To understand what led to our present predicament after the economic boom of the past 8 years and to get our acts right at the moment, it would be best to understand that the healthy growth in the Nigerian economy resulted because love him or hate him, former president Obasanjo had the good sense of appointing a sound economic team led by Professor Charles Soludo and his colleagues – Ngozi Okonjo Iweala and Oby Ezekwesili. A team of qualified, equipped men and women and dedicated to thinking about and planning the national economy on a sustained basis. Some degree of logic began to be infused in economic decision making
Obasanjo not only appointed them, he gave them unqualified backing and support. They applied a healthy infusion of economic theory that is not just informed by practical experience from working for international institutions and consulting for more serious governments elsewhere but pragmatic.
Working in consonance with reform minded individuals in the person of Bashir El Rufai and Nuhu Ribadu the Economic team lent the Obasanjo “reform” some credibility.
Moreover, three major events impacted greatly on the country’s quest for economic development: The Economic and Financial Crimes Commission (Establishment) Act 2002, The Consolidation of the banking industry, The Pension Reform Act, 2004
Nigeria has a history of the use of laws to stimulate economic investments. The Nigerian Investment Promotion Commission Decree 1995 which came into force on January 16, 1995 was a deliberate attempt to encourage foreign investors to venture into any sector of the economy. But like I pointed out in a proposal (The use of Law as an Instrument of Economic Development) in 2007, which modified version was published on www.thenigerialaw.com, it takes more than law and legal instruments to attract foreign investors.
The banking system was reformed. Some degree of corporate governance in our banks was introduced. Inflation rate came down, the exchange rate and the interest rate became reasonably stable and companies could at last plan. These arrangements worked reasonably well and we exited the Paris and London Club.
A tougher line on money laundering and a newly-awarded BB- sovereign debt rating added to the allure at a time when global funds were turning to Africa as an antidote to dwindling returns in established pastures. So while some would like to deny this, Nuhu Ribadu and the EFCC contributed immensely to the growth.
At last the investing community decided to take a look and what they saw was sufficiently attractive for there to be a perceptible increase in foreign investment including homeward investment by Nigerians in Diaspora. These invested heavily in the stock market.
Even those who looted our economies in the past were not left out. In the past, manifesting their lack of trust in the economy they wrecked, they deposited their loot in Swiss, London and New York Banks. But as the EFCC saga with Mike Adenuga exposed, they also joined the fun and took to homeward investment.
Even among Nigerians, enough confidence returned to the Banking sector to move Nigerians to put their money in the newly capitalized banks instead carrying cash around. Most importantly, Nigerians learned to invest in stocks and shares as a way of growing wealth and saving.
Then on May 2007, Umaru Musa Yar’ Adua took over as the President of the Federal Republic of Nigeria. While violence and rigging rendered the April elections that brought President Umaru Yar’ Adua to power illegitimate in the eyes of many Nigerians, investors see the first civilian-to-civilian handover since independence as a sign of stability.
The questions on the lips of investors were: would Yar ‘Adua continue with the reforms and most importantly, would he have the courage and the guts to continue the war against corruption?
Adding to anxiety in political circles is speculation about the health of the president, Umaru Yar’ Adua who suffers from a chronic illness but insists that he is fine.
As the economy grew, development needs also increased, especially the need for electricity and roads. Poverty remains high despite solid economic growth. Higher oil earnings and spending has to be managed carefully to avoid pushing deficit to a level which would trigger inflation and lead to bust.
The pace of reform under the new government seemed precariously slow. Some said that it was not just a ‘go-slow’ it is a road-block”. It appeared that the president has pressed the pause button while wrestling with political and economic demons and working out just what to do. Yar Adua gave the impression of one who appeared unprepared to lead the world most populous black nation. He displayed all the attributes of an ill-prepared leader whose actions are dictated by sycophants and men and women whose idea and knowledge of leadership is to loot the treasury.
As President Yar’ Adua surrounded himself by men and women of questionable characters the anxiety on the direction of the new government turned to jitters. For those that had trusted on Yar ‘Adua’s credentials on corruption, his quiet mien and the mantra for the rule of law, there was palpable disappointment.
