Posted by By Ngozi Okonjo-Iweala on
I want to use this opportunity to discuss some of the major challenges facing our country, and how you can use your university experience here to contribute to our country's long-term economic development. After all, the bigger goal of a university education is to develop well-educated graduates who become productive citizens, and have an impact on their local communities and the nation at large. In 1908, during a speech in Dundee, Scotland, Winston Churchill made a similar observation:
For The Record
I want to use this opportunity to discuss some of the major challenges facing our country, and how you can use your university experience here to contribute to our country's long-term economic development. After all, the bigger goal of a university education is to develop well-educated graduates who become productive citizens, and have an impact on their local communities and the nation at large. In 1908, during a speech in Dundee, Scotland, Winston Churchill made a similar observation:
What is the use of living, if it be not to strive for noble causes and to make this muddled world a better place for those who will live in it after we are gone? How else can we put ourselves in harmonious relation with the great verities and consolations of the infinite and the eternal?
My motivation for today's lecture however is not about what Churchill said in 1908. It is a lot more recent than that. My motivation for today's lecture is derived from an interesting piece of research work which was conducted by the leading US investment bank, Goldman Sachs. Economists at this American bank reviewed the performance of the BRIC countries, namely Brazil, Russia, India and China. The BRICs are very important in the global economy today. Together, these countries accounted for nearly one third of the global growth between 2000 and 2005; they currently account for about 15 per cent of global trade; and they hold about one-third of the world's foreign reserves. The researchers then went on to pose an interesting question: which other countries can join the BRICS in becoming the leading global economies by the year 2020? Their research produced some interesting results. They estimated that by the year 2025, the top 20 global economies will be comprised of:
•The G-7 countries, namely: US, Japan, Germany, UK, France, Italy and Canada; Plus the BRICs: Brazil, Russia, India and China making a total of 11 countries;
•The remaining 9 countries are predicted as: Korea, Mexico, Indonesia, Turkey, Iran, Vietnam, Pakistan, Philippines, and Nigeria.
Without getting into the details of their methodology, let me add here that their work was based on some of the leading growth models used by economists today. The predictive power of the model is quite impressive, and in fact, when they run their model from 1960, it is able to predict the growth path for most of today's developed economies. But the story does not end there. The researchers also go on to identify a number of preconditions which are necessary for translating these predictions into reality. And then discuss the various policies which various large developing countries, with potential, must adopt in order to become global economic heavy weights in the future.
I was very delighted when I read this paper because it confirmed some of my previous instincts. But potential alone is surely not enough. All of us must work towards translating this potential into reality, and the work has begun under the current administration. This leads me to the subject of my lecture today, which is Nigeria 2020: From Vision to Reality. I want to discuss with you some concrete strategies which Nigeria must adopt in order to join the 20 largest world economies by 2020. This is an important exercise, because what we must do also translates into an agenda for the future. The current administration has summed up the aspiration as the Vision 20-2020: i.e. the goal of being among the 20 largest economies, by the year 2020. And to a large extent a lot of progress has been made in recent years. The administration has managed to achieve macroeconomic stability, and also begun with some micro and sectoral reforms. Our next challenge is to embark on a massive move on the micro and sectoral issues in order to translate our potential into reality.
Today, we in Nigeria are fortunate to have 2 sets of success stories to learn from: the East Asian tigers in the late 1990s; and also the current growth being experienced by the BRICs. Based on some of these recent success stories, I think there are eight main policy areas which Nigeria must focus on to realize the Goldman Sachs predictions. Let me discuss each of these areas briefly.
Focus on Employment Generation
A first goal must be to focus on employment generation for Nigerians. Although we lack reliable data on employment trends, casual evidence points to high levels of underemployment in Nigeria, particularly among the youth. The high growth we are witnessing today from China is partly because the country has focused on real sector growth, and also increasing employment for both its skilled and unskilled workers. Few will dispute the need for job creation in Nigeria. University students such as yourselves looking forward to your future will agree that additional jobs are needed to ensure that you are employed upon leaving school. How we create the extra jobs is the major challenge. In the case of Nigeria, the oil sector, which accounts for about a third of our economy, exists as an enclave, and so does not provide many spillovers into the rest of the economy, but even this sector can, and must, be made more employment generation-friendly than at present.
The first point I want to make here is that we must train people to think like entrepreneurs. To think of creating jobs and not always looking for jobs! To think of employing people, rather than waiting to be employed! Imagine a situation when our youth become more entrepreneurial, start their own small businesses, and each small business employs about 10 people!
