. However, it did not become a fully functional agency of the government until 2000. The PTDF awards scholarships and bursaries for studies abroad in all areas related to the gas and oil industry, notably engineering, geology, sciences, and management. It also supports universities in the six geopolitical zones of the country through endowment funds to upgrade activities and embark on programs in teaching and research in petroleum-related disciplines. Additionally, the support of the PTDF has upgraded the curriculum, infrastructure, and facilities of the Petroleum Training Institute (PTI), Effurun, in Delta state, which is crucial for training mid-level cadres in the sector. And, as part of a broader corporate responsibility, the PTDF has sponsored the training of legislators and other stakeholders on issues in the oil and gas industry as well as providing infrastructure and equipment to selected ICT centres in the country. The Fund has awarded over 2,000 scholarships to study abroad.

The Presidential Special Scholarship Scheme for Innovation and Development (PRESSID) was created in 2012 to enhance the capacity of Nigerians in as many sectors as possible. The goal is to ensure that there is enough capacity in the country to manage its transformation agenda. Scholarships are available to Nigerian candidates with first class honours degree from recognised institutions who have been accepted to one of the top 100 universities in the world. Apart from the PDTF, there is a general question of whether the various scholarships are demand driven. To what extent are the studies funded a reflection of what the country needs to transition to an export-oriented industrialization process, powered by innovative research and marketing strategies?

(23) These are referred to as the fourth- and fifth-generation universities. The previous generations were as follows: First: Benin, Ibadan, Ile-Ife, Lagos, Nsukka and Zaria; second: Calabar, Ilorin, Jos, Kano, Maiduguri, Port Harcourt, and Sokoto; and third: Abeokuta, Abuja, Akure, Akwa, Bauchi, Makurdi, Minna, Owerri, Umudike, Uyo, and Yola.

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Given relatively low teacher remuneration, many teachers prefer to be deployed in urban areas, or near their homes where they can indulge in a secondary activity, such as farming. While urban schools tend to have enough teachers, rural schools are never fully staffed. The teachers in the latter are generally less experienced but often have to work a lot harder than their colleagues in the cities. There are thus major resource imbalances in the education system that lower the quality of education delivery. The government needs to devise a teacher posting system that offers the right incentives and is sustainable. Hardship allowances have often been too low to change staffing patterns, although offering good housing for teachers has been effective in some parts of the country.

Universal Basic Education was introduced by the government in 1999, following the return to civilian rule. In response, even though larger schools are more efficient (given economies of scale), small schools with less than 300 students have been created in many parts of Nigeria, with little attempt at consolidation. Given the scarcity of resources, it might be prudent to embark on double sessions in the same schools than to establish entirely new schools, though travel distances to schools should be considered.

Currently, public expenditure per student in Nigeria varies markedly between schools and regions, implying that many children in the rural parts of the country have been left behind. This is partly due to the failure to unify the national education system and the financing of various parts of the system. Ironically, devolution of power over education spending to the states has meant that state-level priorities in education could differ from those at the centre—implying a divergence in outcomes. In this regard, the Universal Basic Education Commission (UBEC) Intervention Fund is an important institutional innovation that encourages state governments to increase funding of education, while providing detailed management and monitoring of the resources deployed. But the fact that matching grant allocations are the same for all states, regardless of population and poverty rates is inequitable and should be reviewed.

It will be a challenge to boost Nigeria’s capacity for skills development that is well linked to the needs of the private sector, and hence flexible and dynamic. The country’s vocational training system is not well regarded by the youth and is largely seen as a last resort. This aversion toward vocational training, while the result of an age-long preference for white collar employment, is also partly due to the lack of practical content in school curricula. In South Korea, by contrast, vocational training was at the centre of the development and employment strategies and a Vocational Training Law had already been enacted in 1967. Vocational high schools provided training in craft skills for labour-intensive light manufacturing, while junior vocational colleges supplied technicians to the heavy and chemical industries created in the 1970s. By the 1980s, technical universities and colleges were providing managers with R&D personnel to support South Korea’s march into technical innovation. As part of its industrialization strategy, the government subsidized companies that trained their workers to specified levels and standards (Yi 2011).

Until 2005, direct federal funding of state-level schools and other education and training institutions in Nigeria was quite limited. The Education Tax Fund, a tax imposed on firms, was the main source of direct funding of education from the federal government to the states. Meanwhile, under the provisions of the Universal Basic Education (UBE) Act of 2004, an UBE Intervention Fund was created. The Act stipulates that 2% of the federal-level Consolidated Revenue Fund be allocated annually to basic education through the UBE Commission (UBEC). This has proven to be a sizeable injection of funds into basic education. However, the disbursement of this money is contingent on state governments’ making matching contributions and is thus conditional on performance at the state level. While is a strong incentive, it could punish states that find themselves in dire economic circumstances.

Linked to the federal government’s role has been the issue of supporting the Almajiri education infrastructure, which is based on Q’uranic religious education. An estimated 10 million children are enrolled in these schools, making them an important source of education for a sizeable portion of Nigeria’s children, especially in the northern parts of the country. The government is vigorously pursuing an inclusive education policy that includes the Almajiri; 125 Almajiri schools have been constructed in recent years.

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8.3Health Service Provision in NigeriaNigeria has a large health sector, with 21 federal teaching hospitals, 20 federal medical centres, over a dozen specialty hospitals, and a range of other agencies, boards, and institutions. The National Health Act (2014) assigns responsibilities for primary healthcare to local governments, secondary healthcare to states, and tertiary healthcare to the federal government. Moreover, the private and the not-for-profit sector, run by religious bodies and agencies, is quite extensive, especially in urban areas. The federal government also has responsibility for national programmes targeted at malaria, HIV/AIDS, and tuberculosis, as well as a “Better Health for All” programme for promoting healthy living nationwide. The Nigerian Medical Association has pursued its interests for decades. In spite of these national programmes and initiatives, the country has a high disease burden, and there is unequal access to healthcare because of the uneven distribution of health infrastructure in the country.

