Nigerian Economy | Oscillating Between Two Broad Ideologies

In the first place, the old isms are dead. Trust me. Forget the jive about capitalism, socialism, communism, fascism. Those terminologies are so old-fashioned, in the economic realm. Like science and technology, economics keeps developing and indeed getting more sophisticated.

Lord Keynes admonished economists to know that there is no area of human endeavor that should be beyond our contemplation, analysis, and dissection. Economics deals with human behavior too, so it has a lot to do with sociology, psychology, and social psychology. And when we talk of how scarce resources are allocated, those resources are not only money. They include power, time, emotions, mind and brain space, even cloud storage, cloud computing, artificial intelligence, the internet of things, and every newfangled phenomenon in space. Economics is a no-holds-barred profession. So, readers, do not be surprised when you see that economics and economists have inserted themselves in the most arcane concerns.

This throws up the question; who exactly is an economist? Some who have studied the subject and obtained PhDs in it would want to bully the rest and say it is until you obtain a Ph.D. So wrong! Some of the greatest economists in the world – including Adam Smith and the earlier referenced Keynes, never studied economics as a subject. Therefore to be an economist is to understand how to think like one. Many who obtained PhDs in it – with every due respect – became experts in a narrow part of the subject, and if some are not careful, the tunneled expertise itself may constitute an impediment to being a sound – or like Keynes called it in his ode to Alfred Marshall, his boss, and teacher – ‘Master’ economists. Our forte is to continue to ask questions. If you see an economist that accepts phenomena on the surface and doesn’t think deeper, subjecting such to logic, and rapidly classifying variables such as to determine what is truth, such a one is losing his/her bona fides.

But back to the issue. I want to posit today that the Nigerian economy or more specifically, the management of it is torn between two broad influences and ideologies. I want to look at the dichotomy between Ricardo Hausman’s economic complexity theory on the one hand and the theory of competitive and comparative advantage, buffered by foreign investment and capital. I will also like to consider the school of thought that emphasizes international trade and an emphasis on entrepreneurship among the youths as a surefire way out of national poverty, on one hand, versus the need to standardize the delivery of public good and enhance per capita productivity among the citizens on the other. As the reader reads along, it will be obvious where I stand, which may not be alien to many who have read from me over time.

I want to quickly recall the story of a reported debate in the early 1950s Western Region. Tai Solarin was in the red corner, weighing – well I don’t know but it could be anything like 60kg given that Tai was always a lean, slim chap, and Obafemi Awolowo was in the blue corner. He was a bit more robust from the pictures of him that we have seen. He could have been as heavy as 80kg. The contention on this day was however not pugilism. No one was going to punch each other’s eyes out (at least not until 1962 in the Western House).

The contention was on the type of education to give Nigerian students. Tai was opposed to the concept of Kings’ College. He believed that bringing children from mud houses and straight into these well-planned cement buildings erected by the white man with black labor was not going to develop the grit in them. He felt that the graduates of Kings College and other such colleges will become detached from society and in fact thumb their noses down on the rest. He believed that that type of education will confer elitism on the students. Solarin was opposed to ‘white collar’ education, believing that children should learn to get their hands dirty by mastering practical crafts, alongside their regular education.

“We go all out to tackle the problems of life,” Tai explained, “instead of spending several hours of the week explaining the significance of the deity.”

Awolowo agreed in part but was of the opinion that what mattered was mass education however it could be had. And perhaps also, that Tai’s idea will slow down the mass adoption of western education that he had in mind for his people. Awolowo won the debate. Mass education came upon the west. The rest is history.

Nigerian governments since at least Ibrahim Babangida in 1985 have emphasized the need for investments. They have gone after investments and capital with all their strength. This phenomenon has grown since Nigeria’s return to democracy. At every forum, the emphasis is on investments. The questions remain ‘how do we drag in the capital?’ Do you hear that we need money for this and that? Has it worked? Well, the reality on the ground suggests the contrary.

Nigerian economy went into its second recession in five years as a result of COVID-19. We only just managed to clamber out, but inflation is running away at 17.5%, totally unmitigated by growth at barely 0.11%, and compounded by a healthy population growth rate of 2.6% per annum. Unemployment is at 33% with underemployment chipping in another 24%. Lending rates remain in the region of 25% per annum, and our poverty rate as reported by international bodies is at least 70% of our population. Our Misery Index, when calculated at the summation of lending rate, inflation rate, and the unemployment rate stands at circa 80% – one of the very highest in the world. By every means, we have missed it on the economic front, slice or dice it.

So, the prevailing mindset and prevailing economic theory in Nigeria is one that emphasizes the primacy of investment and capital, and somehow this theory keys into the long-held idea that every country should stick to producing what it is best suited to produce – usually what it has the natural endowments for. This is the theory propounded by David Ricardo as early as the year 1820, a clear two centuries ago.