Imagine what impact that will have! I am a firm believer in the importance of small businesses, and in fact, there is growing evidence today from the US, Germany and China, that small businesses form the backbone of their economies.
This leads me to the second point I want to make, which is that government must play its part in assisting Nigerian small businesses to take-off. And I think that is the big challenge for the next administration. I will get into some practical strategies soon, but before that we need to ask some broader questions. What are our areas of comparative advantage? What are our priority growth sectors? And how do we build competitiveness in these sectors in order to compete on the international stage? Can we imagine a time when Nigeria's granite and other solid minerals would be processed and used in major construction projects both home and abroad. Can we also imagine a time when the services sectors in Nigeria (such as tourism and entertainment services) would become an international brand? Can we imagine a time in the near future when all the vast land in Nigeria's middle-belt would be used for productive agriculture as in Brazil?
And finally, take a look at our textiles and garment sector. Nigeria has the opportunity to DRESS Africa through its booming and dynamic fashion industry but has anyone addressed how this can be done using a supply chain approach? People love our clothing all over Africa and the world. Why are we waiting for Ghana or South Africa to figure out first how to take advantage of this opportunity and beat us to it?
I think a future administration can learn a lot from the East Asian experience. For the 1990s the rapid growth experienced by most of the East Asian tigers relied on targeted industrial strategies. I don't mean the State getting back into sectors or industries. We have shown we cannot manage that in Nigeria due to corruption and mismanagement. Rather, what we need is the use of selective, market-friendly interventions which address bottlenecks in particular sectors. Nigeria must identify strategic sectors, where we have comparative advantage, and then target them one by one. Some sectoral reform programmes have begun in areas such as agriculture and solid minerals, and are already yielding some results. But we need to extend these reforms to other sectors, and also go deeper.
For example, in agriculture, after targeting some crops for export, we need to find out how we add more value to them, and how we improve product quality in order to meet international standards. More extensive sectoral strategies which also address bottlenecks such as availability of inputs and technology, regulatory requirements, skills, are urgently required. I will provide more specific strategies on how we can develop small businesses in key sectors in the next section.
Supporting entrepreneurs and small business development
Government must identify a number of strategic sectors; tackle the bottlenecks there; and then allow entrepreneurs to drive growth in these sectors and create jobs in the country. In each sector, I think we need to look at the entire supply chain, and tackle all the constraints at each stage. Let me offer some concrete suggestions on what must be done:
Access to Finance
First, we must address the access to finance problem in the country by introducing innovative financing mechanisms, such as venture capital funds and Grameen-type microfinance funds. Access to finance remains a major bottleneck for the private sector in the country, whether for a young university graduate who wants to start an IT business or for a smallholder farmer who wants to establish a cassava processing plant. The central problem here is that both domestic savings rates and domestic private credit are very low in Nigeria, as in most other African countries. Savings rates in Africa are at about 20.8 percent of GDP, about half of the average of 38.2 percent in Asia. The availability of private credit is also low: about 85 percent of GDP for high income countries, 30 percent of GDP in middle-income countries, but only about 16 percent of GDP in Nigeria for example.
For the young university graduate with a bright idea, we should have venture capital funds which provide access to capital to support the start-up phase of their businesses. There are a few examples of venture capital funds which have operated in Africa, and their performance has been impressive. There have been some success cases from the 1990s, such as the Ghana Venture Capital Fund, the Zambia Venture Capital Fund, and so on. And these funds have supported small and medium sized businesses such as dairy factories, bottled water manufacturers and insurance companies.
A common example I often cite is that of the Brookside Dairy in Kenya. This company emerged from the Kenya Cooperatives in the 1990s after de-regulation of the sector. But then they needed additional financing to expand their business, and take it to the next level. They obtained funds from the Acacia Fund in 1998 to allow them to diversify into milk, butter and other products. The business has made a major impact, and today employs about 800 full-time staff, 300 casual workers, 18000 distribution kiosks in Nairobi, 1000 bicycle boys carrying out deliveries etc!
In Nigeria, we need to consider setting aside some funds each year to support such entrepreneurial start-ups. And we can do this in some form of a public-private partnership - where we complement funds from the private sector by setting aside some amount of money in the budget each year, and allowing competent fund managers in the private sector to manage these funds and invest in various start-ups. State governments must also get involved, and put in some of their own funds for such a scheme. We can also think of investing some of our pension resources into such funds which are professionally managed.
Similarly, we need to examine microfinance initiatives seriously, if we are to stimulate some village-level economic development. We need to scale up the few interventions we have and make them work better. Microfinance can be empowering, as the example of the Grameen Bank in Bangladesh has demonstrated. But it takes a great deal of work and dedication. By assisting poor people (especially women) with small loans, it enables them to invest in various productive activities.