Nigeria’s health expenditure has ranged between 2.5% and 5% of GDP since the mid-1990s (Figure 8.2). Despite an emphasis by the federal and state governments on health services, health spending dipped below 4 percent of GDP in 2009 and remained there until 2017, when it was estimated to have risen to about 5%. Nigeria’s health spending as a percent of GDP ranks lower than some of its poorer neighbours, such as Sierra Leone and Chad, where donor and international agency contributions have boosted overall expenditure in recent years. It also compares poorly with other aspiring developmental states such as South Africa, where expenditure on health amounted to 8.8% of GDP in 2014. In South Korea, on the other hand, total expenditure on health goods and services equalled 7.2% of GDP in 2015.

Figure 8.2Nigeria: Health Expenditure Indicators, 1995-2014

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Source: World Bank, World Development Indicators, 2018.

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The contribution of external resources (aid or grants from development agencies and bilateral partners) to the Nigerian health system has been relatively modest. Figure 8.2 shows that it was fairly low in the late 1990s but rose substantially in the late 1990s and 2000s, reaching 16 percent, as government health spending declined, but had returned to below 5 per cent of total expenditure by the early 2000s.

During the presentation of the 2016 budget in Nigeria, policy analysts controversially stated that the share of the budget going to health was among the lowest in Africa(24). However, at about 8 percent, it is higher than in many countries in Africa, although below the 15% target set by the Abuja Declaration of 2001 of the African Union. Partly because of the poor service delivery, the majority of households in Nigeria depend on the private sector for their health needs. It has been argued that overall health expenditure in Nigeria is much higher than official figures indicate as the bulk of the costs for medical treatment are met directly by the patients as “out-of-pocket” expenses. While it is too early to measure the impact of the National Health Act of 2014 on health outcomes, some analysts feel that it failed to define explicitly enough the roles and responsibilities of the three tiers of government.

Although it is rather difficult to measure the impact of Nigeria’s health policies and projects with any degree of precision, it is possible to look at the country’s long-term health outcomes and link them to existing policies. Table 8.1 uses mortality rates as a general proxy for health outcomes in Nigeria since independence in 1960.

(24) See for example www.nigeriamonitor.com.(25) See www.unicef.org/nigeria/children_1926.html.

Table 8.1Nigeria: Changes in Mortality Rates since Independence (1960)

Mortality category 1960 1970 1980 1990 2000 2010 2015

Under-5 child mortality (probability of a child dying before age 5) per 1,000 live-births

330 286 210 199 170 130 108

Female mortality (probability of a female dying between the ages of 15 and 60) per 1,000 women

454 409 366 360 387 360 338

Male mortality (probability of a male dying between the ages of 15 and 60) per 1,000 men

520 468 420 414 425 393 375

Source: World Bank, World Development Indicators, 2018, and UNICEF website

As everywhere in the developing world, child mortality in Nigeria has decreased sharply over the past half-century. In 1960, under-5 child mortality was 330 per 1,000 live births (meaning 30 percent of the children died before reaching their 5th birthday), fell to 210 in 1980, 199 in 1990, and 100 by 2015. The 2015 figure meant Nigeria just barely met the MDG target of reducing child mortality by two-thirds in 25 years. Mortality rates for adult females and males have improved, but not as rapidly as for under-fives, and life expectancy has also risen. However, there was a distinct rural-urban disparity in the quality and delivery of healthcare as well as the outcomes. The government estimated, using official data, that while under-five mortality was 128 per 1,000 live births in 2013, it was 100 in urban areas and as high as 167 in rural parts of the country. And even within rural areas, there were marked differences in child mortality between those in the northeast and in the rest of the country(25).

The example of South Korea illustrates that universal health insurance coverage is crucial to improving the welfare of the population. By the early 1970s, early in its development process, South Korea had implemented universal health insurance. Given its size and political configuration, Nigeria has found it much more difficult to establish the institutional structure and to mobilize the financing required for a similar health insurance scheme. Thus, although Nigeria’s universal health insurance scheme was first created in 1999 and extended by legislative provisions in 2004 and 2005, by 2015 it still only covered less than 3% of the population. Researchers warn that a big bang approach might not be feasible and that a measured approach that introduces universal healthcare to states “one state at a time” would be sensible (Gustafsson-Wright and Schellekens 2013).

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http://www.nigeriamonitor.com

http://www.unicef.org/nigeria/children_1926.html

8.4Public Service Delivery in Lagos StateIn July 2010, the Lagos State Civil Service Commission introduced a service charter whose objective was to provide citizens good governance, equal access to employment, and a demonstrable improvement in service delivery. It was one of the most palpable attempts by the state government to profile itself as a transformative agent of change, while also putting together a concrete framework for assessing its progress. The Civil Service Commission has engaged with stakeholders across the state on the charter and sought feedback on how to improve service delivery.

8.4.1 The Education Sector of Lagos State

Lagos State has a population of some 17.5 million, with about half the population under 18 years. The demand for education and vocational training in the state is high. The areas of focus for the education sector are early childhood education, primary education, junior secondary education, senior secondary education, technical and vocational education, tertiary education, and adult and non-formal education. In a populous state like Lagos, with a major city, the number of stakeholders is large—often pulling in opposite directions. They include the Lagos State Technical and Vocational Education Board, Tertiary Institutions, Teachers Establishment and Pensions Office, Office of the Special Adviser on Education, State Universal Basic Education Board, Local Government Education Authority, and Educational Districts.

The Lagos State Policy on Education is primarily based on the National Policy on Education (NPE) that was produced in 1988 and has undergone several reviews (Federal Ministry of Education 1988). The Lagos policy is currently being reviewed. The policy of the state government is to provide quality education to the population in full partnership with teachers, parents, and other stakeholders, including the private sector and non-governmental organizations. The state plans to construct schools in all local government authorities; refurbish primary and other schools, including restocking libraries and providing furniture and equipment; enhance teacher welfare; support community-based vocational training; eradicate moral decadence in schools; support environmental efforts, including “going green”; and provide scholarships to the disadvantaged.

Some of these policy approaches warrant elaboration. First, the state will continue to provide free education, although the state government encourages the communities where schools are located—through bodies such as parent and teacher associations or/and community development committees—to provide moral and financial support to the schools. Second, the government will encourage private participation in the school system, partly to encourage healthy competition between private and public schools and also to provide students and their parents with alternatives. The government has provided the appropriate guidelines; the legal entities allowed to start their own schools, subject to approval, are Nigerian proprietors, religious groups, foreign embassies, communities, government agencies, and trusts and foundations.

