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Mailafia: Planned sale of Ajaokuta Steel complex, manifestation of Nation’s tragedy

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Mailafia

Development Economist, and former Deputy Governor of Central Bank of Nigeria (CBN) in charge of Economic Policy, Dr. Obadiah Mailafia, is opposed to the Federal Government’s plan to privatise the Ajaokuta Steel Company Limited located in Kogi State.

Mailafia, a career banker and international development specialist with over 25 years told Assistant Business Editor MATHIAS OKWE why he’s opposed to the plan, and the compelling need for the country to court the friendship of country’s like South Korea in order to revive the comatose steel complex.

Ten firms are already expressing interest and offering bids for the Ajaokuta Steel Company Limited (ASCL). Given the place and importance of steel to economic development, and considering the massive investment so far in the project, do you think this is the way to go?
THE entire Ajaokuta Steel Company Limited saga is a reflection of the tragedy of our national development policy as a whole.

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I have been keenly interested in the steel sector since the early 1980s when I started working as fellow of the National Institute of Policy and Strategic Studies (NIPSS), Kuru, near Jos.

I know that steel is a strategic sector for any growing economy, forming part of the commanding heights of any strong economy.

In August 2016, the Muhammadu Buhari administration effected the re-nationalisation of ASCL through a renegotiation of the subsisting contract between the Federal Government and Global Steel Holdings Limited (GSHL). 

Vice-President Yemi Osinbajo announced the outcomes of the negotiations between the Federal Government and GHSL, under which Ajaokuta reverts to the government, while GHSL retains the Nigerian Iron Mining Company (NIOMCO) at Itakpe.

Under the new terms, brokered by an international arbitrator, Phillip Howell-Richardson, NIOMCO will fulfill its undertakings to guarantee priority supply of iron ore to Ajaokuta.

Our government will take home a higher concession of three per cent of turnover, instead of the earlier negotiated three per cent from NIOMCO. 

Some of us hailed government’s action as being patriotic. But I am not normally a great fan of re-nationalisation.

This is chiefly on account of the wrong signals it could send to investors. But on this occasion, I applauded the government’s move.

The logic was unassailable. Several years of misunderstanding between GHSL and the government had virtually hampered the development of our national steel industry.

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After investing billions of dollars in Ajaokuta, there’s hardly anything to show for it, but the Olusegun Obasanjo-led administration went ahead to sell off the steel complex and the Aladja Iron Ore outfit to GSHL owned by an Anglo-Indian billionaire, whose sharp business practices have become increasingly notorious. 

So, for me, instead of privatisation, we should be looking to source for the $400 million to complete the project. 

Under the planned sale of ASCL, the Minister of State for Mines and Steel Development, Abubakar Bwari hinted that preference would be given to indigenous operators.

Do you see any local investor possessing the required technical and financial competence to operate such massive economic assets successfully without compromise?

I do not know how people reason. We tried privatisation before and it didn’t work, so why must we try the same thing again? Albert Einstein famously noted that the highest mark of insanity is for someone to continue doing the same thing while expecting to get a different outcome.

The last owner of the complex was a foreign company and it set out cannibalising the company’s assets with no plan whatsoever to revive the firm. Handing over the firm to a local operator would be worse. Let us recall the facts.

Among multinationals, the Mittal Group, which bought Ajaokuta scores rather low on the scale of ethical business practices.

Their activities in post-war Liberia, in post-communist Eastern Europe and wherever else their suspect iron fingers have been involved have left a rather bitter taste. We in Nigeria were apparently too daft to know.

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As we later discovered to our discomfiture, they had set upon the cannibalisation of the steel complex, carting it off to their new plant in Kazakhstan, an even more fantastically corrupt country than ours. They were only stopped by the courage and patriotism of the host communities in Kogi State, as the villagers boldly placed barricades on the road, checkmating such irksome criminal rape against our collective patrimony.

GHSL, it would seem, was hell-bent on violating the implicit burden of fiduciary trust, upon which the Ajaokuta privatisation deal was predicated, a fiduciary trust anchored on the expectation that they would produce steel products for the Nigerian market while boosting jobs for the host communities.

On the contrary, they saw themselves as triumphant vultures presiding over a dead carcass.

Once beaten, twice shy! So, do you agree with those who think Ajaokuta Steel complex is a white elephant project, which Nigeria does not desire at this stage of her development or do you think otherwise?