Although we know a lot about microfinance in Nigeria today, we have not utilized this opportunity fully. We need to think more carefully about how we can develop microfinance institutions which address the needs of those living in extreme poverty: can we assist with little funds here and there to enable them become traders, small-scale farmers and so on. Of course, as in the Grameen example, we will require strong private sector management, and visionary leadership and passion like Muhammad Yunus, to nurture such an initiative in Nigeria.
The key issue here is whether the Federal and State Governments can band together to provide seed capital that can be used in partnership with private funds from our commercial banks, donors etc to scale up to a Grameen Bank in Nigeria. And this will be managed by private hands, and a dedicated Nigerian expert willing to adapt the Grameen concept to our culture and villages and make it work. We know that part of our vision is to also make Nigeria a leading financial center in Africa. This is good, and we should aim for it, whilst focusing intensely on how to make finance work for our people at home.
One final issue on the subject of finance is that we must massively improve our domestic credit markets. The current administration has made good progress so far in launching the national policy on consumer credit, and also in working on a national mortgage system. But more can be done to improve access to domestic credit which is needed in stimulating domestic demand and consumption particularly by the middle class. Recall that China's recent growth is due not only to its strong export performance, but also because there is a large and growing middle class which is driving domestic demand. We similarly need to develop our middle class, and provide them with adequate credit facilities in Nigeria.
And then with world-class venture capital funds, microfinance institutions, a strong domestic credit market, and a vibrant commercial banking sector, I am convinced that the Nigerian financial system can truly help to drive growth, entrepreneurship, and employment in the Nigerian economy.
Coaching and mentoring small-business entrepreneurs
Still on the topic of supporting small businesses, we also need to use some of our venture capital and microfinance funds not only to provide investment capital, but also to assist our young entrepreneurs with financial advice, strategic guidance, and best practice management techniques. In general, there is the need to expand on some of the work which agencies such as SMEDAN are currently doing. For example, on this clothing example I mentioned earlier, young entrepreneurs need to understand the business of mass production of garments, understand what just-in-time production means, and also to be able to deliver bulk quantities within tight deadlines.
Marketing skills for entrepreneurs
Another concrete strategy to boost entrepreneurship is to provide young entrepreneurs with marketing assistance for their goods both at home and abroad. In many cases, it isn't that Nigeria doesn't have the goods to sell in international markets. We do. The problem lies in the quality of our products, the packaging, the finishing, and our inability to meet international standards. Particularly for international exports, we need to assist Nigerian firms to meet international standards if our goods are to become globally competitive.
Develop entrepreneurship parks
Finally, I will suggest that the next administration considers developing entrepreneurship parks supplied with electricity, running water and other infrastructure, in exchange for rent. I believe SMEDAN and a number of state governments have started this. Young entrepreneurs can be housed in these parks before they grow into bigger businesses. And these parks will welcome a broad spectrum of entrepreneurs such as those in art, music and film, those producing consumer goods, others in the IT sector as well as others in the agro-processing sector. There is a plan to develop an Abuja Institute of Science and Technology with a technology park attached to it. This is the right kind of approach to encourage the sharing of ideas between academics and entrepreneurs.
So following employment creation and supporting entrepreneurs, the next major focus should be with infrastructure. Decades of underinvestment has resulted in the deterioration of public infrastructure in the country. The existing poor domestic infrastructure imposes large transaction costs on businesses, and reduces the competitiveness of the Nigerian private sector. Prior to the recent economic reforms, a country of Nigeria's size of nearly 140 million people generated about 4,500MW of electricity, while in contrast South Africa with 45 million people generates 45,000MW, and Brazil with 188 million people generates 100,000MW. Other infrastructural bottlenecks exist in areas such as road and rail transportation, and ports.
Recent infrastructure investments by the current administration which should soon yield fruit have been very encouraging particularly in areas such as power and railways. We need to press ahead with the implementation of the various infrastructure master plans such as for the power sector, and also strengthen Federal Government's collaboration with states and the private sector on infrastructure investments, for example via PPPs etc.
In addition to these recommendations, I want to make 2 suggestions. First, while we wait for the investments with long gestation periods, there are some low-hanging fruits which we need to harvest. For example, we can repair or reconstruct the Ore-Benin road and improve the Aba, Port Harcourt road, in the interim while other major projects are being implemented. And then what stops us from identifying a number of major highways in disrepair and tackling those?