A mood of uncertainty began to develop among some quarters of the business, intellectual and political elite as the Presidency, The State Government Houses, State Assemblies and the National Assembly were simply turned into arena where loots are shared on a daily basis. And Yar’ Adua simply disappeared, out of site. The sad episode when the president disappeared for two weeks on medical treatment abroad with no one to clearly explain his whereabouts got Nigerians wondering who is actually in charge.
For the foreign investors who pin their hopes mostly on oil and gas, this might not matter. With prices as high as they are, there is no shortage of grease with which to oil the wheels of the patronage system on which political stability tends to rest.
As long as the country's oil revenues remain high and savings well managed, their hope was that Nigeria's economic prospects would remain very strong. If the authorities have their objectives clearly in mind and understand the issues associated with management of oil revenues and savings, progress would continue if Nigeria's home-grown and IMF-backed economic reform program and its guiding principles of reform remain in place.
Thus according to William Wallis and Matthew Green, in the Financial Times of June 23 2008 function floatContent(){var paraNum = "3" paraNum = paraNum - 1;var tb = document.getElementById('floating-con');var nl = document.getElementById('floating-target');if(tb.getElementsByTagName("div").length> 0){if (nl.getElementsByTagName("p").length>= paraNum){nl.insertBefore(tb,nl.getElementsByTagName("p")[paraNum]);}else {if (nl.getElementsByTagName("p").length == 3){nl.insertBefore(tb,nl.getElementsByTagName("p")[2]);}else {nl.insertBefore(tb,nl.getElementsByTagName("p")[0]);}}}} with the oil price standing far above $100 a barrel, it is tempting to think Nigeria is one very large part of Africa on which the world can safely bet. Its once formidable external debt is written off. Foreign reserves have expanded more than 10 times in as many years. A total of $55bn in oil earnings flowed into the treasury last year. As much as $76bn is anticipated in 2008. This is despite a slowdown in production caused by investment shortfalls and violence by militants vying for more power and wealth in the oil-producing Niger Delta.
As I pointed out in an earlier article- The Case against Ndi Okereke, early in 2008, informed individuals voiced their fears about the direction of the economy and their investments. The rising price of oil and increased earnings blinded the administration and its economic managers to the fact that the fast gamble being played on the economy by the Banks has started to give the economy high fevers.
For a while, the boom continued yet, they were jittery about the economy, there was palpable jitters about the direction the new administration is taking.
None of the former Governors whose stolen monies have been traced to various foreign accounts, whom Ribadu has vowed to prosecute, have been prosecuted. They all walk free under the protection of Mr. Michael Aondoakaa, the Attorney General and Minister of Justice.
In addition to the massive fraud witnessed during the 8 years of Obasanjo administration, massive looting continued apace to the extent that the new EFCC chairman, Farida Waziri cried out that the present governors siphoned their state allocations to buy up estates in the UK and the US – made cheaper because of the credit crunch; Resources that would have been used to lay a solid foundation for economic growth. Money that would have been used for development found its way to the bank vaults in London and New York. In fact, the period of highest income for the nation also became a period of unimaginable looting of the national treasury.
From the above, it would therefore be too simplistic to attribute the massive withdrawals by international investors from the Nigerian economy to the global economic crisis. On the contrary, the global downturn did in fact turn the eyes of the investing community towards Nigeria. Nigeria seemed insulated to the global crisis triggered by the sub-prime market crash. The sheer size of the country’s debt and equity markets has enticed hedge funds that worry about liquidity in smaller sub-Saharan countries, while strong domestic buying insulated Nigeria from a global sell-off in March 2008.
International investors are not Father Christmas; they would continue to invest in an economy that would continue to yield good returns for investment. Insecurity of investments and the level of corruption remains one of the major factors foreign investors are looking at. The perpetuation of criminality by the Nigerian Stock Exchange and the Banks, Government inaction, the removal of Nuhu Ribadu, the war against El Rufai, the turning of the EFCC into a toothless bull-dog now mocked and laughed at by those thieving politicians and the return to business as usual finally convinced the investment community that Nigeria has turned full circle.
Last week, when PriceWaterCoopers reported that the NSE lost N5 trillion market capitalisation in 2008 and in January 2009 alone dropped to a further N2 trillion, They pointed out that “A confidence crisis in the Nigerian economy coupled with prohibitive business environment had caused international corporations with Nigerian operations to relocate to more sustainable and friendlier markets”.
