Tag Archives: economy

Reports | National Reports | Africa | Nigeria | Human Development Reports (HDR) | United Nations Development Programme (UNDP)

Reports | National Reports | Africa | Nigeria | Human Development Reports (HDR) | United Nations Development Programme (UNDP).

The Economist’s Take on Recent Reforms in West Africa

Bye-bye Big Men

Governance in much of Africa is visibly improving, though progress is uneven

Infrastructure meets tradition

LEAVING THE IVORIAN commercial capital, Abidjan, at 7am, you run straight into what is known as the civil-servant rush hour. The president has decreed that administrators must be at their desks by 7.30am, and most are. A Western ambassador says disbelievingly, “If you are five minutes late for a meeting, you have missed the first five minutes.” Having travelled to the office on elevated dual carriageways, civil servants leap into lifts and ride up to their desks on the upper floors of modern glass towers. Some sneakily keep an iPad or some other electronic gadget with which to while away the time.

Governance in Côte d’Ivoire is rarely as good as it looks. Bribes still solve problems faster than meetings. The opposition spitefully boycotted the most recent elections. Deep cleavages run across the political landscape. And yet the national accounts are in order, debts are coming down and new roads are being built. This is the picture in much of Africa. The allocation of power is becoming fairer and its use more competent, as in Ghana, though there is much more to do, especially in resource-rich nations like Nigeria.

African governments are beginning to accept the importance of good governance, not least for improving the lot of the poor. Rulers travelling on presidential planes strut their stuff at the World Economic Forum in Davos and declare their undying interest in “capacity-building”. Behind the jargon a remarkable change is taking place. The default means of allocating power in Africa now is to hold elections, and elections are generally becoming fairer. Sceptics rightly bemoan voter fraud and intimidation, and plenty of polls are still stolen. But the margins of victory that autocrats dare to award themselves are shrinking. Indeed, quite a few have discovered, in forced retirement, that by allowing notional democracy they have started something they cannot stop.

Until 1991 it was almost unknown for a ruling party to be peacefully ousted at the polls. Since Benin ticked up a first in that year it has happened almost three dozen times. In many countries such an event cements tentative gains, as it did in Ghana in 1992 and again in 2000. Crossing the border from Côte d’Ivoire into Ghana, the visitor immediately becomes aware that democratic expression here is unrestrained. An election is under way and supporters of the ruling party and the opposition cheerfully line one side of the road each, holding megaphones and waving banners. Opinion polls put the two main parties neck-and-neck even though the present government has achieved impressive economic growth: GDP increased by 14% in 2011.

After a few hours on the road, just past the city of Takoradi, the country’s economic turbo-charger comes into view. Pipelines run along the road and diggers make huge holes for storage tanks. A vast oilfield has been found nearby, but celebrations were muted. Ghanaians know that a resource bonanza can be dangerous and politicians may get greedy, so administrators are now being trained in handling a large influx of oil revenues. At a leafy campus with neatly trimmed grass on the outskirts of Accra, the capital, they learn about transparency, accountability and the intricacies of transfer pricing.

This stuff matters. Some of the biggest obstacles to better governance are not murderous tyrants but a lack of bureaucratic competence and a divided opposition. Ageing autocrats die eventually, but bad habits will not go away of their own accord. Robert Mugabe, Zimbabwe’s dictator, now aged 89, could be deposed if rivals, with whom he has been forced to share power since the most recent election, were better at their jobs. Still, in neighbouring Zambia opposition politicians outmanoeuvred a tired government in 2011 and took office.

Luckily, competence is on the rise in Africa. White elephants are still being created, but are now generally designed to serve larger and more inclusive groups of people. South Africa’s football stadiums built for the 2010 World Cup (pictured) are in that category, as are many new dams and airports.

Politicians and officials are learning new skills to run such projects. It is hard to quantify the change, but traipsing in and out of ministries across the continent builds up a measure of confidence. There are plenty of shortcomings and allegations of corruption, but in a fair number of African countries the bureaucracies are not far behind standards in, say, India.