A second point I want to make on infrastructure development is that we must further prioritize our infrastructure investments in the budget in the future. And this must be made explicit, so that in each annual budget we set aside some funds for major infrastructure investments throughout the country. In this way, by 2020, we can boast of highly developed infrastructure throughout the country, and befitting of a top-20 global economy.
A country which is among the 20 largest global economies must also make full use of current technologies to improve its productivity. This is an important challenge, and we have a lot of work to do, ranging from improving ICT skills for Nigerian workers, to adopting modern technologies in agriculture.
Take the case of agriculture for example. Although Nigeria's agricultural sector growth has been good in recent years, there is still room for improvement if more modern technologies could be more widely used, supported by irrigation and extension services for targeted crops. Agricultural yields in Nigeria are not competitive globally, especially when compared with other producers such as Brazil or Thailand. In the coming years, we must improve our agricultural productivity and reclaim our international market share in traditional export sectors (such as cocoa, groundnuts, etc) while continue to diversify production into other high-value agricultural exports such as sesame seeds and leather products.
But this technology challenge is not for agriculture alone. I believe Nigeria must strive to be on the technology frontier for all targeted sectors where we have a comparative advantage. So for example, if the solid minerals sector is a priority growth sector, then we must support private sector activities that use appropriate technology to add value such as refining bitumen, cutting and polishing of gemstones. In video and film, we must ensure that we are using internationally competitive technologies. And in the leather industry we must ensure that our hides and skins are processed using the latest techniques and processes.
Improve domestic investment climate
Another challenge which Nigeria needs to address is to improve the domestic investment climate for business. We need to create the environment conducive for private sector entrepreneurs, by removing the various bureaucratic obstacles which the private sector complains about, such as delays in obtaining permits to start a business, weak property rights in some states, and lengthy cargo clearance procedures at ports. The current administration has made progress in this regard, for example in establishing a one-stop shop for investors, in tackling the incidence of multiple taxation for businesses, and also starting the computerization of land registries (as in the FCT). However, many additional challenges remain, such as improving land registration titles in various states, improve the efficiency of the judicial system, and accelerating customs reforms.
Another challenge which Nigeria needs to address is to improve the domestic investment climate for business. We need to create the environment conducive for private sector entrepreneurs, by removing the various bureaucratic obstacles which the private sector complains about, such as delays in obtaining permits to start a business, weak property rights in some states, and lengthy cargo clearance procedures at ports. The current administration has made progress in this regard, for example in establishing a one-stop shop for investors, in tackling the incidence of multiple taxation for businesses, and also starting the computerization of land registries (as in the FCT). However, many additional challenges remain, such as improving land registration titles in various states, improve the efficiency of the judicial system, and accelerating customs reforms.
Prior to the recent reforms, and even at present, Nigeria's social indicators, such as infant mortality rates, percentage of population with access to clean water, and immunization coverage, were comparable to some of the least developed countries in the world. For example, look at infant mortality rates as reported by the UNDP Human Development Report from 2004. For every 1000 live births, we have about 101 infant mortalities in Nigeria, compared with 68 in Ghana, 26 in Egypt and 10 in Malaysia. A country aspiring to be among the top-20 global economies must improve on such social indicators.
As part of recent economic reforms, there has been targeted spending on various pro-poor programmes using savings from Nigeria's debt relief programme. In addition, some reforms have already begun in some areas such as the education sector. I believe that going forward, we must pay attention to 2 additional strategies which can help improve our social indicators.
First, we must work seriously at improving the efficiency of spending in the social sectors. It is encouraging to see the moves in this direction in the education sector because it isn't just enough to allocate large budgetary resources to these sectors. We must ensure that the allocated funds are well-utilized for the intended projects, and that the benefits reach ordinary Nigerians. One way to check the efficiency of spending is to monitor the impact on the ground, in terms of the number of children immunized, our primary school enrolment rates, and so on.
A second strategy which can be considered to improve our social sector spending is to develop programmes which provide both income transfers on a temporary basis, and also deliver social services. The common example of this is the Progressa scheme of Mexico, and Bolsa Escala in Brazil, which provides grants or cash transfers to parents for keeping their children in school. Therefore using one stone, the programme kills two birds by: improving enrolment rates for children, and also, making transfers to parents to help address extreme poverty. We can think of similar schemes in Nigeria, particularly at the state level, where for example, we provide parents with a cash transfer when they bring children in for immunization, or even stipulate that parents can obtain access to microcredit if they bring children in for immunization.
Tackle unrest in Niger Delta
Tackling the unrest in the Niger Delta should also be a priority policy area for the future. Even after 60 years of oil exploitation in the Niger Delta, high levels of poverty still exist in the region resulting in discontent and the breakdown of social capital. In a sense, residents of the Niger Delta have been let down by both their governments and oil companies alike. It is however important to separate the genuine concerns of Niger Delta residents from those of criminal gangs exploiting the prevailing situation.