Nigeria and many others in black Africa are enamored of this idea. This school of thought has locked them into a vicious cycle of underperformance, poverty, and debt. These countries – with Nigeria leading the pack – have been unable to transit from being primary product producers into value-added secondary goods producers, not to talk of competing with the big guys as complex goods and service producers (tertiary products). Imagine operating a 201-year-old idea in the year 2021 and swearing by your gods that nothing will ever change your mind! Yet, there is ample evidence to suggest that there should be another approach.

Joseph Stiglitz wrote very instructively in his book, Making Globalization Work, that if South Korea stuck to David Ricardo’s ideas, that country will still be trying to figure out how to produce finer rice grains, rather than becoming one of the top countries in the production of technology, and other products such as cars, phones and much more. Ricardo Hausman pushes the idea of Economic Complexity, urging that developing countries must hunker down and do everything possible to break the barrier, by producing goods and services that require higher mental inputs. We are still being convinced here that all we have to do is trade more of the same when it is clear that we must find every means by which our people will produce more than agricultural items while the government concessions our land and waters to foreigners to drill for crude oil. The little infrastructure that we have are being built and sometimes maintained by foreigners as well.

What about the second set of ideologies? The one that emphasizes international trade and entrepreneurship among the youths as the best escape route from national poverty versus the need to standardize the delivery of public goods and enhance per capita productivity among the citizens.

We just discussed the ultimate futility of international trade fronting primary products above. Our governments have combined this with the push for youth entrepreneurship for decades now. Many projects have been launched encouraging youth entrepreneurship in Nigeria. Many loan facilities have been positioned for young people over decades. However, we still have youth unemployment soaring at close to 60%. This means the strategy of entrepreneurship for the youths, or nationally, has failed. In fact, Nigeria does not have many entrepreneurs if we use Joseph Schumpeter’s Innovative Entrepreneurship perspective as a theoretical framework. By this theory, entrepreneurs must try and do something profound that will add profoundly to the national GDP. An entrepreneur that creates something profound that draws in foreign exchange into an economy is doing a lot better than one that simply imports for resale. I align with those who promote the delivery and standardization of public goods like security, education, healthcare, environmental sanitation, and other infrastructure, which is what people mean when they say ‘there is no conducive atmosphere for business in Nigeria’. Unfortunately, we have put the cart before the horse, and are now scrambling to correct the anomaly.

I reviewed Nigeria’s key imports exports to see how funds are flowing. It is evident that there is an unstoppable and steady outflow of funds as a result of the skewness of our structure. This is the current situation with our balance of trade, and this is how it has been permanently since independence at least. Well, it only got worse as we became ‘sophisticated’ and entitled, believing we need to enjoy anything that is manufactured anywhere in the world, the moment it hits the shelves. Nigerians should however be more contrite, in my view. We should still hold in awe, the achievements of mankind, of other countries and races. We should still show that humility, without which we shall never make progress. We should note that this current situation is likely to determine what happens in the future as well, except something radical changes.

Nigeria’s 10 top exports as at 2019, are as follows: crude oil – $45 billion, petroleum gas – $8.6 billion, refined petroleum – $940 million, cocoa beans – $621 million, gold – $577 million, coconut, Brazil nuts and cashews – $267 million, other oily seeds – $261 million, scrap vessels – $259 million, rough wood – $243 million, nitrogenous fertilizers – $221 million

Nigeria’s top export destinations for 2019 are India ($10 billion), Spain ($6 billion), the USA ($5.7 billion), France ($4 billion, and South Africa ($3.87 billion). These figures are according to www.commodity.com It is noteworthy, that the proceeds of most of our exports – dominated by crude oil – belongs to foreign companies who are the main producers (almost 70%), while a large chunk of what comes to us, gets swallowed by overheads and corruption. We are not managing our main sector profitably at all.

Meanwhile, our top 10 imports are (please pay attention to the dollar values as these ones hit our ‘profit and loss’ account directly): machinery (including computers) – $10 billion, mineral fuels including oil – $7.4 billion, vehicles – $5.6 billion, electric machinery and equipment – $3.7 billion, optical, technical and medical apparatus – $3.4 billion, plastics, plastic articles – $1.5 billion, glass – $1.5 billion, pharmaceuticals – $1.5 billion, cereals – $1.3 billion, articles of iron and steel – $1 billion. These figures are from World’s top exports

We can see, that our tenth largest import (iron and steel), takes away almost twice of what we get from the highest valued export after crude oil (Cocoa @ $677 million). We can see how quickly our export values drop to the $ millions region, but how our imports up to at least the tenth, is still in the $ billion region. Perhaps if our crude oil and other extractive sectors were well-managed, we could have a fighting chance in the game of economies, which is the most brutal sport in the world. But no, we aren’t helping ourselves.

Readers can make their own informed judgment, but my position – based on empirical facts, history, and where we stand today – is that there is the need for a fundamental shift in thinking. A lot rises and falls at the level of conception, of ideology, of which life-view those running the politics and economics of a country brings to bear. If politics is defined by David Eaton as ‘the authoritative allocation of value,’ then it is not that much different from economics, which concerns itself with the allocation of scarce resources at the level of the individual, household, company, or government.