Transport management in particular has become much better. A bus ride from Accra across three African borders in one day is instructive. Departing at sunrise, the 15-seater easily crosses into Togo where it passes well-run port installations and warehouses. An hour later it arrives in Benin. The driver ignores the outstretched hands of traffic policemen. After a few more hours the bus reaches Nigeria amid throngs of packed lorries on their way to Onitsha, Africa’s largest market. Most of the bus passengers are professionals, including several telecoms engineers who commute weekly. All four countries have sensible transit policies and trade actively with each other.

White elephants are still being created, but now generally for larger and more inclusive groups of people

What has brought about this change? Across Africa both voters and leaders are better educated than they were even half a generation ago. Many of those in power are the first in their families with a university degree. Standards of political debate have risen thanks to better schools, modern media and the return of diaspora members who bring new ideas with them.

One lesson in particular seems to have sunk in: the need for solid and durable institutions. In the past, good practice all too often lapsed quickly after a change of incumbent. Foreign advisers ram home the need for institution-building. “Everyone is nagging us about it, from TB to Mo,” says an Oxford-educated official, referring to Tony Blair, a former British prime minister who now runs an African governance initiative, and Mo Ibrahim, an Anglo-Sudanese telecoms billionaire who awards prizes for political leadership.

Size matters here. Benin is nicely democratic—it has more political parties than cities—but with a mere 9m people it carries little weight. Nigeria, on the other hand, has 160m, so along with Kenya and South Africa it sets the tone in regional meetings and institutions—and it still struggles to get things right. When the parliament’s speaker needed a bit of extra cash before leaving office in 2011 (on top of more than $1m a year he got in pay and expenses) he gave himself a $65m government loan. He was charged but later acquitted.

Nigeria is famous for corruption, yet at issue is more than thievery. Members of the elite systematically loot state coffers, then subvert the electoral system to protect themselves. Everybody knows it, and a few straight arrows in the government talk about it openly. Perhaps half the substantial (but misreported) oil revenues of Africa’s biggest oil producer go missing. Moderate estimates suggest that at least $4 billion-8 billion is stolen every year, money that could pay for schools and hospitals. One official reckons the country has lost more than $380 billion since independence in 1960. Yet not a single politician has been imprisoned for graft. The day that Nigeria works properly, the battle for Africa’s future will have been won.

One step at a time

Such an outcome is not inconceivable. Take Lagos, the commercial capital, long a byword for chaos and skulduggery. The bus from Accra inches forward on an eight-lane bridge in dense traffic. The last 30 miles take longer than the previous 300. The city is choking. Roads jam up daily. Commuters sometimes sleep in their cars. Businessmen schedule at most two out-of-office meetings a day. Built on a swamp by the Atlantic, Lagos spreads out unplanned. Two out of three residents live in wooden slums. Already home to 20m people, the city is expected to double in size within a generation. When most of the public infrastructure was built in the 1970s, the population was perhaps 2m.

But help is on the way. The governor of Lagos, Babatunde Fashola, has begun an impressive campaign to clean up the city. Yaba bus station, where the bus eventually arrives at 9pm, used to be full of pickpockets and rowdy vendors. Now there is an orderly queue for taxis. The Chinese are building a vast urban rail network. Public buses have been assigned separate lanes. When the governor heard they were being used by unauthorised vehicles, he strode out one morning and made a citizen arrest of a stunned colonel.

The governor is playing to the crowd, but why not? The transformation of Lagos is worth trumpeting. Its economy is now bigger than the whole of Kenya’s. Tax revenue has increased from $4m to $97m a month in little more than a decade. Tax rates have stayed the same but the amounts being collected have risen dramatically thanks to the deployment of private tax “farmers” who get a commission.

