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Nigeria, institutions and economic performance: The imperative of leadership

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economyIn its recent Consumer Price Index (CPI) report, the National Bureau of Statistics (NBS) records an increase in Headline and Core inflation from 15.6 per cent and 15.1 per cent to 16.5 per cent and 16.2 per cent respectively in the month of June. Even though we may not know the difference between the terms ‘Headline’ and ‘Core’, we would most likely agree with the NBS that there has been a real jump in inflation especially when we consider our recent trips to the market to purchase food items such as yams, tomatoes etc. This has a lot of implications for the average citizen and the Nigerian businessman. Nobody needs to tell anyone to ‘tighten his or her belt’; if you do not heed the call to embrace austerity as a way of life in these times, you would most likely receive a severe economic punishment in the short run. Today, the maximum price for Premium Motor Spirit (PMS) in Nigeria, to which the generic name ‘fuel’ is mostly associated with, is N145 per litre. The last price ceiling was N87 per litre. What happened? Why the sudden hike by over 50 per cent. Not too surprisingly though, we also observed that, immediately after this new price was set, this, hitherto scare commodity, became available; and the long queues which characterised fuel stations nationwide disappeared.

The exchange rate is now well above N300 Naira to a dollar. This is very far from the glorious, if not forgotten days, of when N1 exchanged for a dollar (Actually, in 1985, N1 exchanged for $1.55!). This is reality of the Nigerian economy; however, it is interesting when our leaders think they can single-handedly control the outcome of reality. As a nation, we have been unfortunate to have leaders who have consistently tried to solve problems without thinking of how best to address them. The emphasis is on the word best; there are good ways to solve problems and we have already seen some of them deployed. However, to borrow the phrase “Better is the enemy of good,” popularised by French Philosopher, Voltaire, in order to achieve lasting solution we might need to try better ways. Both the earlier pronouncement of N87 per litre and the decision not to devalue the naira have something in common: they are a product of a poor reflection on the root cause of the problems we face as a nation which, in my view, are largely structural in nature and also a bad attempt at solving the problem.

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So what is the leadership doing at present? Do we see our current leaders trying to address these core structural issues or is leadership still trying to manage the current situation with ad-hoc policies and solutions? Leadership ought to address these structural problems, which have roots in our politics and our economics. For our politics, I am convinced that we need to forge a real national consensus as Botswana and South Africa did without which we cannot expect to have any meaningful development. On our economics, the economic decisions of what to produce (comparative and competitive advantage), how to produce (the deployment of technology in production), who should receive what is produced (adequate price level at all times) and the rate of growth of income (economic growth, income distribution and development) still remain relevant decisions that leadership has to make. It is the imperative of leadership to make sound decisions on these key points in order to bring about widespread prosperity and reduced poverty and income disparity.

We need to be clear about what to produce: what we produce usually determines what skills are sought by labour, income levels and by extension, standard of living. Sound leadership, as seen in countries like Japan, Germany and South Korea, focused on the production of ‘advanced’ capital goods such as production machinery, automobiles, computer chips etc. rather than commodities which command less value in the international market. It is true that we have arable land; but that does not necessarily mean that we should focus all our energy on ensuring that we are simply able to feed ourselves and, probably, export the balance.

The challenge with that is we might not be able to even achieve this feat given our open markets and the fact that other countries such as the U.S. which ought to be the destination of our output tend to subsidise their farmers who can now compete favourably. They have better bargaining power over prices for our outputs given their considerable influence in international trade and thus they usually gain considerable advantage in trade negotiations. For development, leadership needs to think a little more about some of these issues. Maybe we do not need to develop traditional industries (agriculture, textile etc.) the usual way. Maybe we need to focus on the high end of the value chain in revamping these industries. We do not want an economy that depends solely on commodities for its foreign earnings: our earnings would then be subjected to the fluctuations in the prices of these commodities in the international market, a good example is the recent fluctuations in the prices of oil in the international market. In the case of agriculture, we would earn much more if we could encourage more agro-processing and the production of finished products in the country. That way, still keeping exportation in mind as one of our goals, we would export both input (raw) materials and finished products; overall making us better off.