The Lagos State school system comprises over 1,000 primary schools, some 630 secondary schools, 5 technical schools, and 1 polytechnic and over 1 million pupils. During the 2011/2012 academic year, 456,531 pupils attended primary school, 347,529 junior secondary school, and 262,548, senior secondary school. Three years later in the 2014/2015 school year the numbers were 406, 678 for primary, 316, 418 for junior secondary and 564,758 for secondary. Table 8.2 shows that the pupils per teacher ratios were fairly steady over the 6 academic years examined (with the exception of 2011/2013 when the figure for pupils boomed)(26), with more students per teacher in primary and junior secondary than in senior secondary. However, anecdotal evidence shows that student:teacher ratios have since increased in all school types (Ajani and Akinyele 2014).

(26) In the following academic year (2013/2014), a total of 170,000 pupils seem to have dropped out of school (according to official data), which would indicate an extremely large level of pupils dropping out from the Lagos State school system.

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Table 8.2Pupils per Teacher in Lagos State, 2009/2010-2014/2015

2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015

Primary 28 37 34 47 33 38

Junior secondary 37 38 32 - - -

Senior secondary 26 24 26 31 22 29

Source: Lagos State Government (2016)

Notable achievements include the following: major construction and rehabilitation of classroom blocks, provision of toilets to hundreds of schools, hitherto without such amenities; encing of over 90 schools, completed construction of six multilingual laboratories; and rehabilitation of five technical colleges as part of efforts to reposition the role of technical vocational education in the state’s education system.

The Lagos State Government launched its “Support Our Schools Initiative” in a bid to resolve the challenge posed by its free education policy while seeking to maintain the quality of education. Corporate entities, individuals, religious bodies, and NGOs have contributed to the effort, by adopting schools in the different parts of the state. It would be interesting to assess what incentives are required to maximize benefits from the contributions, and how these contributions can be institutionalized in order to prevent abuse.

The state government, as noted above, is concerned about the moral rectitude of the student body, especially with indecent addressing arising from lack of enforcement of uniform wears. It believes that high standards of both etiquette and dress are needed. Free uniforms have been issued to all students with a “view to reawakening the values of old.”

8.4.2 The Health Sector of Lagos State

As in other states of Nigeria, the healthcare system in Lagos State comprises three layers: primary, secondary, and tertiary. The state government is heavily involved in the regulation of all aspects of healthcare provision, but its priorities being on primary healthcare revitalization, health financing, preventive care, and disease management. Its goal is to provide every Lagosian unfettered access to quality healthcare without financial or other barriers. In 2015, the state had 26 general hospitals, 272 health centres, over 2,000 medical doctors, and 3,000 nurses. The number of doctors in the system has increased steadily over the past decade, reflecting the relative attractiveness of the Lagos State as a place to live.

The state ministry of health has nine directorates: healthcare planning, research, and statistics; primary healthcare; hospital services; occupational health and staff clinic; pharmaceutical services; medical administration and training; nursing; and accounts, finance, and administration. The ministry designs strategies and policies for the management of health care services in the state and provides preventive and curative health services. It sets standards and regulates the practice of healthcare and related services in the state—including training, qualifications, and standards of performance. It is also the ultimate arbiter with respect to quality control, consumer dissatisfaction, and redress within the stipulations of the law.

Among the regulatory agencies are the Health Service Commission, the Lagos State Blood Transfusion and Certification Committee, the Health Facility Monitoring and Accreditation Agency, the Lagos State Traditional Medicine Board, the State AIDS Control Agency, and the State Primary Healthcare Board. Among the interventions that these agencies undertaken in 2014 were the following: efficient delivery of emergency services in 25 hospital units through engagement of extra staff on an as- needed basis; monitoring the activities of 781 health facilities and sanctioning those found in violation of rules and procedures; registering and monitoring practitioners of traditional medicine; and offering HIV/AIDS counselling to some 60,000 clients of the system, with those found to be HIV positive given the appropriate care.

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In 2006, Lagos State adopted the State Health Sector Reform Law, which led to the establishment of the Health Facility Monitoring and Accreditation Agency, to ensure the maintenance of standards and improvement in the quality and efficiency of healthcare delivery. The state’s Strategic Health Development Plan (2010-2015), drawing on the federal version, addresses health financing, national health information systems, community ownership and participation, partnerships for health development, and research for health. The state government has introduced its own local priorities, including reducing maternal mortality by 50%, reducing under-five child mortality by 33%, and achieving significant reductions in the incidences of HIV/AIDS, tuberculosis, and malaria by 2020.

The state’s ministry of health has also embarked on a process of modernization—with the construction of maternal and child health complexes, establishment of a new cardiac and renal centre, and purchase of new medical equipment. The ministry has boosted the capacity of its staff through well-paced specialised clinical refresher courses for over 1,700 people, while updating training programmes organised by the state ministry of health. Continuing medical education was given to 1,194 medical doctors in the state in a bid to meet the renewal requirements of the medical and dental council of Nigeria.

The challenges of the Lagos State healthcare system, while similar to those at the federal level and in other states, have a number of peculiarities.

First, for a state dominated by the urban sprawl of the City of Lagos, getting quality services to the whole population has been quite difficult. Owing to the constant inflow of people from the hinterland and the proliferation of temporary structures, proper interventions cannot be designed at reasonable cost.

Second, the number of health workers is inadequate for the task. The state had a health professional to population of 1:2,020 in 2009, which rose to 1:2,800 by 2015. Since professionals are not equally distributed in the state, people in the rural areas have much less access to medical professionals than those in the urban and peri-urban areas.

Third, although the state’s goal is to provide free healthcare to all, the public healthcare system is underfunded and unable to extend care to the poorest households. In spite of official efforts, there are still a number of expenses associated with healthcare access in Lagos State—including the cost of drugs. Devising a system that provides healthcare to the most needy households, through an appropriate design of health insurance schemes, without bankrupting the system is urgently required.

8.5Public Service Delivery in Cross River State(27)

Cross River State was created in 1967 from the former Eastern Region. In 1978, a separate state, Akwa Ibom, was carved out of parts of Cross River. Today, Cross River has a population of some 3.8 million. Although agricultural activities sustain 75% of the population, the state has rich oil and gas deposits and could well become a significant producer of crude oil in the decades to come. This would reduce the state’s significant dependence on revenue from Abuja to run some of its social services.

(27) The following are useful sources: Cross River State reports/publications: 2012a; various years; 2009a and 2009b.