Better governance is creeping beyond the metropolis. When your correspondent e-mails the governor of Ekiti state in impoverished central Nigeria he gets a reply within minutes, with the entire cabinet copied in and being told to assist with a visit. After a six-hour drive north, seven interviews across the capital, Ado Ekiti, are arranged in the space of a few hours. Cabinet members are mostly foreign-educated and highly motivated and have private-sector experience. A new employment agency sends out job advertisements by text message. All secondary-school pupils are getting free laptops with solar panels. All civil servants, including teachers, are tested annually; those who fail stand to lose their job.

To be sure, this sort of governance is still the exception. A visit to the capital, Abuja, another six-hour drive north flanked by red earth dotted with filthy shacks, is sobering. The seat of government moved here two decades ago to escape swampy Lagos; now it is as chaotic as the former capital. A programme to subsidise fuel alone cost the government $6.8 billion in theft in three years (on top of the billions wasted on the market-distorting subsidy itself). Shady deals between officials and oil companies have swallowed an estimated $29 billion in the past decade. Yet more than half of all Nigerians live on less than $1 per day and get almost no electricity because the grid has collapsed.

Still, even Abuja is not without hope. Inside gleaming ministerial palaces dotted along new ring roads a band of reformers is at work. They are in a minority, but seemingly fearless. The central-bank governor has started cleaning up the financial sector. The finance minister, Ngozi Okonjo-Iweala (who recently published a memoir entitled “Reforming the Unreformable”), is reducing fuel subsidies and thus the scope for theft. A special task force in the president’s office is privatizing electricity assets. The reformers have encountered strong opposition, as much from an understandably suspicious public as from the wily crooks who stand to lose out. The good guys are winning, but it will be a long time before they triumph.

A very brief chronology of the Nigerian oil economy

English: Flag of the Organization of Petroleum...

A colleague of mine casually asked me yesterday about Nigeria’s oil economy after independence.  Many isolated events and economic explanations came to mind, but I was surprised when I couldn’t give her a succinct chronology. I thought I would write a paragraph or two to remedy this.

More Nigerians slowly moved from subsistence agriculture to private enterprise around independence, and oil, which had been discovered three years earlier, quickly become the basis of economic growth. Shell had been the first to commercially drill in the country, but in 1960 other companies such as Mobil and Agip were competing for their own stake.  Hopes were high. Oil profitability was greatest during the “Golden Decade” of the 1970s, in which Nigeria became the wealthiest country in Africa. Between 1958 and 1974, production rose from just over 5000 to 2.3 million barrels per day and government revenue increased from N200,000 to N3.7 billion. Within two years, state profit increased by almost 50% to an all-time high of N5.3 billion in 1976. Nigeria bolstered profits when it joined OPEC in 1971, an organization which helped to construct the global petroleum scarcity, and thus the massive profitability of fossil fuels at the time. The economic prosperity was short-lived however.

 

In accordance with the resource curse, the 1970’s oil boom led to a near complete economic crash in the following decade. Nigeria had made an almost total shift away from the traded and diversified agricultural sector to the non-traded sector of petroleum, and projected revenues for petroleum were high. Based on this, President Murtala Mohammed spent and borrowed billions on grand-scale modernization projects.   However, such spending and borrowing in a mono-economy proved highly problematic during the sharp decrease in world oil prices under Babangida in the 1980s. Domestic inflation became so high that even basic food stuffs become too expensive for consumers and Nigeria had to default on numerous debts. To create more jobs for Nigerians, the government forced out the thousands of West African workers who had immigrated to the country to take advantage of the employment in the formerly booming economy.  Rather than take a conditional IMF loan like Ghana did, the government implemented a controversial Structural Adjustment Program (SAP) that proved largely unsuccessful. The economic decline was so severe that by 1989 Nigeria was labeled a low-income country and qualified for World Bank assistance.

 

Despite a slight revival in the 1990s, the economy has yet to recover to early 1970’s levels of prosperity. Today, ¾ of Nigerians live below the poverty line, in a country that produces around 2.6 billion barrels of oil daily. Petroleum accounts for 80% of budgetary revenues and as a result, high inflation has hurt investments for the average Nigerian and made international investment aside from fossil fuels a near impossibility. Few jobs in the oil sector have been created for Nigerians and wealth distribution is grossly unequal. Robert Bates argues the Nigerian oil crisis and subsequent loss of export taxes is what caused the state to become predatory for its income, thus laying the groundwork for today’s poor and often corrupt governance.

