Thursday, November 24, 2011

Nigeria-The Uneven Spoils Of Growth

November 22, 2011 11:38 pm

Overview: The uneven spoils of growth

A crowded street of Kano in NigeriaReuters
Northern exposure: the crowded streets of Kano in the north, the most impoverished part of the country, where religious and ethnic violence has broken out
Few issues stir the pot in Nigeria quite like the fuel subsidy. In theory, the money the federal government spends capping prices spreads benefits across the 168m population.
Nigerians have come to see it as the only benefit they receive from the oil their country produces in abundance. Accordingly, attempts by successive governments to remove it – President Goodluck Jonathan’s is just the latest – have met stiff resistance.



But paradoxically, cheap fuel comes at an extortionate price.
In practice, the money spent – a record $7bn-$8bn this year according to the central bank governor – subsidises the accumulation of wealth by a select group of importers and middlemen. It distorts the market, discourages investment in refineries and promotes smuggling. In many areas, imported fuel is diverted to the black market before it is even delivered to the pump.
Mr Jonathan’s declared intention to phase out the subsidy as part of an economic programme designed to “transform” Nigeria has nevertheless prompted furious opposition.
The strength of feeling about an expense whose merits have been in question for almost 30 years, reflects a wider impatience setting in seven months after Mr Jonathan consolidated through the ballot box his accidental rise to power following the death of his predecessor in office. It is also a measure of the difficulties that governments in Nigeria face when negotiating change.
The public might be more amenable to paying the price if the government cleaned up its own act first and began delivering in other ways. “We Nigerian citizens think the six actions below are prerequisites that should be taken first before the subsidy on fuel can be removed,” says a circular flying around BlackBerry messenger groups this month. It lists a string of measures, including cutting official salaries and perks, curtailing corruption and forcing office holders to use the dilapidated public health and education services that ordinary Nigerians are compelled to use.
It continues in pidgin English: “Nigerians will not support this move for now. No be today government go promise Good Road, Education, Electricity, Security, Employment etc and will not deliver.”
Occupy Nigeria, a separate campaign to mirror protests against big corporations and banks in global financial centres, makes similar demands.
Overcoming cynicism about their political leadership fostered during decades of misrule, Nigerians appear possessed by a new sense of outrage.
Twelve years since the military returned to barracks, the education system is still in tatters, hospitals are without drugs, and big projects to rehabilitate the ailing power and transport sectors and reorganise the oil industry are struggling to get off the ground.
Meanwhile, inspired partly by the revolutions in the Arab world, the national tolerance level has seemingly lowered.
This is manifested at one end of society by strident comment on social media networks and at another more worrying end by religious and ethnic violence and an Islamist insurgency in the most impoverished part of the country, the north. “The very rich are flaunting it. People are angry,” says Audu Grema, a development consultant in the northern city of Kano. “It is a story of two halves,” he says.
One half could be seen to be the Niger delta, where oil is produced, and where, at least for now, the government has quelled a campaign by militants to disrupt production with an amnesty programme and infusions of cash. After falling two years ago by more than half, production has returned to nearly 3m barrels a day.
But while one long-neglected region has been humoured, another is in upheaval. More than 100 people were killed this month when Islamist insurgents attacked police stations and churches in the remote north- east.
In August, the same group claimed responsibility for a suicide attack on the UN headquarters in Abuja, the capital, signalling, authorities fear, the influence and support of al-Qaeda terrorist networks.
The violence, and brutal, so far ineffectual, military response, has raised concern about Mr Jonathan’s ability to hold the multi-ethnic and religious federation together.
“Whatever we can say of militants of the Niger delta it was an internal affair,” says Olusegun Obasanjo, the former head of state. “This one is a different kettle of fish. It is much more worrying,” he says.
It is not that Nigeria has been static.
Earlier market and fiscal reforms, together with the consistently high world price of oil, on which the state typically depends for more than 80 per cent of revenues have helped deliver consistent economic expansion of nearly 7 per cent a year over the past decade.
Service industries that expanded exponentially, booming construction, and growth in agriculture alerted foreign investors to Nigeria’s renewed potential as the economic motor of an emerging Africa.
The banking sector and stock market have been cleaned up following a 2008 crash, although both have yet to take off again. Big hitting investors such as George Soros, and Jamie Dimon of JPMorgan Chase, are nevertheless circling in anticipation.
But while a recent survey by Renaissance Capital, the Russian investment bank, points to the opportunities for business presented by an expanding middle class, the broader trend has been of unequal growth and, in parts of the country, of deepening poverty.
The public perception is that corruption is growing at least as fast as the economy.
What needs to be done to prime Nigeria for a faster and more sustainable take-off is no longer a mystery. The question of who is going to do it and for how much longer government can afford to delay remains unanswered.
“What this economy needs is someone who acts like Margaret Thatcher for 18 months,” argues Atedo Peterside, who is among top businessmen advising the president.
In the months since he formed a new government Mr Jonathan has piled up detailed plans for change: to fix the broken power sector, transform the graft-ridden oil industry, and revive the agricultural sector to feed Nigeria and generate jobs.
If the country can grow at 7 percent or more, as it has done for most of the past decade, in spite of all the distortions and bottlenecks, then what if these were eliminated – or so the argument goes?
“It means that Nigeria could really grow at double digits, 10 to 12 per cent or more,” says Ngozi Okonjo-Iweala, the former managing director of the World Bank who returned to the cabinet this year as finance minister with a wider remit to oversee the economy.
At issue is how much initial pain Nigerians will tolerate, and whether Mr Jonathan, whose campaign was financed by some of the very vested interests opposed to change, has the stomach for a fight.
“Every time I speak to the president, I get the impression that he’s going to do it; he’s going to put his foot down,” says Lamido Sanusi, the Central Bank governor.
“But he’s the president of Nigeria and I explain to people that some of us so-called technocrats need to be a bit more aware of what goes into the decisions he is making.
“I could make a perfectly sound economic argument. But what if his national security adviser were to say to him, you know if you did this, there’s going to be a security problem?”
Tackling the fuel subsidy is building up to be the first, but by no means last, big test.
“He has come into the presidency when very important decisions need to be taken. The petroleum industries bill, the fuel subsidy, deepening democracy, power sector reforms. All could have a profound impact,” says Deameari Von Kemedi, an environmental activist close to Mr Jonathan.
But, warns economist Bismarck Rewanethe, the government needs strategies in place deal with the fall out. “When institutions are weak and income inequality is rising the consequence can be chaos.”
Copyright The Financial Times Limited 2011. You may share using our article tools.
Please don't cut articles from and redistribute by email or post to the web.

No comments:

Post a Comment