Ajaokuta Steel Company Limited was never a so-called “white elephant project,” but we made it so in order to sell it off. The story of steel development in Nigeria is a rather bitter one.

When the young General Yakubu Gowon took over the reins in 1966, our country was engulfed in war. He understood that steel was the backbone of a nation’s industrial prowess.

He also appreciated the direct correlation between industrial-technological prowess and defence capabilities.

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So, he approached the British to help us develop our steel sector, but they refused. He thereafter approached the Americans and they also turned him down.

The Western powers got the World Bank to manufacture fake statistics trying to prove that we did not need an iron and steel industry and that it was inimical to our development and what they idiotically term “poverty alleviation.”

It was after these failed efforts that the military administration turned to the defunct Soviet Union, which they happily obliged.

Unfortunately, the USSR was not always transparent with us. I was the organiser of an international workshop on the steel sector in Kuru to engage with the Russians and other stakeholders on our steel sector. I do not have pleasant memories of our encounter with them.

As it turned out, Ajaokuta was programmed to produce exclusively steel rods, which are used in construction rather than flat sheets, which are vital to manufacturing.

We even got to know that there were vital operations of the plant, which the Russians would perform only from midnight to 5.00 am, when all Nigerian staff were fast asleep.

Steel is the foundation of industrialisation and technological power.

An alloy of iron ore and carbon has wide-ranging applications in industries such as construction, machinery, automobiles, shipbuilding, energy, transportation and home appliances.

It is vital to the development of machine tools and precision engineering. I need not underline the fact that without steel, no nation could boast of any defence industry worthy of mention. 

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The rise of the European Westphalian power state was largely shaped around the development of the steel sector and the development of heavy machinery for war making and sea-faring.

England, the first nation to industrialise, was a world leader in steel making. It was soon to be followed by Germany, through the development of iron, steel and coal in its famous Ruhr Valley. 

Russia, Japan, France, Sweden, Belgium and Luxembourg were soon to follow in the path already laid out by the first industrialisers.

Today, there is a direct correlation between steel and the rate of growth of national economic and technological prowess.

Nations in the throes of rapid technological takeoff tend to be major producers/consumers of steel products.

This is less so for mature, advanced industrial economies such as the USA and northern Europe.

Total world steel production currently stands at 1.6 billion metric tons, with China accounting for 50.3 per cent of the world’s total.

Steel as a material is 100 per cent recyclable and reusable. It is an industry with a turnover of $900b, second only to the oil and gas sector. It also employs more than 50 million people. 

In terms of national production, China leads the world, with an annual production of 803.83 metric million tons (mmt), followed by the EU with 166.18 mmt; Japan with 105 mmt; India with 89 mmt and USA with 78.92 mmt. 

In emerging economies, South Africa leads the pack with 7.61 mmt, followed by Mexico with 18.26 mmt; Egypt with 5.51 mmt, and UAE with 3.01 mmt.

Our country, the so-called giant of Africa is not anywhere on the radar of world steel.

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As we look to the future, it is crucial that we take a strategic approach to the steel industry. We must understand that world powers will never want Nigeria to develop its steel sector. They know for sure that we would become a global technological-industrial power if our iron and steel sector were allowed to take off.

Let me make it abundantly clear, without a vibrant iron and steel sector, we would achieve, at best, only arrested industrialisation.

Why is it so difficult for our leaders to understand the critical importance of a thriving iron and steel sector?
The reasons are not too complex to decipher. We have never had a developmental state committed to economic growth and industrialisation.

If we did, our economic managers would long have understood the critical importance of the steel sector to our national development aspirations.

Linked to this is the fact that we have never truly had a national development strategy worthy of the name.

When you look at great nations such as China, India and South Korea, you get a clear impression that they have a long-term development strategy. They take a strategic approach to industrialisation, economic growth and building a competitive economy that can stand its own under the pressures of our pressurised, integrated global marketplace.

We have nothing of the sort. These things are worsened, of course, by the incubi and succubi of grand corruption, which saps the energies of our people, undermines creativity and undermines the prospects for long-term sustainable development.

Our leaders are also very greedy. In this country, the cartels that control key sectors of the economy have often joined hands with people in government to deliberately kill off certain industries so as to justify their privatisation. It is a case of giving a dog a bad name in order to hang it!

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There is an argument put up that the Federal Government has demonstrated overtime that it was such a bad manager and as such has no business in business.