 

So, there is the short of it, more or less. There was steady growth of the oil sector in the 1960s, a complete boom in the 1970s that created the “oil state” as we know it, a crash in the 1980s, then a slight improvement in oil revenue in the 1990s that leveled out to what we have today.

 

 

Falling birth rates across the world, some more than others

I am currently in Italy analyzing the field data I gathered last year in the Niger Delta.  The transition has clearly been challenging, as I am re-adjusting to being a place with clear rules, and where I can spend more time being professionally productive and less time “surviving,” e.g. finding potable water, clean food, sources of electricity, etc.  However, one of the more startling thoughts I had my first week here occurred to me when I was roaming through the streets of Florence among a sea of silver-haired adults. I realized that I was only seeing perhaps one baby per day during my daily commute, and almost all of them were with mothers who had clearly immigrated to Italy from another country.  I asked myself, “Where are all the babies?”

In subsequent research, I have learned that Italy has the second lowest birth rate in Western Europe this year, at 1.4 children per woman. The CIA World Factbook, a reliable statistical source, says:

A rate of two children per woman is considered the replacement rate for a population, resulting in relative stability in terms of total numbers. Rates above two children indicate populations growing in size and whose median age is declining. Higher rates may also indicate difficulties for families, in some situations, to feed and educate their children and for women to enter the labor force. Rates below two children indicate populations decreasing in size and growing older. Global fertility rates are in general decline and this trend is most pronounced in industrialized countries, especially Western Europe, where populations are projected to decline dramatically over the next 50 years.

In stark contrast, Nigeria has a birth rate of 5. 38 children per woman, almost four times that of Italy. Nigeria has the 13th highest birth rate in the world, in country that is already the most populous in Africa. This average probably would show a stark contrast between low rates in major cities and high ones in villages. As an anecdote,  the women I interviewed in rural areas typically said they had 6-9 living children.   Just from my observations, I recall that between 1/4 and 1/3 of rural Niger Deltan women I’d see would be carrying a pekin (baby) in a wrapper on their back. No wonder I noticed the missing babies here in Italy.

Italy’s low birth rate is coupled with a low mortality rate and longer expected life spans. The life expectancy in Italy is almost 82 years. Conversely, in Nigeria it is just over 51 years. Italians get 60% more life than Nigerians! Sub-Saharan Africa is experiencing a youth bulge and has been for decades; it is one of the driving explanations for ongoing violent conflicts in the region.  Europe, Asia and Russia do not even have replacement birthrates. While African governments struggle with feeding, educating and housing booming populations, Europeans and Asians are worried about who will pay into the social security necessary to care for aging populations.

The stress of the youth bulge: Lots of young people without older ones to help ensure stability.

Sociologists and economists hypothesize that the poor financial state Italy, Spain, and the U.S. are the reason for plummeting birth rates in those countries, but I will add a caveat.  In modern industrialized countries, I will buy the argument that people have less babies during times of economic strain, because in those societies children are financial burdens.  However, birth rates in developing African countries remain high because children there are not just burdens, they are also viewed as labor for rural families.  In agricultural areas, it makes just as much sense for families to actually produce more children during times of economic hardship, under the belief that they children’s labor will overall produce more resources than the children will consume. This is the reason that I don’t buy the historical argument I have read that the American birth rate in the U.S. went down during the Great Depression because of economic conditions; at that time, as is true in rural Africa today, children could create capital through their labor. The relationship between birth rates and the economy is not so clear to me.

Have any thoughts on this?