This article is born out of the frustration of listening to our leaders engage in the usual blame game every time, as a nation, we face economic challenges. Leadership should have foresight and benefit from hindsight. Why blame others when you are reluctant to make the changes that can positively affect the country in the long run. Every policy has to be ordered toward a clear goal. Development is our priority and we cannot have one good idea, such as ‘a meal a day’ to increase enrolment numbers in primary schools overshadowed by the elimination of the Post-UTME which has brought some sanity into the public universities although not without its challenges. On the other hand, to simply abandon the recommendations in the report of the recent national conference is a poor leadership choice and every effort to manage a nation such as this without due considerations to its recommendations might prove futile.

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Whether we like it or not, we would continue to be ill-prepared to deal with daunting economic challenges if leadership does not set the stage for a more development oriented vision. One of the foremost arguments on why some nations prosper and others fail to do so is on the quality of institutions that characterize these countries. Institutions are the ‘rules of the game’ in every society; they are the key determinants for economic performance. This idea is closely associated with Douglass North, the Nobel Prize winner for economics, with more emphasis on the subject by Daron Acemoglu and James Robinson in Why Nations fail. Another reason believed to be necessary for sustained development is Democracy. Amartya Sen, foremost modern day thinker on the issues of development, considers democracy a universal value: something fit for all nations by virtue of its own merits. Democracy is seen as a very good platform for nations to choose the set of values to develop; how governments should be organized, the enforcement of the political rights of the individual such as voting rights etc. We have democracy, albeit not perfect, and we ought to use it to our advantage. Except within a broader goal toward economic prosperity, the pursuit of short term solutions to pressing problems with deep root causes is futile. Hence, for a country like Nigeria, with development as its priority, sustainable solutions should really be at the heart of policy formulations and government action. Anything short of that should really be taken with a pinch of salt because sooner or later an event bigger than the solution would knock it off the cliff.

In order of priority, the need for leadership to thoroughly address the broader issues of unity, our national consensus, is still very important in the pursuit of a prosperous society. And since we are in a democracy, this may ultimately leads to an honest discussion on the kind of institutions (both formal and informal) and values that we may desire as a nation. Education, legal and regulatory institutions should be strengthened. Presently, the nature and structure of key institutions in Nigeria do not aid development. They do not encourage entrepreneurs to take the kind of risk that would create jobs and reduce the incidence of unemployment and poverty. They do not allow for a huge influx of foreign investors into the country which happens to be the largest economy in Africa.

Institutions can be seen as a continuum: on one end we have formal institutions and at the other end we have the informal ones. The formal institutions include our constitution, economic rules etc. which are usually written down. At the extreme end of this continuum, we have the informal rules which, most times, have more direct impact on society. These informal institutions usually form the culture of a society. A good example would be that in some countries, a contract is sealed with a written agreement; in others, without a handshake, a contract may not be deemed to have been sealed. In Nigeria, there are some problematic institutions that have emerged over time. These include the desire for ‘instant gratification’ as compared to ‘delayed gratification’; the erosion of the value of hard work and good work ethic with far reaching consequences such as the enthronement of mediocrity; the attitude of ‘managing’ things rather than seeking perfection in private life and public administration; and complacency in public life. Lastly, and more interestingly, is the development and perpetuation of the institution of corruption. Corruption has become a force of its own with agents of enforcement (Nigerians). Leadership should be focused on addressing these issues that affect public life. The best channel to address these issues is to improve our educational system and increase support for efforts geared at engendering the development and sustenance of family and societal values.

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The imperative of Leadership is to do the right things at the right time for the good of all. This places certain preconditions for leadership in any society such as a good understanding of the nature, structure and geography of the society; the plausible solutions to present challenges and the political will to address these challenges. Leadership should know when it has to control and when it has to influence: leadership should impact institutions through right policies which in turn directly influence market forces.

Leadership should seek the development of a just society. Let not the myopic judge this as a utopian goal; the pursuit is in itself noble and essential to the development of a nation. Societies may not achieve it fully in practice; it is better however, that it is spelt out clearly in the law of the land, the constitution. Individuals should be convinced that even if they experience the day to day oppressions of their fellow men, they can have hope that if they seek justice by appealing to the law of the land, they would get it.

God Bless Nigeria!


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