Tackling the unrest in the Niger Delta should also be a priority policy area for the future. Even after 60 years of oil exploitation in the Niger Delta, high levels of poverty still exist in the region resulting in discontent and the breakdown of social capital. In a sense, residents of the Niger Delta have been let down by both their governments and oil companies alike. It is however important to separate the genuine concerns of Niger Delta residents from those of criminal gangs exploiting the prevailing situation.
The upwards revision of revenues allocated to derivation has been considered and this is a good thing. However, where such additional revenues go and the efficiency and effectiveness with which they are spent must be a top priority. Additional revenues must be provided directly to local communities through community funds to support community-based development programmes. These funds can then support a bottom-up development strategy, in which local communities own, prioritize, and choose their social programmes. Again, these funds should have private managers, and be governed by a committee of community NGOs and leaders who oversee the performance of the funds earmarked for concrete community projects.
A second strategy must be to improve skills, create jobs and improve equity participation of local residents in the oil and gas sector. This is important in order to tackle the unrest among the youth in the region. And it is essential for any long-term economic development and diversification in the Niger Delta region.
Consolidate reforms
And then finally, I think we must not forget about our macroeconomic reforms. In this lecture, I opted to focus on the shift from macro to micro and sector reforms, and on what our next steps should be if we were to realize the Goldman Sachs predictions. But it goes without saying that the recent macroeconomic reforms must be maintained, and also institutionalized. Macroeconomic stability is simply indispensable for economic growth, no matter which country in the world you examine. The BRICs, other East Asian tigers, and many other countries aspiring to join the top-20 club are all pursuing these prudent fiscal and monetary policies. And so Nigeria cannot afford to get left behind. Various components of the recent reforms - macroeconomic, structural, governance and public sector reforms - must all be consolidated and also institutionalized with appropriate legislation. In this regard, it is crucial that pending legislation underpinning fiscal and governance reforms - such as the Fiscal Responsibility Bill, the Procurement Bill, the EITI Bill and other bills - be passed as expeditiously as possible.
We must learn that reforms are not something you do once every 20 years, and then think the job is finished. Well-managed economies are continually adjusting especially on the macroeconomic front. We must learn to adjust to tackle issues when their impact is small, and not wait till inflation is too high, exchange rates are completely misaligned, fiscal deficits are too large before we think of adjusting again! If you have a small wound and you treat it immediately the pain is less. If you ignore it and let it grow, you will probably end up in the hospital, and you may require surgery with more pain and larger expenses.
A bigger challenge is to devise ways of extending these reforms to the sub-national level. A number of states have embarked on some economic reforms, yet a lot more remains to be done. Fiscal decentralization in Nigeria implies that states and local governments account for nearly half of consolidated government expenditures. They also have significant independence in their expenditure decisions, which are supposed to be targeted at delivery of social services, such as in health and education. Clearly, the vision 20-2020 cannot be achieved at the Federal level alone. It will be important for state governments to adopt and implement the reforms, particularly in improving budget transparency, in strengthening public expenditure management, in adopting the Due Process mechanism, and in kick-starting their own sectoral growth strategies. In the next administration, state governments must really take ownership of the reform agenda, and present specific plans of how they are to tackle the fiscal, social and infrastructural problems besetting their states.
Conclusions
What is the relevance of all this then for you young students about to embark on your university education? As you embark on your university careers, I want you to bear these Goldman Sachs projections in mind. And I urge you to tailor your university education towards participating in a prosperous Nigeria of the future. I sincerely believe that Nigeria can be among the 20 largest global economies if we all make a concerted effort. As I have discussed above, there are eight key areas we need to focus on as a country, namely: focusing on employment generation, supporting entrepreneurs and small businesses, maintaining infrastructure investments, improving technology adoption in targeted sectors, improving the investment climate, improving social sector spending, tackling unrest in the Niger Delta and extending reforms to the sub-national level.
By the year 2020, most of you students here will be in your 30s - in your prime working years. You will be among the skilled work force in Nigeria, and the drivers of our country's economic growth. You must believe that our country's potential can become reality. You should work hard, and realize that other young students in China, in India, in Malaysia and son on, are similarly acquiring the skills they need to compete in the global economy of the future. Whether in your biotechnology or accounting or computer science courses, please remember that there is a long-term vision of being among the top-20 global economies.