Italy’s population

Nigeria’s population

Guinness Commercial Represents Modern Nigeria

Watching cable in Port Harcourt, I used to see this commercial often, and it still fascinates me. There are many scenes familiar to Nigerians—congested go-slows (traffic jams), the broken down bus, and the city-dwelling relative coming home to his rural family bearing gifts. The two most salient themes for me are those of urbanization and masculinity. The male breadwinner of the family moves into the city to try to make his fortune, earning the respect of his family, thus urbanization creates not only potential financial capital but social capital as well. Femi buys his younger brother a bus ticket when he sees him as “man enough” to make it in the city. The men are constructing their masculinity by through earning money. I heard that Guinness made this commercial in the Yoruba, Hausa and Igbo languages as well, possibly changing the man’s name from Femi (a Yoruba name) to a Hausa or Igbo name for the ad to have more resonance among respective ethnic groups. I think Guinness really did its marketing research with this one:

Job Creation is Not Enough to Stop Militancy

Fighters in a boat

Fighters in a boat (Photo credit: IRSN)

Perhaps in response to the recent WSJ article, a blog reader recently emailed to ask my opinion on the assertion that job creation stops militancy. There are two trains of thought, one is that oil companies should make the jobs as payment to Nigerians for use of land and the other is that the jobs should come from local and non-oil sources in order to contribute to a diversified and stable economy.  I will start with the first. In my opinion, it is not correct when people say that job creation in the oil-related sector stops violence.  Job creation lowers rates of violence because employment pulls non-committed militants away from the movement and simply keeps more men busy so they have less time for violence, but even once they are employed with foreign firms Nigerians are underpaid and have the lowest positions and rarely move up. Then they become disgruntled employees (as opposed to just disgruntled unemployed men). The reason that they are underpaid and have the worst positions is because they often don’t have the formal education, job skills, or work culture to function well at foreign oil companies. I would amend this idea to say that the creation of well-paid local jobs would stop the violence, but those jobs will never ever be well-paid when Chinese, Indian, and Russians workers are imported to Nigeria to work for the same amount, and be seen as better employees than local Nigerians.

As to job creation in non-oil sectors, yes, that would lower violence but that is really a larger issue of overall economic development in Nigeria. Obviously if every Nigerian was gainfully employed with a good standard of living then that would presumably end the Niger Delta insurgency, since violence is inversely proportional to economic development generally. For me however, the sheer number of unemployed men in the Delta (surely hovering around 50%) will always outpace any increase in the number of local jobs created with any government program, so as one militant leaves the movement another one will replace him. So, theoretically non-oil jobs would probably end violence but realistically that would be improbably just based on the population number of the Delta.

Nigeria’s new Sovereign Wealth Fund: Just another way to shuffle money about?

Ngozi Okonjo-Iweala (Finance Minister of Niger...

The AP just reported today that Nigerian officials will place $1 billion in their sovereign wealth fund (SWF) in the coming months to better invest some of the nation’s oil revenue. Okonjo and the Finance Ministry said the board managing the fund will be led by Mahey Rasheed, a board member at Nigeria’s First Bank PLC, and Uche Orji of UBS will be the fund’s managing director and CEO.

Nations use SWFs to invest in stocks or securities. The funds are essentially government-run investment portfolios that buy into anything from stocks and bonds to direct foreign investment. Nigerian authorities pushed for the creation of a SWF as a means to better save the billions of dollars the nation annually earns annual from oil revenues. These revenues currently go into the Excess Crude Account (ECA), which currently has about $7 billion in it but does do much in terms of investment.

Nebulous budgeting and corruption means much of the money is siphoned away in the current ECA, which will co-exist with the new SWF until the former has time to become more institutionalized. Some critics are saying that only investing $1 billion out of the $7 billion available is too little, but I think that is plenty for an uncharted venture in a country that already suffers from poor economic decision-making and opaque regulations. Unsurprisingly, state leaders have opposed the centralized SWF, saying more money should go to Nigerian states. After all, how can they skim off state shares of oil revenues if all that money is tied up in investments?

Ultimately, I don’t think changing where revenue is held will make much difference in a country that suffers from such profound structural and institutional impediments to economic development.