The devaluation of the Naira over the last quarter, according to PwC, would further limit capital flows into the Nigerian economy. This is where we are the moment.
Before discussing the efficacy of the measures the administration of President Umaru Yar’ Adua is taking to reposition the economy and what we should rather be doing at the moment let me point out first that the global economic meltdown would end one day. Most countries are already brain-storming and positioning their countries to remain relevant when the dust of the credit crunch must have cleared. At the end of the day, only the countries that have acted wisely would hold the aces. My fears are that once again, Nigeria- nay all Africa would again remain mere pawns in the global chess game.
The major battles of the future when economic recovery gradually starts would be over commodities. It is sad, that while other countries are planning ahead; while the Abu Dhabi’s, the Chinese and the Japanese are buying up Barclays Bank and Citibank, we Africans are as usual ‘fiddling while Rome burns’.
While others are using their wealth to invest in cheap stocks with an eye for the future, looted Nigeria’s’ wealth is being used to buy up cheap London houses!
To illustrate, Mr Philippe Heilberg, a US businessman, has laid claim to 4,000 sq km of fertile territory in a deal with the family of a notorious warlord in south Sudan where Land is not in short supply. More than a century ago, Cecil Rhodes extracted mineral rights from King Lobengula of the Ndebele and used these to push the frontiers of the British Empire beyond the Limpopo River. Some 120 years later, Zimbabwe is still struggling to overcome a legacy of unequal land distribution.
Mr Heilberg, a former Wall Street banker may be no Rhodes – his recent forays into Africa have yet to bear much fruit and include an acrimonious dispute over claims to an oil concession in south Sudan. His latest venture does, though, have a decidedly 19th-century flavour to it. With the Arabs, UAE and China He is buying up huge tracts of land in Sudan while the Sudanese are foolishly fighting over Darfur and are now selling of their lands too.
The European Union would soon cut off the unsustainable farm subsidies. President Barack Obama’s budget also contains proposals that would cut off massive funding to unsustainable subsidies to American farmers.
The result would be a huge demand for foodstuff in the future. The Sudanese would quickly realise that they have short-changed themselves. They would discover that a God-given resource that would constitute a strong bargaining chip has been taken out of their hands of forever.
The buzz these days is that Nigeria is losing new oil and gas investments to Ghana. That investment inflow to the upstream sub-sector of the Nigerian oil industry has started dwindling as foreign investors now choose Angola and Ghana as preferred destinations over Nigeria. This, by implication, of course, would threaten Nigeria’s capacity to grow its crude oil reserves as planned and there might also be job cuts in the industry.
Also, it has also been reported to me by friends in Ghana that a project is about to get underway to scope a further considerable redevelopment of the Accra airport as it is now being perceived as the international gateway to the West Africa region - Lagos is now seen as a lost cause. The idea is that a newly developed airport at Accra would act as the hub for international visitors and trade to the West Africa region.
The redevelopment of the airport is going to be considered despite the considerable redevelopment that took place some 5/6 years ago. However it was not realised at that time that there was a real potential to take over the role that Lagos to a large extent had always fulfilled.
Further, projects are being scoped to revive and modernise the railway system out of Accra up into the north giving Burkina Faso and Mali access to the airport and sea ports, and west to the port at Takoradi and the Cote d‘ Ivoire, and east to the port at Tema. The modernisation of the railways is being accompanied by proposals to invest in a major road building programme to connect Accra and its ports and airport to the main trading areas in the region.
In contrast, International oil companies are beginning to see insecurity in the Niger Delta as a key threat to investments in Nigeria. Also the Liquefied Natural Gas projects like Brass, NLNG 7, and Olokola, are being slowly implemented The situation in the Niger Delta is no longer political, but criminal. Government has failed to solve the militancy in the Niger Delta and consequently the Oil companies are becoming stricter with their investments as low crude oil prices persist, even as they keep moving strategically from high risk centres to low risk environments.
Insecurity of investments remains one of the major factors why foreign investors are now looking towards Ghana and Angola. Already, Angola has begun to attract more investments from oil companies as their dictatorial government enforces their demands. Almost half of Nigeria's oil exports are to the US but Conflict in the Niger Delta has threatened the country's production giving Angola an opportunity to rival its output.