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A —Education Provision in Cross River State

The Cross River state ministry of education has policy control over all the boards, parastatals, and agencies linked to education at the state level. The ministry undertakes planning, R&D, and quality assurance, through periodic inspection, monitoring, and evaluation of standards in schools. There are boards responsible for technical/vocation training as well as for secondary education. The Institute of Technology and Management provides professional technical competences and R&D capabilities in a range of engineering areas applicable to industry. Two state-level institutions of higher education (Cross River State College of Education and Cross River State University of Education) provide training in education, technical, and social science subjects. The Library Board oversees library services in the state, along with adult and non-formal education.

Basic education is compulsory for all school-aged children (especially aged 6 to 12 for primary education) and public schools are free. However, some poor parents in the state regard primary education as a liability partly because they see no direct benefits from it. In their view, education makes their children less willing to remain on the land as peasant farmers, while there is little off-farm work in the countryside. Thus, children who have never attended school come mainly from the poorest households, while the richest households, who have no need for their children’s labour input, account for a disproportionately large share of the state’s education enrolments.

Although seemingly streamlined, the education system in Cross River is impeded by poor finances. The state spends close to half its education budget on primary education, but teachers are often paid late or not at all. Support from the international community and the federal government has helped, but much more external funding is required to close the gap.

The quality of basic education varies considerably among local governments in the state, reflecting the commitment of local elites to education as well as the importance that local populations attach to it. Rural local government areas are unable to attract good teachers for lack of finances, while those with higher populations often are unable to spend more than others on teacher recruitment. There is thus a lack of standardization, with the authorities adjusting to the fiscal situation as the circumstances permit. Although secondary education accounts for 15% to 25% of the education budget, much more money will be needed to absorb the number of candidates for secondary education generated by the universal basic education. Similar pressure will be reflected on higher institutions of learning in the medium to long term.

The financing of higher education is no easier than that of the lower levels and most of the tertiary institutions in the state have serious financial challenges. Typically, the state awards a scholarship to local students (indigenes), but that only covers a fraction of the cost of education, with the rest coming from parents, friends and family, among others. State subventions to institutes of higher education are limited to the cost of salaries, leaving them to charge students tuition fees to cover operational expenses. Previously, the higher institutes of education had expanded their intake to maximize fees, but the new accreditation system, which also considers student-teacher ratios, has discouraged the practice of mass intakes.

The lack of finances has affected institutions of higher learning in some serious ways. Notably, there are no funds to send students for practical training/practice, which are so essential in teacher and technical training. Moreover, given the resource gap, R&D is not given priority. A clearer vision for higher education in Cross River is thus required. It should focus on affordability as well as on final outcomes, in terms of graduates’ employability or capacity to start businesses. The state needs to find a viable financing model for higher education. While the higher institutions of learning must become more efficient, the total budget allocation to them must improve—if need be through the use of strategic funds. This can, however, only be justified if higher level training is having a real impact on the Cross River economy.

The private sector is an important supplier of education in Cross River, relieving the state to some extent. Household survey data indicate that on average non-state providers accounted for over 20% of primary school enrolments in Cross River during the past decade (National Bureau of Statistics, various issues). The cost of private secondary education is at least three times that at the primary level. Curiously, the Federal Unity Schools in the state—well funded and elitist—are mostly attended by children well-off families.

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Assessing standards in Cross River State. The average class size for public primary schools in Cross River State is 45-65 pupils, while that for public junior secondary schools is 35-55. Class sizes are smaller at senior secondary schools. Urban schools are typically more congested than rural schools but have better trained teachers. The provision of basic textbooks is poor across all schools.

Stakeholders believe that the quality of primary and secondary schooling in Cross River is lower than that in neighbouring states, and that it has declined sharply over the past two decades as a result of the chronic lack of resources, increasing enrolments, poor management, and demoralised teachers. The financial crisis has affected the supply of basic physical infrastructure (classrooms, libraries, laboratories, offices, student hostels, staff housing). The higher institutions of learning are not in a position to be leaders in knowledge generation in the state.

Looking ahead. there are both challenges and opportunities to be had in Cross River’s education sector.

Educational reforms in Cross River state have often been patchy and poorly thought through. For example, the introduction of universal basic education was not supported by the training of enough teachers or the preparation of a wage package that attract new teachers. In many cases, the teaching load for teachers at the primary school levels expanded and quality suffered.

The education sector in Cross River and that in Nigeria as a whole is characterized by sharp gender inequalities. Although much effort has been expended on addressing these over the past decade, progress has been limited. As a rule, female teachers dominate at the primary school level, mostly because of the more modest emoluments, while male teachers are more common at the secondary school and higher levels. The gender distribution of the students at the various level shows a similar pattern—fewer girls/women participating further up the hierarchy of institutions. With universal basic education, the number of female students at the entry levels of primary school now equals that of males in some local government areas of Cross River, but the numbers fall off rapidly after that (although the introduction of free secondary education could help change this with time). As in other African countries, an often-cited impediment for young female students is the absence of toilet/hygienic facilities dedicated to their needs. However, the gender gap is sometimes driven by the parents, who when deciding whom to withdraw from school for household chores are more likely to choose a girl child over a boy.

Some of the state’s educational challenges could be resolved by better planning. There is currently little systematic information gathering and planning for the educational needs of the state’s population and how these can be met. Although the quality of statistics on schools and other aspects of education service provision have improved in recent years, they must be consolidated within an effective operational strategy, including well-specified enrolment numbers, clear learning outcome goals and targets for basic, secondary, and higher education, and specific action plans to increase effectiveness in all areas of service delivery (especially teachers and support staff, infrastructure, and learning materials). Not least, robust costing strategies and financing projections are required to eliminate the perennial financing uncertainties that currently threaten the system.

The incentive structure within the education system must be consistent and effective. It is important, for example, to link student performance to teachers’ career prospects. Good teachers should be rewarded and those not dedicated to the system, removed. This would, however, require a new way of thinking, including greater transparency. It is important for the clients (students and parents/guardians) and the owners (the local government’s political leaders) to know how their schools are performing.

