Nigeria has a Lot to Learn from Chile

As Nigeria passes through another difficult patch in its economic development, a huge opportunity exists for the most populous black nation to restructure and position itself for future sustained growth. In this light, it has a lot to learn from Chile, the quintessence of economic development in the last 25 years.

As recently as the early 1970s, Chile was about the poorest Spanish colony in South America with an entrenched socialist regime. However, with a measure of consistency in sound policy choices and good institutions, Chile has transformed into the most stable economy in South America with the highest per-capita income in the region. Chile is currently the only recognized “Developed Country” in Latin America and the first and only member of the Organization for Economic Cooperation and Development (OECD) from that region. 

How did Chile escape the underdevelopment trap transitioning from third to first world economy?

• First, the economy was freed up by removing many of the tax, regulatory, trade and other impediments to growth imposed by the socialist regimes of the past
• Secondly, the rule of law was established and maintained by an independent and efficient judicial system
• Thirdly, in spite of its huge mining sector, the economy was gradually diversified to reduce over-dependence on commodity exports while private property rights protection was entrenched to avoid over-regulation and destabilizing corruption that plagues most resource-rich nations
• Lastly, strict limits were placed on government size and spending keeping public debt and budget deficits under control

Chile’s emergence as a developed economy, despite its numerous challenges, is a clear proof that reaching development is more a function of adopting well-designed institutions and accurate public policies. Hence, there is also hope that Nigeria might also emerge as an economic leader in the Sub Saharan Africa sub-region if it starts implementing sound polices.

Amid many other things, Nigeria has to reduce regulatory and state control on the economy transitioning to a private sector driven economy. Heavy government involvement and control opens up avenues of corruption, which in turn discourages entrepreneurship. Likewise, the size of government also has to be cut down to free up necessary funds for capital expenditure and infrastructural development. All these will take time and calls for a comprehensive medium-to-long term economic road-map that stands regardless of changes in regimes.

Nigeria Should Borrow its Way out of Economic Slump

Nigeria has to borrow its way out of the current economic slump.

As most are aware, the construction sector in Nigeria has shrunk considerably over the past three quarters with most workers losing their jobs. This follows fast on the heels of the massive retrenchment in the oil and gas sector. Most firms have also put a hold on recruitment until when the economy recovers. With these telltale signs on show, one does not need a soothsayer to proclaim that the economy is tumbling.  

So far, the Nigerian government has been doing its best to stabilize the economy mostly through monetary policy actions. Understandably, the government, with its dwindling resources, does not have the financial muscle to engage in expansionary fiscal policy. Nevertheless, with the magnitude of economic decline we are currently facing, we need a combination of loose monetary policy and expansionary fiscal policy to get the economy working again. This brings me to my premise: the federal government should borrow to bolster the economy given its extremely low debt profile (Debt-to-GDP ratio of about 11%).

When the economy begins to suffer from slowing growth and rising unemployment, it is usually because there is not enough money circulating in the economy. Therefore, governments usually step in to inject money into the economy. This is done either by adjusting taxes and government spending (expansionary fiscal policy) or by adjusting interest rates and reserve requirements, and buying bonds (loose monetary policy). Sometimes it is expedient to make use of both.

According to Keynesian fiscal theory, due to the inability of the market and the economy to self- regulate especially in times of recession, there is a need for government intervention to jump-start the economy by injecting some money into it. This can be achieved via a mixture of demand-side stimulus (putting money into the hands of middle and lower class consumers, to stimulate spending) and supply-side stimulus (cutting business and corporate taxes to encourage reinvestment into new businesses and large-scale expansion, thus generating more jobs).

With global crude oil prices currently mired in the $40s, the federal government needs to borrow the money it needs to initiate and complete capital projects earmarked for 2015 as well as fund 2016’s budget adequately. Spending on infrastructural projects as well as meeting recurrent expenditure obligations (ensuring civil servants and pensioners are paid) will go some extent to put money into circulation and stimulated economic growth.

Governance in Nigeria: The Real Issues

It has been one splendid show. A soap opera gone viral . . . However, I am bothered. I am concerned that a mundane activity such as the current ministerial screening is generating so much attention nationwide. I am disturbed and wonder if we are moving in the right direction.

We need to face the real issues hindering our advancement as a nation. The states are responsible for most things that affect Nigerians on an ongoing basis and some attention should be directed at them.

-       Basic education – primary and secondary

-       Primary health care

-       Roads - most of the roads we ply in and out of our homes

-       Pipe borne water

All these fall under the ambit of our state governments and no one talks about them. It seems like the federal government always steals the show and enjoys the attention. They do not attempt to re-direct attention to the states. Maybe they feel it gives them relevance.  The state governments in turn shirk their responsibilities, taking full advantage of the entire farce.

While the state should ideally do most of the operational stuff (save for security, foreign affairs etc.), the federal arm of government should be more concerned about scoping out a vision as well as policy plans for the nation:

-       How the economy will diversify to becoming a manufacturing or services hub in the West African sub-region over the next ten years

-       How we plan to transform our weak institutions – the judiciary, customs, internal revenue service – over the next five years

-       How the ministry of transport plans to transform our disjointed road networks over the next twenty years

-       How the ministry of agriculture plans to modernize the sector over the next ten years

Such issues debated in the national assembly should be the things occupying our attention. Our focus should be to pass into law such policies that set the long-term direction of the nation. Once ratified, they set the course of governance regardless of the shift in power every four or eight years.

Several feeble attempts have been made in the past at setting such policies. However, they felt more like sideshows and not really the focus of those regimes. Policy should drive all subsequent actions of government. They are not ideas to be documented and kept in the archives while the governments busies itself commissioning roads and bore holes.

We do not really need to appoint technocrats to achieve the above. What we really need is a total change of mindset. Everyone is involved from the leader to the led. If the citizens like their rulers do not know what is required to run a nation, then no one will be held accountable. If sideshows like ministerial screening are the things that arouse our interest, then we will all have to settle for the incremental drip … drip … drip we call growth.