The economic recovery and growth plan
The recently released Economic Recovery and Growth Plan (ERGP) is a bold and ambitious medium term plan with many things to admire. The level of analysis is deep, scenarios are well developed and the targets are ambitious. The plan has five key objectives – stabilising the macro- economic environment, achieving agriculture and food security, ensuring energy sufficiency (power and petroleum products, improving transportation infrastructure and driving industrialisation by focusing on Small and Medium Scale Enterprises – that are tied into already crafted longer run growth plans for the Nigerian economy.
As detailed and elegant as the plan is, as published, it has a deep flaw, in that it does not place sufficient emphasis on an evaluation of the knowledge and skills base of the Nigerian workforce, the capacity of the educational system to deliver the plan, and objectives and targets for knowledge, skills and capability development. Specifically, stabilising the macro environment requires lowering inflation and interest rates to single digits, cutting the unemployment rate significantly and becoming a net exporter of a range of diversified goods and services. Furthermore, stabilising the macro environment is contingent on the delivery of the other objectives.
The key challenge facing the plan is the capacity to build out the enabling infrastructure, especially transportation, power and the required labour market. The questions for evaluating the challenge are obvious: is there already significant inflow of investment into Nigeria (especially domestic, foreign direct, Public-Private Partnerships) relative to plan objectives? Can Nigeria borrow enough from the international financial system at attractive interest rates to help fund the necessary investments? How attractive are the countries bond yields and how ready is it to issue enough bonds to also help fund the required investments? Is a critical mass of Nigerian engineers, managers and skilled workers available to do the work of designing, planning and executing to deliver the required projects? In essence, a medium term plan must be ‘shovel ready’ for it to succeed.
Clearly, investment flows into Nigeria, are minimal relative to the huge need and no one knows for sure how ready the labour market is, as a nationwide and industry based data of skills and capabilities have never been made available and may not exist. In addition, it is arguable, that institutions of higher education are producing enough well trained engineers and managers, or that apprenticeship, technical training and professional development programmes are doing the same. In essence, there is doubt that the foundation required for rapid real growth has been developed in the necessary mass.
It is clear that Nigeria does not have the ability to buy the enabling infrastructure by importing companies, skills and capabilities, intermediate inputs and other resources required to build power plants, transmission lines, railway and other transportation systems. It is also clear that in an era that threatens nationalism on the global stage, Nigeria may not find it easy to attract foreign investments (though there is a deep pool of investible capital in global credit markets), and the Nigeria banking system and business community, is yet to demonstrate the capacity to make the required financial investment. In addition, it is far from clear that the educational system can quickly and sufficiently deliver the required knowledge, skills and capabilities.
The bottom line, is that there is really no short cut to fast growth and macroeconomic stability. The engine of growth is education and until Nigeria prioritises the creation of a labour market with machinists, lathe workers, pipe fitters, engineers, project managers, and business managers and develops the ability to manufacture (and/or assemble) huge volumes of intermediate inputs and finished products, it will struggle to generate fast growth. But therein lies the conundrum! Developing skills and capabilities is a medium to long term process, while the country is a democracy, with politicians that naturallyprefer to deliver fast growth immediately. However, the past is an accurate proxy for the future and real economic growth is tied to the types, quality and quantity of the factors of production that are available in an economy. The huge and growing population of young people and growing population of elderly people, further pressures politicians and makes it harder to focus on medium to longer education and skill creation.
China is an excellent example of the process that will be required to grow the Nigerian economy fast enough to create a condition where economic growth is sustainably higher than population growth. China had to undergo a period of cultural change and skill development in the 1950s and 1960s to develop the capacity to make things, that has since propelled it into the second largest economy in the world. Nigeria has an advantage here, because it already has a labour market that contains some of the required skills and knowledge, an awareness of their need, institutions that can be scaled up to deliver them and enough financial capacity, if that is made a priority.
But in the meantime, there is nothing stopping the country from following the example of China when it sought to develop the capacity to manufacture power plants. The Chinese bought a disused power generating plan in the UK and sent a team of engineers and technicians to disassemble and ship it back to China, where the parts were studied and assembled back over and over, until the capacity to manufacture a similar power plant was created. In essence, there is little reason – but will and execution – why Nigeria cannot build a gas fired power generating plant that includes a significant proportion of locally fabricated components, in the next three years.
While the ERGP is laudable, more emphasis needs to be placed on deepening the underlying factors of sustainable growth, especially basic, intermediate and advanced skills and capabilities and an enabling system of values and attitudes. Certainly, if global crude oil prices sustainably cross the $100 per barrel mark within the next few months and if crude oil exports are sustainable over the two million barrels per day rate in that scenario, the country will be in a position to import significant numbers of foreign contractors, intermediate inputs and workers required to build out infrastructure. However, that is an unlikely scenario, so the reality is that Nigeria has to dig deeply into a consideration of the internal resources and capabilities it will need to dramatically improve the infrastructure stock and generate fast economic growth and then execute an aggressive strategy for putting them in place.
This will require an industry-by-industry analysis of the country’s potential for competitive advantage, an understanding of the value chain of these areas – clear to the finished product or service – a mapping of the required resources and capabilities on a sectoral and activity basis, and practical decisions on what to focus on along with workable timelines.
This is a politically challenging problem but one that must be faced and delivered aggressively while also implementing policies that improve the business environment, changes the dominant value system, and creates current economic growth that is far from tepid. Until the country develops an internal capacity to transform and make competitive goods and services in huge volumes, growth will continue to be overly dependent on crude oil prices that are externally determined, constraining the ability of serious and focused plans like the ERGP to deliver their objectives within expected time frames. Tweaking the plan to prioritise the generation of these underlying (but powerful) facilitators of rapid and enduring economic growth will be great.
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