Greater stakeholder involvement in education in Cross River State will be important in improving the quality of delivery and nhancing the system’s relevance. More parental and community involvement in the management of schools will help alleviate some of the gender disparities mentioned above and could have payoffs in terms of better management of teachers and learning resources (such as libraries), school attendance, and school funding more generally. Education NGOs can play an important role in monitoring and evaluating the performance of public education provision, assessing new policies and innovations, and strengthening capacities for planning and management. Moreover, they could be effective advocates for education overall.

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B —The Healthcare System in Cross River State

Cross River, like other states in Nigeria, has a heavy disease burden comprising mainly communicable or vector-borne diseases such as malaria, diarrhoea, HIV/AIDS, and tuberculosis. Others include cerebrovascular diseases (including stroke) and coronary heart disease. A number of diseases such as river blindness, elephantiasis, and schistosomiasis are endemic in swathes of the state, causing much suffering and lowering farm productivity. Cases of rabies have been reported in all the senatorial districts of the state.

Health and demographic outcomes in Cross River are in some aspects poorer than the average in Nigeria. Malnutrition and antenatal and maternal diseases/afflictions are responsible for the state’s relatively high mortality levels. Surveys done by the Nigerian Evidence-Based Health Initiatives (NEHSI) in 2013 indicate that although 70% of mothers attend antenatal care on a regular basis, only 54% attended the recommended four times, while less than half deliver at a public health facility. The proportion of children aged between 1 and 2 years who received measles vaccine was high, at 77.1%, but only 52.5% were fully immunized.

The healthcare system in Cross River State consists of a three-tier structure: primary, secondary, and tertiary healthcare institutions. Cross River state has over 720 health posts, 250 health centres, 5 comprehensive health centres, and 14 general and 2 cottage hospitals. In addition, the state has 121 private health clinics and two private tertiary hospitals. Fourteen local governments have at least one public secondary health facility, with only the local government areas of Boki, Ikom, Etung, and Bakassi lacking such a facility.

Out-of-pocket expenditure by households was by far the largest source of health expenditure funding in Cross River. Although the global benchmark for budgetary allocations to health set by the WHO is 15% of the total national budget, the Nigerian government only spent 5.6% of its total budget on health in 2014. This was in turn reflected in state-level budgets. Healthcare is financed through four main sources: budgetary allocations from government, loans and grants from developmental partners, NGOs, and out-of-pocket expenses.

There is an elaborate structure for managing healthcare, which, besides the health ministry, includes the State Primary Healthcare Development Agency, the Hospital Management Board, and the State Health Insurance Agency. The operational agencies include Community Health/Primary Healthcare, Roll Back Malaria, the State Agency for Control of AIDS, the Essential Drugs Programme, the College of Health Technology, Schools of Nursing and Midwifery, and the general hospitals. The ministry of health formulates policies and plans, and supervises all agencies related to healthcare delivery, often with a dotted line to the governor. The ministry mobilizes financial and human resources for the health sector and crucially monitors and evaluates interventions to ascertain value for money criteria. It establishes standards of practice and sanctions policy failures.

8.6Social Service Delivery in Kaduna State(28)

Before becoming a state in its own right, Kaduna was the epicentre of the Northern Region of Nigeria. In 1967, the Northern Region was split into six states, including the North-Central State, which became Kaduna State in 1976. Twenty years later, in 1987, a portion was carved out of the state and named Katsina State. Kaduna State has a population of 12 million. Economic activities in Kaduna State are centred on agriculture, mining, manufacturing, education, commerce, and other support sectors. The state contributes on average 3.3% of Nigeria’s GDP. It is Nigeria’s third-largest non-oil economy, with a rural setting and the attendant challenges with respect to service delivery.

(28) For additional information, see Kaduna State Government publications: 2016, 2014a, 2014b, 2013a, and 2013b.

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A —The Education Sector in Kaduna State

The mandate of the state’s ministry of education includes formulating and implementing policies as provided for in the National Policy on Education—including teacher training and provision of scholastic materials, infrastructure, and equipment to public schools. The goal is to ensure that all school-aged children have access to free quality education. Moreover, the ministry is also mandated to strive to eradicate illiteracy and poverty and ensure a high rate of job creation. Aspects of the ministry’s mandate, such as enhancing collaboration with communities in matters of continuing education and eradication of gender gaps, are undertaken at the local government area level. Education policies are implemented by a number of agencies and boards including the Kaduna State University Board, the Kaduna State College of Education Board, the Universal Basic Education Board, the Kaduna State Private Schools Board, the Kaduna State Agency for Mass Literacy, and a number of others with much more limited focus.

The Kaduna State Private Schools Board is a unique institution with few parallels in the rest of the country. It was set up in 2007 to ensure that proprietors of the private schools adhere to the provisions of national and state policies, education law and other guidelines. The board also regulates the fees charged by private schools, while ensuring a conducive teaching environment.

The Kaduna State Universal Basic Education Board is at the center of basic education provision in the state. Its mandate includes the management of primary, nomadic, and junior schools, and the recruitment of teachers and staff, their internal training, discipline and promotion. It is also responsible for the inter-state transfer of staff; disbursement of funds from the local, state, and federal levels; and running the state’s public library system, including outreach activities to the broader public and encouraging community participation. Given the pastoral livelihoods of parts of the population, providing them with meaningful services and involving them in basic education projects has been inhibited by financial and human resource challenges.

Bureaucratic conflicts over education mandates have made the work of the ministry of education quite difficult. For instance, the ministry of education does not run the science and technology schools, which are currently supervised by the Kaduna State Science and Technical Schools Management Board under the Ministry of Science and Technology. The Nuhu Bamalli Polytechnic in Zaria is under the same ministry. Likewise, training in the health and allied sciences, is supervised by the ministry of health. The responsibility for girls’ education is partly shared by the agency for mass literacy, which has brought to the fore issues of funding and coordination.

The state government has adopted a pilot corporate planning approach to address these inter-agency conflicts in a number of ministries, departments, and agencies. The aim is to develop operational plans that will ensure the best use of resources within the desired timeframe across state institutions. It will help eliminate redundancies, determine the human resource levels required, strengthen management of service delivery, and clearly articulate visions and objectives. The coordination of this corporate streamlining is undertaken by the Bureau of Establishments, Management Services and Institutional Capacities, and has provided clearer focus and direction.