Let me conclude with the words of Churchill again, from a speech he delivered in October 1941 to students at the elite Harrow School, his alma mater. This is what he said to the students: "Never give in--never, never, never, never, in nothing great or small, large or petty, never give in except to convictions of honour and good sense. Never yield to force; never yield to the apparently overwhelming might of the enemy."
I similarly urge you never to give in. Nigeria's future rests in your hands. Don't give in no matter how daunting the challenges, no matter the obstacles thrown in your way, and no matter the cynicism of some of your fellow citizens.
•Okonjo-Iweala, Distinguished Fellow, The Brookings Institution, Washington DC and former Minister of Finance/Foreign Affairs, recently delivered the lecture at the Matriculation Ceremony of the Igbinedion University, Okada, Edo State.
For The Record
I want to use this opportunity to discuss some of the major challenges facing our country, and how you can use your university experience here to contribute to our country's long-term economic development. After all, the bigger goal of a university education is to develop well-educated graduates who become productive citizens, and have an impact on their local communities and the nation at large. In 1908, during a speech in Dundee, Scotland, Winston Churchill made a similar observation:
What is the use of living, if it be not to strive for noble causes and to make this muddled world a better place for those who will live in it after we are gone? How else can we put ourselves in harmonious relation with the great verities and consolations of the infinite and the eternal?
My motivation for today's lecture however is not about what Churchill said in 1908. It is a lot more recent than that. My motivation for today's lecture is derived from an interesting piece of research work which was conducted by the leading US investment bank, Goldman Sachs. Economists at this American bank reviewed the performance of the BRIC countries, namely Brazil, Russia, India and China. The BRICs are very important in the global economy today. Together, these countries accounted for nearly one third of the global growth between 2000 and 2005; they currently account for about 15 per cent of global trade; and they hold about one-third of the world's foreign reserves. The researchers then went on to pose an interesting question: which other countries can join the BRICS in becoming the leading global economies by the year 2020? Their research produced some interesting results. They estimated that by the year 2025, the top 20 global economies will be comprised of:
•The G-7 countries, namely: US, Japan, Germany, UK, France, Italy and Canada; Plus the BRICs: Brazil, Russia, India and China making a total of 11 countries;
•The remaining 9 countries are predicted as: Korea, Mexico, Indonesia, Turkey, Iran, Vietnam, Pakistan, Philippines, and Nigeria.
Without getting into the details of their methodology, let me add here that their work was based on some of the leading growth models used by economists today. The predictive power of the model is quite impressive, and in fact, when they run their model from 1960, it is able to predict the growth path for most of today's developed economies. But the story does not end there. The researchers also go on to identify a number of preconditions which are necessary for translating these predictions into reality. And then discuss the various policies which various large developing countries, with potential, must adopt in order to become global economic heavy weights in the future.
I was very delighted when I read this paper because it confirmed some of my previous instincts. But potential alone is surely not enough. All of us must work towards translating this potential into reality, and the work has begun under the current administration. This leads me to the subject of my lecture today, which is Nigeria 2020: From Vision to Reality. I want to discuss with you some concrete strategies which Nigeria must adopt in order to join the 20 largest world economies by 2020. This is an important exercise, because what we must do also translates into an agenda for the future. The current administration has summed up the aspiration as the Vision 20-2020: i.e. the goal of being among the 20 largest economies, by the year 2020. And to a large extent a lot of progress has been made in recent years. The administration has managed to achieve macroeconomic stability, and also begun with some micro and sectoral reforms. Our next challenge is to embark on a massive move on the micro and sectoral issues in order to translate our potential into reality.
Today, we in Nigeria are fortunate to have 2 sets of success stories to learn from: the East Asian tigers in the late 1990s; and also the current growth being experienced by the BRICs. Based on some of these recent success stories, I think there are eight main policy areas which Nigeria must focus on to realize the Goldman Sachs predictions. Let me discuss each of these areas briefly.
Focus on Employment Generation
A first goal must be to focus on employment generation for Nigerians. Although we lack reliable data on employment trends, casual evidence points to high levels of underemployment in Nigeria, particularly among the youth. The high growth we are witnessing today from China is partly because the country has focused on real sector growth, and also increasing employment for both its skilled and unskilled workers. Few will dispute the need for job creation in Nigeria. University students such as yourselves looking forward to your future will agree that additional jobs are needed to ensure that you are employed upon leaving school. How we create the extra jobs is the major challenge. In the case of Nigeria, the oil sector, which accounts for about a third of our economy, exists as an enclave, and so does not provide many spillovers into the rest of the economy, but even this sector can, and must, be made more employment generation-friendly than at present.