As the United States steps up its quest for energy independence, Nigeria has been branded an ‘Unreliable Source of Energy'. Brookings, an influential Washington, D.C.-based independent research and policy institute, has warned the US government against oil imports from Nigeria and other countries that, according to its study, remain "politically volatile".
Nigeria is progressively looked at as a failed state by US decision makers; the impact of alternative sources of energy on the country's revenue, mainly based on oil income is better imagined.
Shell is giving Nigeria loan of 3billion dollars because Nigeria is lagging behind in their counterpart funding, but at the same time pushing against government reforms of the oil sector. They believe their Greek gift gives them the leverage to dictate the direction of our oil policy.
Russia's Gazprom is making sure it keeps its dominance of the European gas market, by trying to influence a potential alternative supplier to Europe -- Nigeria.
Europe's dependence on Russian gas has worried EU officials ever since Russia in 2006 temporarily shut off Ukrainian gas supplies until the country agreed to pay higher prices. A string of strategies to diversify Europe's energy imports, including a pipeline bypassing Russia and greater use of liquefied natural gas followed. Western officials believe West Africa, though it has fewer reserves than the Middle East, may turn into a viable alternative supplier to Europe.
Nigeria has an offshore oil reserve of 35 billion barrels (twice as much as Mexico's) and 176 trillion cubic feet of natural gas (as much as the United States'). Therefore, in spite of the worries about Nigeria and their trumpeted interest in Ghana and Angola, it’s no surprise Nigeria's energy sector is still courted by U.S. and European officials. With most of the world's easy energy gone, Nigeria is still an attractive prospect -- a fact not lost on the Europeans. But since last year, another player has entered the race.
Gazprom is in talks with the Nigerian government about investing in the Nigeria's gas industry. Gazprom’s strategic decision is to acquire assets and develop strategy outside Russia, and Nigeria is one of their priorities. But Nigeria is also one of Europe's top priorities: Europe is worried that Gazprom's planned investments are of geopolitical, rather than economic interest: Gaining influence in Nigeria means keeping the ball in Russia's court when it comes to Europe's exports.
Europe wants to diversify its energy supplies away from the Middle East. When the Russians gain clout in Nigeria and elsewhere in the region as well, Europe is terrified of exchanging OPEC for Gazprom. They fear an Arab camel less than they fear the Russian bear.
According to Rob de Wijk, of the The Hague Center for Strategic Studies, a Dutch policy research institute, "A deal between Gazprom and Nigeria will increase Europe's dependence on Russian gas, Russia has a deliberate policy aimed at controlling the whole gas market that is meant for Europe,"
China has also been very active -- and successful -- recently, scoring most of the important business deals connected to sub-Saharan oil resources.
These governments; The European Union, China, Russia and the US act as a bunch of lone warriors in Africa and we continue to be mere pawns.
The battle of commodities gathers pace. In the new scramble for Africa, the big powers no longer make all make the rules. With its energy reserves coveted by the US and Europe, Russia and India, Korea and China, in what position would Nigeria like to see itself?
While countries such as Russia and Venezuela exploit the shift in money and power, brought by rising energy prices, to take a more aggressive approach to foreign companies, our position is weakened by the fact that we failed to exploit the opportunities presented by the present crisis.
Had we managed our wealth properly, we would have been in a stronger bargaining position. Instead, once again, we are engaged in inanities. With Umaru Yar’ Adua, the president, yet to stamp his authority on Nigeria’s fractious political scene, and Chief Ojo Maduekwe seemingly more concerned with perceived slight to his authority, I wonder whether the government have the cohesion needed to exert more leverage in its foreign relations.
What should we be doing to get ourselves out of the present mess and prepare ourselves adequately for the future? Are the present economic managers especially the governor of the Central Bank still up for the requirements of the moment?
To be continued
See The Tectonic Plates are Shifting Part I
Daniel Elombah publishes www.elombah.com
googletag.cmd.push(function() { googletag.display('content1'); });
googletag.cmd.push(function() { googletag.display('comments'); });
googletag.cmd.push(function() { googletag.display('content2'); });