In addition to this, it is claimed that selling some of these ailing firms off would help it cut down on the rising debt profile of the country. Are these tenable excuses?

I’m afraid you can only sell that hogwash to the American marines. Key government enterprises such as NEPA, NITEL, NRC and the Nigerian Airways were deliberately killed by our leaders so as to turn around and justify their privatisation.

You would recall that most of those privatisation schemes were manufactured during the 1980s and 1990s with the IMF/World Bank-sponsored Structural Adjustment Programmes (SAP). That was when the so-called “Washington Consensus” reigned supreme.

Today, the Washington Consensus is dead. It was killed essentially by Great Recession and the sub-prime crisis, which exposed the emptiness of ideological monetarist neoliberalism.

Any sensible economist today would tell you that the smartest thing to do is to seek a healthy balance between states and markets.

For my part, I am an advocate of the developmental-entrepreneurial state model. We need smart governments working with and promoting creative businesses in a well-regulated even playing field.

This allows for government enterprises in some sectors, but with commitment to market principles, including public private partnerships (PPPs).

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In view of all that have happened, how realistic is the vision of the founding fathers for the Ajaokuta steel complex?
Not too long ago, Russian Ambassador Nikolay Udovichenko was quoted as saying that his country was prepared to work with the Nigerian government to help revitalise the steel sector. We should welcome such rapprochement with the New Russia. But I have my doubts.

A few years ago, my good friend Osita Ogbu, a technology policy expert and former Chief Economic Adviser to the President, did a brilliant research monograph on the development of our steel sector in which he recommended cooperation with Japan as a way out for us. I do not think Osita understood Japan well enough. I have visited Japan and I know how their mind works.

While they may have assisted South Korea and other Asia Pacific countries in the early years of their industrialisation, Japan tows the Western imperialist line when it comes to Africa.

On this matter, I have sometimes found them to be more Catholic than the Pope.

My first choice would have been for us to work with the North Koreans. They have an axe to grind with America and they are desperately looking for friends and allies.

They would provide perhaps most cost-effective services available. But considering that this option may be a diplomatic hot potato, I would recommend we look at their brethren further south.

South Korea has made prodigious leaps in economic and technological advancement.

A prosperous and stable democracy, it is reputed to be the most wired society in the world today. They also operate one of the most successful steel industries in the world, with their Pohang Iron and Steel Company (POSCO) being the world’s fourth largest steel maker, with over 40 mmt annually.

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The visionary President Park Chung-Hee, against considerable domestic and international opposition, started it in the 1960s.

Park was deeply convinced that national self-sufficiency in steel production was vital for the successful industrialisation of South Korea. 

With some technical assistance from NIPPON Steel of Japan, and some financing from the Japanese government, POSCO began producing plate products in 1972.

Remarkable for a fully owned government entity, POSCO possessed excellent leadership and management. By the 1980s, it was the fifth largest world producer, with an annual 12 mmt.

A technical university was set up to train technologists and engineers in the metallurgical sciences.

Pohang University of Science and Technology (POSTECH) is ranked first among the 100 top world universities founded in the last 50 years by the Times Higher Education Supplement.

Pohang, once a small fishing settlement, has been transformed into a sprawling industrial hub, housing companies specialising in the manufacture of finished steel products, precision engineering, heavy industry and machine tools for domestic and world markets.

Since the year 2000, POSCO has become a world leader and investor in steel making. They have invested more than $26b in the Chinese steel sector, $12b in India and with other significant stakes in Vietnam, Mexico, Indonesia and even our neighbouring Cameroon.

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POSCO is not only a great enterprise; it is the most profitable steel maker in the world.

It was no surprise when Warren Buffett, the world’s most successful investor, led his Berkshire Hathaway into taking a four per cent stake in the South Korean steel giant.

If there is one potential technical partner that we should approach, that entity is POSCO of South Korea.

My approach would be to go into partnership with a global steel manufacturer on a profit sharing, management contract basis.

We must build into the agreement, commitment to training our engineers and scientists in metallurgy and steel manufacturing. We must also insist that they must ensure production of more flat sheets than rods, which seem to be the only thing that Ajaokuta has ever produced all these years.

If you are opposed to the sale of state-owned assets for the purpose of raising funds to finance budget, what alternative ways can the country finance its fiscal spending without necessarily raising its debt burden beyond sustainable levels?
You have underlined two issues that are conceptually separate, even though they are related to each other.