The first point I want to make here is that we must train people to think like entrepreneurs. To think of creating jobs and not always looking for jobs! To think of employing people, rather than waiting to be employed! Imagine a situation when our youth become more entrepreneurial, start their own small businesses, and each small business employs about 10 people!
Imagine what impact that will have! I am a firm believer in the importance of small businesses, and in fact, there is growing evidence today from the US, Germany and China, that small businesses form the backbone of their economies.
This leads me to the second point I want to make, which is that government must play its part in assisting Nigerian small businesses to take-off. And I think that is the big challenge for the next administration. I will get into some practical strategies soon, but before that we need to ask some broader questions. What are our areas of comparative advantage? What are our priority growth sectors? And how do we build competitiveness in these sectors in order to compete on the international stage? Can we imagine a time when Nigeria's granite and other solid minerals would be processed and used in major construction projects both home and abroad. Can we also imagine a time when the services sectors in Nigeria (such as tourism and entertainment services) would become an international brand? Can we imagine a time in the near future when all the vast land in Nigeria's middle-belt would be used for productive agriculture as in Brazil?
And finally, take a look at our textiles and garment sector. Nigeria has the opportunity to DRESS Africa through its booming and dynamic fashion industry but has anyone addressed how this can be done using a supply chain approach? People love our clothing all over Africa and the world. Why are we waiting for Ghana or South Africa to figure out first how to take advantage of this opportunity and beat us to it?
I think a future administration can learn a lot from the East Asian experience. For the 1990s the rapid growth experienced by most of the East Asian tigers relied on targeted industrial strategies. I don't mean the State getting back into sectors or industries. We have shown we cannot manage that in Nigeria due to corruption and mismanagement. Rather, what we need is the use of selective, market-friendly interventions which address bottlenecks in particular sectors. Nigeria must identify strategic sectors, where we have comparative advantage, and then target them one by one. Some sectoral reform programmes have begun in areas such as agriculture and solid minerals, and are already yielding some results. But we need to extend these reforms to other sectors, and also go deeper.
For example, in agriculture, after targeting some crops for export, we need to find out how we add more value to them, and how we improve product quality in order to meet international standards. More extensive sectoral strategies which also address bottlenecks such as availability of inputs and technology, regulatory requirements, skills, are urgently required. I will provide more specific strategies on how we can develop small businesses in key sectors in the next section.
Supporting entrepreneurs and small business development
Government must identify a number of strategic sectors; tackle the bottlenecks there; and then allow entrepreneurs to drive growth in these sectors and create jobs in the country. In each sector, I think we need to look at the entire supply chain, and tackle all the constraints at each stage. Let me offer some concrete suggestions on what must be done:
Access to Finance
First, we must address the access to finance problem in the country by introducing innovative financing mechanisms, such as venture capital funds and Grameen-type microfinance funds. Access to finance remains a major bottleneck for the private sector in the country, whether for a young university graduate who wants to start an IT business or for a smallholder farmer who wants to establish a cassava processing plant. The central problem here is that both domestic savings rates and domestic private credit are very low in Nigeria, as in most other African countries. Savings rates in Africa are at about 20.8 percent of GDP, about half of the average of 38.2 percent in Asia. The availability of private credit is also low: about 85 percent of GDP for high income countries, 30 percent of GDP in middle-income countries, but only about 16 percent of GDP in Nigeria for example.
For the young university graduate with a bright idea, we should have venture capital funds which provide access to capital to support the start-up phase of their businesses. There are a few examples of venture capital funds which have operated in Africa, and their performance has been impressive. There have been some success cases from the 1990s, such as the Ghana Venture Capital Fund, the Zambia Venture Capital Fund, and so on. And these funds have supported small and medium sized businesses such as dairy factories, bottled water manufacturers and insurance companies.
A common example I often cite is that of the Brookside Dairy in Kenya. This company emerged from the Kenya Cooperatives in the 1990s after de-regulation of the sector. But then they needed additional financing to expand their business, and take it to the next level. They obtained funds from the Acacia Fund in 1998 to allow them to diversify into milk, butter and other products. The business has made a major impact, and today employs about 800 full-time staff, 300 casual workers, 18000 distribution kiosks in Nairobi, 1000 bicycle boys carrying out deliveries etc!
In Nigeria, we need to consider setting aside some funds each year to support such entrepreneurial start-ups. And we can do this in some form of a public-private partnership - where we complement funds from the private sector by setting aside some amount of money in the budget each year, and allowing competent fund managers in the private sector to manage these funds and invest in various start-ups. State governments must also get involved, and put in some of their own funds for such a scheme. We can also think of investing some of our pension resources into such funds which are professionally managed.