There has been substantial involvement of development partners in the provision of basic education in Kaduna State. The UK’s DFID, the World Bank, and other agencies have supported Kaduna State’s efforts via the Education Sector Support Program in Nigeria (ESSPIN). The program has supported a review of the strategic planning component of education in the state to enable preparation of a medium-term perspective. It has also taken up neglected areas such as the provision of teaching materials and curricula for hearing- and speech-impaired children. And it has helped mobilize co-financing by communities of the rehabilitation of schools around the state, including sanitation facilities, and contributed to raising teaching skills at the basic level. It has also provided support to the Almajiri education program, with the construction of formal structures such as buildings.

The Kaduna State Education Quality Assessment Board, established in 2013, has observed improvements in net enrolment rates: between 2010 and 2013 primary enrolment rose from 87% to 95%, junior secondary from 38% to 43%, and secondary school from 28% to 30%. But Kaduna’s education system has also confronted many serious issues. For example, half of all teachers lack the requisite qualifications and were given an opportunity to upgrade through refresher courses, and 1,200 teachers were expelled in 2012 when it was discovered they had presented fake qualifications. Data suggest an even bigger problem of quality control upon entry into the profession and possibly weak governance within the control agencies. Another challenge is the degradation of school infrastructure owing to poor maintenance and low capital development budgets.

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B —Healthcare Provision in Kaduna State

The ministry of health’s core mandate includes the design and implementation of healthcare policy, the monitoring and evaluation of health planning and management, and the delivery of preventive, curative, and rehabilitative health services, including pharmaceutical services. The ministry oversees health training institutions and human resource development, maintenance of health infrastructure, and legislation and regulatory environment. The healthcare system of the state incorporates the following agencies: the Kaduna State Primary Healthcare Agency, the Drugs and Medical Supplies Management Agency, the Hospital Management Board/Committees, the College of Nursing and Midwifery at Kafanchan, and the Shehu Idris College of Health Sciences and Technology at Markafi. The Kaduna State Aids Control Agency is mandated to design and implement action for the prevention and control of HIV/AIDS. The local government authorities provide immunization services and support the “war” against malaria.

In the past decade, several conflicts have arisen among the various constituencies in Kaduna State, and other states in Northern Nigeria, over the issue of family planning and child immunization. While the state sees immunization as the best way of preventing infectious diseases from occurring or reducing their virulence, some parents believe that immunization sterilizes their children and have resisted it vehemently. This has led to slow progress in the immunization of children against the deadly five diseases of diphtheria, tuberculosis, measles, meningitis, and hepatitis A. This slow progress ultimately threatens the greater progress achieved in other parts of Nigeria, with the threat of recurrence ever present. Making progress on this issue will require carefully designed strategies that seek consensus at the community level. The process is bound to be slow and may even be reversed before concrete results are achieved.

In the area of family planning, there have been sharp difference between faith-based demands and the state’s healthcare practices and options. Households have been reluctant to embrace modern family planning, preferring their traditional dependence on “natural” family planning, even when the rising number of children cannot be adequately taken care of. There have been attempts to approach the issue through advocacy and popular education via government media. An innovative approach will be required to overcome the resistance against family planning, which has deep religious and traditional roots.

Nevertheless, the state has sought to apply ICT technology to solve some of the constraints in the health sector. For example, a partnership between Kaduna State, Airtel Mobile, and the Millennium Village Project of the Earth Institute, Columbia University (located in Pampaida) has significantly reduced the mortality and morbidity rates of infants and mothers by enhancing communication among health workers. This has allowed health workers to administer rapid diagnostic tests and transfer the results to experts who can suggest treatment in real time.

The state has an operational policy guideline for donors and other agencies operating there. Donors provide a range of free services—from immunization to contraceptives. The state recently signed memoranda of understanding with a range of agencies, including the Bill and Melinda Gates Foundation, the Dangote Foundation, and UNICEF. However, a coherent strategy for strengthening the state’s capacity to provide services on a sustainable basis is not yet evident.

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References

Ajani, I., and O. Akinyele (2014) “Effects of Student-Teacher Ratio on Academic Achievement of Selected Secondary School Students in Port Harcourt Metropolis, Nigeria”, Journal of Education and Practice, Vol. 5, No. 24.

Cross River State Planning Commission (2012a) Socioeconomic Development Survey Report. Calabar, Nigeria.

Cross River State (2012b) Guidelines on Government Procurement Policy. Calabar, Nigeria.

Cross River State Bureau of Statistics (various years) Statistical Year Book. Calabar, Nigeria.

Cross River State (2011) Public Expenditure and Financial Accountability/Public Financial Management. Calabar, Nigeria.

Cross River State Planning Commission (2009a) Cross River State Economic Empowerment and Development Strategy 2. Calabar, Nigeria.

Cross River State Planning Commission (2009b) Cross River State Vision 20:2020. Calabar, Nigeria.

Federal Republic of Nigeria (2014) National Health Act, 2014. Ikeja, Nigeria: Federal Republic of Nigeria Government Printer.

Federal Ministry of Health (2013) Nigeria Evidence-based Health System Initiative Report. Sponsored by Canadian International Development Agency, Ottawa: CIDA.

Federal Ministry of Education (1988) National Education Policy. Abuja, Nigeria: Federal Republic of Nigeria Government Printer.

Gustafsson-Wright, E., and O. Schellekens (2013) “Achieving Universal Health Coverage in Nigeria One State at a Time. A Public-Private Partnership Community-Based Health Insurance Model,” Brooke Shearer Working Paper 2, June. Washington DC: Global Economy and Development at Brookings.

Kaduna State Government (2007) Kaduna State Economic Empowerment and Development Strategy. Kaduna, Nigeria: Office of The State Government.

Kaduna State Government (2013) Kaduna State Development Plan 2014-2018. Kaduna, Nigeria: Ministry of Planning.

Kaduna State Government (2014a) Report on the Review of Mandates of Ministries, Departments and Agencies in Kaduna State. Kaduna, Nigeria: Office of the Head of Service Kaduna State Government.

Kaduna State Government (2014b) Kaduna State Development Plan (2014-2018). Kaduna, Nigeria: Ministry of Economic Planning.

Kaduna State Government (2016) Approved Budget for 2016. Kaduna: Office of the State Accountant General.

Lagos State Government (2013a) Lagos State Development Plan 2012–2015. Ikeja, Nigeria: Ministry of Economic Planning and Budget.

Lagos State Government (2013b) Education Management Systems. Ikeja, Nigeria: Ministry of Education.