There is the question of public finance for the budget. The other is the question of rising debts.

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As we speak, some 70 per cent of our annual budget goes into recurrent expenditure, while only 30 per cent goes into capital investment.

In fact, even these figures represent a marked improvement from the path-dependence of the past, when it used to be something like 22 per cent expenditure and 78 per cent capital investment. We have skewed our budget spending egregiously in favour of consumption.

In this scenario, asking me to sell off a vital sector such as steel because you want to fund a budget that is largely geared towards consumption is adding insult to injury.

Nobody has ever talked about waste in this country. There are areas of government expenditure that only reinforce waste and financial prodigality.

We must also curb the penchant for incurring all kinds of loans that are spent on wasteful expenditure, with nothing to show.

As matters now stand, the current administration met a national debt outlay of N11t, which they have ballooned to over N23t – a whopping 100 per cent increase.

The sad irony is that Nigerians have become more impoverished than ever. We have overtaken India as the world capital of poverty.

When bad managers run your public finances, they lock you into debt peonage, with nothing to show for it.

Should your presidential ambition come to fruition, what would you make of Ajaokuta Steel complex and other state-owned assets that are comatose?
Let me make it very clear, I am not ideologically committed to either state-ownership or market dogmatism. I see myself as a heterodox economic pragmatist.

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Of course, I believe that market solutions works best. But, like the great economic historian Karl Polanyi and the great economists, such as John Maynard Keynes and Joseph Stiglitz, I am a believer in states and markets working together to create the greatest good for the greatest number. We need to look at things with detachment and objectivity.

Those enterprises that we adjudge best to be left in government hands should be reformed and kept with the public sector. Those that are adjudged better left in the private sector would be privatised.

With reference to Ajaokuta, we would not behave like the dog that goes back to its vomit. We tried privatisation before and it failed woefully.

We would approach the Russians, Ukrainians or South Koreans to join us in a management partnership.

We can work out the details through negotiation even though the world powers would not like it, and will try to use bullying and intimidation to crash the project.

We must stand our grounds with courage and conviction. The future of our country and our prospects as an emerging global industrial-technological power depends on the success of Ajaokuta Steel Company Limited. 

What’s your assessment of the current administration’s policy towards investment in ventures that have the capacity to catalyse growth through self-sufficiency in local manufacturing?
Beyond mouthing all sorts of bagatelles about agriculture under the Anchor Borrower’s Programme, this government has no policy on manufacturing and industrialisation.

The geopolitical insecurity across the country has driven away foreign as well as local investors.

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In fairness to the administration, there is a marked improvement in food security to the extent that the food import bill, particularly for rice, is actually improving. But this is a one-off.

Manufacturing is virtually comatose; the industrial sector is dying; factories are closing shop and foreign manufacturers are relocating to neighbouring countries.

Part of the problem is, of course, the general deterioration in infrastructures and power supply.

It has been a nightmare of millennial proportions. We have a government that adjudges any person with a bit of money in the bank to be a thief.

As a consequence, market women are keeping their money under their beds. The banks are groaning. Nobody is funding the real sector anymore.

The economy is in shambles. There is despair everywhere. Another four years of these people, and this economy will be destroyed completely, I assure you!

Any other further insight on your Party’s Economic blueprint.

As far back as November 2018 ending, we unveiled the economic blueprint of our ADC administration. It is anchored on seven priorities.

First, we intend to confront headlong, the security challenge that has turned our country into such a Hobbesian nightmare.

For a decade, our country has been involved in the Second Civil War, much of its theatre being the North East.

The Boko Haram war has produced economic and humanitarian consequences more devastating than the Biafra war.

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Today we have IDPs numbering more than three million. The once prosperous North East is in shambles. The entire economy of the North has been blighted.

Added to this has been a low-intensity internecine war perpetrated by well-armed shadowy “herdsmen.” Peasants are abandoning their farms while heading towards over-crowded cities such as Abuja, Kaduna and Jos.

At the same time, our country has become the kidnap capital of the world.

Conflict, nihilistic violence and criminality have taken over. We have thought through a master strategy to confront the enemies of peace in our country. Their days are numbered!

Two, we shall address the question of economic stabilisation. Economic stabilisation has to do with redressing the imbalances in the macro-economy. Within three years, our national debt has mushroomed from N11t to more than N23t.

The CBN has forgotten its mandate and is focusing on peripheral issues with an opacity that encourages corruption and rent-seeking behaviour.