Lagos State Government (2016) Statistical Bulletin. Ikeja, Nigeria: Lagos State Bureau of Statistics.

National Population Commission, Nigeria (2013) Nigeria Demographic and Health Survey Report. ICF International.

UNICEF (various years) The State of the World’s Children. New York: UNICEF.

United Nations Economic Commission for Africa (1990) Public Expenditure and Service Delivery in Africa: Perspectives on Policy and Institutional Framework. Addis Ababa: ECA.

USAID (2001) Nigeria: Local Government Assessment. Lagos: U.S. Agency for Internal Development.

World Bank (2014) Quality of Services Assessment and Resource Tracking Studies in Nigeria, Cross River State Report. Lagos: Hanovia Medical Limited.

Yi, I. (2011) The Development of Social Service: Education and Health Policies in Korea. Geneva: UNRISD.


CONCLUSION

Chapter IX

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9.1Introduction 104

9.2Implications of the Developmental State Model for Nigeria 104

9.3Lessons for Nigeria from the South Korean Experience 105


9.1Introduction This study of the relevance and feasibility of the developmental state model in Nigeria has focused on the issues of governance, institution building, policy formulation, state and bureaucratic capacity, and the nature of the business and public-sector alliances for development that are evolving in the country. However, Nigeria is a big country with a large population and economy—where several stages of economic development are evident, from the petroleum-states of the Niger Delta to the middle-class ambitions (and trappings) of Lagos State, the agricultural expanses of Kaduna, and aristocratic mores of Sokoto. A developmental state model that sought to encapsulate all these fine features of Nigeria’s socio-economic landscape would not be feasible—or desirable. The study thus settled on a limited number of themes: industrialization; the private sector and enabling infrastructure; institutions, governance, and inclusion; social service delivery; and managing natural resources.

9.2Implications of the Developmental State Model for NigeriaSouth Korea emerged from WWII and Japanese rule as a poor country comparable to any in Africa before that continent’s transition to independence during the 1950s and early 1960s. The existential threat posed by a well-armed North Korea was possibly a crucial uniting factor for South Korea. Despite its poverty and disease burden, political conflict, and military dictatorship, South Korea managed to craft a viable development strategy around which the bulk of the intelligentsia could coalesce. This required strong and visionary leadership.

At the end of the 1950s, Nigeria had vastly more resources than South Korea, and its leaders had visions of rapid economic progress and grandeur. They failed, however, to design a development vision on which the majority could agree, and decades of violence and chaos followed Nigeria’s independence in the 1960s. Nigeria’s preconditions for development today are vastly different from—and superior to—those of the 1960s, though the conditions for the imposition of the developmental state model of the Korean type on the country and the development of an export-oriented industrialization effort might not occur, in light of the changes in global conditions.

Democracy has become the watchword for Nigeria’s progress. The country appears ready to once again choose a path to sustainable economic transformation. That path might not be the “classical” developmental state approach that we know from East Asia, but the central precepts of that model are being copied one way or the other by state governments around Nigeria and at the federal level—including through alliances between the public sector and business. Although oil continues to have influence on the Nigerian economy, other sectors of the economy—where the bulk of the economy is deployed—are becoming more important.

Adaptability, around some central institutional and policy tenets and precepts, is the essence of the development state, at least as practised in South Korea. These include a state that is able to formulate and implement policies for development, policies and strategies that derive from evidence-based analysis and have real positive consequences for the population (for example, enhancing domestic welfare, creating employment, or preserving peace) and for the government itself (allowing it to sustain its rule). The focus is on the long term and strategies are inoculated from short-term political considerations. Above all, the model’s success builds on domestic collaboration among institutions and political classes rather than impositions from international agencies. Nigeria has shown over the years that it is capable of designing its own “home-grown” development policies (NEEDS being a case in point). What it will need to demonstrate in the decades ahead is that its policies have a real effect on the ground, which from the developmental state perspective is equal to self-sustaining industrialization.

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Two aspects of the developmental model that have not found much traction in Nigeria and other aspiring African countries: An elite civil service/bureaucracy and a pilot agency to guide the reform and economic transformation process. Given the many interventions required along the institutional and policy transformation chain and the quality data and analysis needed, the developmental state requires a highly trained and motivated bureaucracy to undertake the necessary coordination and evaluation. The Nigerian civil service, on the other hand, has sometimes been accused of being the problem rather than the solution. It is required to have a “federal character”, which in some cases might enhance rather than prevent conflict.

Ironically, although one could assume that the states, which are more ethnically homogeneous, might be better than the federal government at creating the preconditions for developmental statehood (via an elite bargain involving bureaucrats, the business community, and other stakeholders), evidence on the ground indicates that there are serious political proclivities in most states in Nigeria. What is more important than social homogeneity is the creation of credible and robust institutions to ensure continuity and focus on development—while politicians come and go, institutions (even poor ones) tend to last much longer.

In the early post-independence years and particularly under General Gowon (1966-1975), Nigeria had a capable civil service, including an elite corps of senior civil servants (the so-called Super Permsecs)(29) that provided a coherent and effective economic policy framework for Nigerian development. After General Gowon’s overthrow, the Super Permsecs and a large number of other civil servants were removed from office—they were seen as too powerful. Since then, the number of civil servants has grown exponentially at the federal and state levels in line with the consolidation of Abuja as the Federal Capital and the creation of new states. Although larger today than ever before, the bureaucracy has lost its autonomy: the line between the public administration and politics is blurred.

The establishment of a pilot agency is never emphasized in Nigeria because it would be a competing centre of power if it acquired the resources and affluence of, for example, the Japanese Ministry of International Trade and Industry or the South Korean equivalent of Economic Planning Bureau. Coordinating functions are today split among many institutions in Nigeria, including the president’s office (economic advisor), the central bank, ministries, and agencies. A similar approach is used at the state level, where coordinating functions are dissipated among several offices. Under the previous government, the office of a coordinating minister for the economy had been devised as a means of enhancing policy coherence, but was discontinued after 2015. Ultimately “super ministries” are never well tolerated given political exigencies. However, for a period of time a pilot agency can be useful in providing rigorous coordination and for keeping civil servants in line.

9.3Lessons for Nigeria from the South Korean ExperienceThe global economy does not adjust to national development needs; rather, the national needs must adjust to the preconditions offered by the international economy. An important lesson from 60 years of South Korean development is that success requires a high level of context awareness, with the goal of taking advantage of the opportunities made available. It is often argued that South Korea was able to grow rapidly because the global conditions were different then. However, South Korea did not wait for the opportunities to come; it sought them out. It has also been argued that Nigeria’s current democratic disposition might work in its disfavour since a degree of authoritarianism is required to establish a developmental state. This would again be a case of getting the context wrong: Nigeria has had its share of authoritarian regimes but performed poorly, while many democratically disposed governments have been able to garner growth of their economies.

(29) Permanent Secretaries of key federal government ministries.

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Corruption is inimical to the pursuit of an ambitious development agenda. South Korea is today as well renowned for its low tolerance of corruption as it is for its rapid development. But that was not always the case. A critical difference between South Korea and Nigeria today is that the former was able to curtail corruption at the beginning of its development surge in the 1960s, under the regime of General Park, and has continued to fight corruption, sometimes entrenched, ever since. By contrast, official corruption in Nigeria has remained a persistent threat to the viability of its public sector and the performance of the rest of the economy—it seems impervious to all attempts by regimes to fight it. When corruption becomes the routine basis for coordinating and sustaining policies and programs in government, minor corrective insertions cannot eradicate it; radical surgery is required. The regime that ascended to power in 2015 seems to have noted of the gravity of the situation, starting with actions to limit rent-seeking in the oil sector, government contracting, and forex related business. However, decades of missed opportunities in tackling corruption have made the broader public cautious.

Ideologically oriented development strategies as well geopolitical posturing can only take a country so far. The East Asian economies, and South Korea in particular, while solidly in the capitalist camp, eschewed ideological fights, focusing attention on all opportunities for development. Thus, they took the side of the United States during the Cold War and subsequently because they viewed it as the country best suited to meet their investment, technology, and training needs. South Korea demonstrated that self-interest in an important pillar in development.

It has been argued that the current international trade regime under the WTO, which is largely rules-based, is not development friendly. For instance, the organisation does not permit foreign-owned enterprises to be subjected to local content regulations as happened in South Korea in previous decades. But while the new trade regime has closed some doors, it has opened others—which Nigeria must pursue, as South Korea did during earlier phases of development, including the purchase of shares in international energy and engineering companies to acquire technology. Nigeria could use its sovereign wealth fund to similarly acquire ownership or control of foreign firms of interest.

Geopolitical opportunities and legacies that can generate sustained growth and streamlined governance have development potential and should be pursued vigorously. An important lesson from 60 years of South Korean development is that success requires taking advantage of whatever windows of opportunity are open. Serendipity can be good for development, depending on how it is managed. South Korea used US aid in the 1950s very creatively to launch its import-substitution phase. The mass departure of Japanese settlers after WWII made land reform (partly undertaken by the American military) in the 1950s easier and provided a basis for welfare enhancement and poverty reduction among the rural landless. In Nigeria’s case, the real piece of good fortune has been not only the oil windfall over the past 4-5 decades but also its location vis-à-vis Europe, the United States, and Latin America. The question is whether it has been able to extract maximum benefits from these opportunities.

Establishing a developmental state requires national ownership at every stage of the process. South Korea’s economic transformation was the product of a nationalist project—pure and simple. The genius of the Park regime was to make virtually everyone in South Korea feel that contributing to development was a national duty. South Korea, while borrowing expertise where it could find it, focused on the importance of having its own citizens lead the transformation process. All experts had local understudies who were being prepared to take over. South Korea concentrated its investment resources on building and strengthening nationally owned (not nationalized) industry, applied strong rules and regulations to protect and promote local content in industrialization, and created an environment that favoured the accumulation of national production skills, managerial capabilities, and technological expertise. As a rule, South Korea did not suffer brain drain at levels experienced in Nigeria.

Strong and visionary leadership was indispensable for the establishment and sustainability of the developmental state in South Korea, but had to be tempered by a broader democratic vision. Upon taking power, General Park developed his development strategy and sought to implement it relentlessly. But, most important, he managed to develop an alliance between his bureaucrats and the business sector that was crucial for sustaining the process and for driving South Korea’s transformation. The coalition that General Park put together was not focused solely on raising the long-term welfare of the nation. Because the regime had created jobs and was raising popular welfare, its autocratic tendencies were tolerated for a while for the “common good”. The regime was finally brought down by a crisis of confidence. The critical leadership challenge in Nigeria is how to find the appropriate balance between making rapid progress on growth and ensuring that it is based on a process of inclusion—with improvements in poverty rates and equity.

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Successful transformation requires policy coordination, coherence, and consistency—and the tenacity to continue visiting incomplete agendas until they are resolved. Perhaps most intriguing aspect of the South Korean experience is how well the economic policy process was orchestrated, and how all the facets of the equation were brought together. The state was not only able to design coherent policies, coordinate all key stakeholders, and maintain focus on long term, it did so without losing popular support for the development process. Even after political crises, the nation continued to support the main ideas behind the developmental state in South Korea. Notably, human capital development was linked to the development of the economy, while R&D were dedicated to raising the economy to higher value-added production levels. Nigeria possesses more human and financial resources today than South Korea did when it set out on its growth quest. However, Nigeria needs to establish a credible capacity for coordinating, implementing, and evaluating its policies. Failing this, it will be condemned to repeating the same policies in the decades ahead, with little or no change in outcomes.

Political stability has been a key ingredient of the South Korean model, established controversially by an authoritarian regime. Although there are few counterfactuals in real life, it is sometimes wondered whether South Korea would have achieved the outcomes seen today without the authoritarian push of General Park. In the General’s view, economic development took precedence over everything else, including human and workers’ rights. What is important, however, is that such a view was disputed and South Korea came to appreciate the value of democracy as a good in its own right. Moreover, the experiences of Mauritius and Botswana show that democracy can be combined with growth even in Africa.

Last, but not least, the developmental model is amenable to replication. It is a heterodox construct that allows for experimentation and even failure, if there is the will to try again. Each aspiring country needs to bring on board its convictions and cultural nuances, as models of development relate closely to uplifting the human condition, including through personal, communal, and national progress. Sustainable development, poverty reduction, and economic transformation are worth fighting for.

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THE DEVELOPMENTAL STATE IN ZAMBIA:Plausibility, Challenges, and Lessons from South Korea

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