We currently spend 60 out of every 100 naira in servicing our debts. And nobody knows what these loans have been used for.

Our external reserves are dwindling; inflation hovers well above the single digit threshold while the naira is suffering and the current account is heading south.

Interest rates remain prohibitive in an economy run by bankers in the interest of other bankers.

Banks are no longer in the business of giving loans; they are busy trading currency and treasury bills. As a consequence, manufacturing is in the doldrums and investors are fleeing in droves.

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Bringing back the macro-economy into steady-state equilibrium is an absolute necessity for progress in the coming years. Only economists will understand these imperatives. 

Three, we must address the question of poverty alleviation and job-creation. According to the UN Human Development Index, in 2018 Nigeria overtook India as the world capital of poverty.

Nigeria’s poor number 88 million while those of India stand at 70 million. It focuses the mind when you grasp the reality behind these numbers.

India’s 70 million poor represent some 20 per cent of her 1.2 billion population while our 88 million poor are almost 50 per cent of our 195 million people.

At the same youth unemployment is as high as 70 per cent in the poorest regions of Borno and Zamfara.

We have a welfare strategy based on the Brazil model of Bolsa Familia and the Zero-Hunger programme. We aim for the goal of full employment by expanding public works approaches to infrastructure development. 

Four, the power and infrastructures deficit needs to be addressed in a practical and original manner.

Whatever little expenditure that is devoted to infrastructures is often frittered away by all sorts of stratagems and scams, leading to white elephants strewn all over the place.

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We need a focused approach to aggressive electrification while building a world-class infrastructure base using public works approaches that create millions of jobs.

Tackling power and solving the infrastructure conundrum is key to our long-term prosperity.

On day one as president, I will pass an executive order requiring all public buildings throughout our country to have solar panels on their roofs.

Thousands of our youths will be trained in the manufacturing, installation and maintenance of solar panels, in addition to the development of other sustainable energy systems. 

Five, we see structural diversification of the economy is an urgent imperative. The era of oil is over. 

Economists tell us that we are entering a post-industrial new hydrogen economy that will increasingly be based on sustainable energy systems rather than oil.

Clearly, our petrodollar rentier political economy is no longer sustainable.

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It is dangerous for us to rely on one volatile commodity for 50 per cent of government revenue and 94 per cent of foreign earnings.

In the coming weeks and months our political elites must put this issue squarely on the table. There have been humungous rhetoric, but few understand what is at stake.

For us, diversification will be anchored on deepening food security and agrarian production; linking this sector to a mass-based industrial revolution; development of solid minerals; expansion of petrochemicals; and revitalisation of the tourism and services industry.

We also realise that this cannot be achieved without sustainable power and infrastructures.

We will pursue an aggressive policy of electrification for all. We shall push for infrastructure such as harbours, fast-speed trains and highways and rural roads. 

Six, we believe that human capital is of supreme importance. People are the new wealth of nations.

Education, literacy, training and skills are now the sources for the competitive advantage of nations, in addition to universal access to health services.

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Putting forward ideas on how best to train our people and equip them with the right tools to succeed in an intensely competitive global economy is what will separate the men from the boys.

We believe in the political philosophy of Obafemi Awolowo. We shall therefore give the highest priority to education. We may not be able to promise free education for all at all levels, but we shall as much as possible make it affordable.

We shall also provide a mix of student loans and scholarships where feasible. We shall invest more in our universities while demanding higher levels of accountability for results. 

Seven, implementing the third generation of institutional reforms is the key to long-term prosperity.

The first generation reforms were the disastrous structural adjustment programmes of the eighties. They failed because they were badly designed and were imposed by foreign powers that had their own selfish interests in mind rather our collective welfare as a nation. 

The second-generation reforms were implemented during Obasanjo years 1999 – 2007.

The third generation reforms require addressing the remaining bottlenecks in the economy, including liberalisation of power distribution, civil service reforms and creating an anti-monopolies and fair competition regime to ensure an even playing field for economic actors.

Nigerians need to be convinced that those who have ambition to govern understand these challenges and can come up with actionable solutions.

Linked to this is the need to address the question of restructuring. We prefer to call it constitutional re-engineering for nation building. We aim to create a more enduring union anchored on peace, social justice and the rule of law.

Consolidating our democracy, enhancing civic culture and laying the foundations for peace, communitarian harmony, happiness and prosperity are the primary mandate of heaven in our era.


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