Similarly, we need to examine microfinance initiatives seriously, if we are to stimulate some village-level economic development. We need to scale up the few interventions we have and make them work better. Microfinance can be empowering, as the example of the Grameen Bank in Bangladesh has demonstrated. But it takes a great deal of work and dedication. By assisting poor people (especially women) with small loans, it enables them to invest in various productive activities.
Although we know a lot about microfinance in Nigeria today, we have not utilized this opportunity fully. We need to think more carefully about how we can develop microfinance institutions which address the needs of those living in extreme poverty: can we assist with little funds here and there to enable them become traders, small-scale farmers and so on. Of course, as in the Grameen example, we will require strong private sector management, and visionary leadership and passion like Muhammad Yunus, to nurture such an initiative in Nigeria.
The key issue here is whether the Federal and State Governments can band together to provide seed capital that can be used in partnership with private funds from our commercial banks, donors etc to scale up to a Grameen Bank in Nigeria. And this will be managed by private hands, and a dedicated Nigerian expert willing to adapt the Grameen concept to our culture and villages and make it work. We know that part of our vision is to also make Nigeria a leading financial center in Africa. This is good, and we should aim for it, whilst focusing intensely on how to make finance work for our people at home.
One final issue on the subject of finance is that we must massively improve our domestic credit markets. The current administration has made good progress so far in launching the national policy on consumer credit, and also in working on a national mortgage system. But more can be done to improve access to domestic credit which is needed in stimulating domestic demand and consumption particularly by the middle class. Recall that China's recent growth is due not only to its strong export performance, but also because there is a large and growing middle class which is driving domestic demand. We similarly need to develop our middle class, and provide them with adequate credit facilities in Nigeria.
And then with world-class venture capital funds, microfinance institutions, a strong domestic credit market, and a vibrant commercial banking sector, I am convinced that the Nigerian financial system can truly help to drive growth, entrepreneurship, and employment in the Nigerian economy.
Coaching and mentoring small-business entrepreneurs
Still on the topic of supporting small businesses, we also need to use some of our venture capital and microfinance funds not only to provide investment capital, but also to assist our young entrepreneurs with financial advice, strategic guidance, and best practice management techniques. In general, there is the need to expand on some of the work which agencies such as SMEDAN are currently doing. For example, on this clothing example I mentioned earlier, young entrepreneurs need to understand the business of mass production of garments, understand what just-in-time production means, and also to be able to deliver bulk quantities within tight deadlines.
Marketing skills for entrepreneurs
Another concrete strategy to boost entrepreneurship is to provide young entrepreneurs with marketing assistance for their goods both at home and abroad. In many cases, it isn't that Nigeria doesn't have the goods to sell in international markets. We do. The problem lies in the quality of our products, the packaging, the finishing, and our inability to meet international standards. Particularly for international exports, we need to assist Nigerian firms to meet international standards if our goods are to become globally competitive.
Develop entrepreneurship parks
Finally, I will suggest that the next administration considers developing entrepreneurship parks supplied with electricity, running water and other infrastructure, in exchange for rent. I believe SMEDAN and a number of state governments have started this. Young entrepreneurs can be housed in these parks before they grow into bigger businesses. And these parks will welcome a broad spectrum of entrepreneurs such as those in art, music and film, those producing consumer goods, others in the IT sector as well as others in the agro-processing sector. There is a plan to develop an Abuja Institute of Science and Technology with a technology park attached to it. This is the right kind of approach to encourage the sharing of ideas between academics and entrepreneurs.
So following employment creation and supporting entrepreneurs, the next major focus should be with infrastructure. Decades of underinvestment has resulted in the deterioration of public infrastructure in the country. The existing poor domestic infrastructure imposes large transaction costs on businesses, and reduces the competitiveness of the Nigerian private sector. Prior to the recent economic reforms, a country of Nigeria's size of nearly 140 million people generated about 4,500MW of electricity, while in contrast South Africa with 45 million people generates 45,000MW, and Brazil with 188 million people generates 100,000MW. Other infrastructural bottlenecks exist in areas such as road and rail transportation, and ports.
Recent infrastructure investments by the current administration which should soon yield fruit have been very encouraging particularly in areas such as power and railways. We need to press ahead with the implementation of the various infrastructure master plans such as for the power sector, and also strengthen Federal Government's collaboration with states and the private sector on infrastructure investments, for example via PPPs etc.
In addition to these recommendations, I want to make 2 suggestions. First, while we wait for the investments with long gestation periods, there are some low-hanging fruits which we need to harvest. For example, we can repair or reconstruct the Ore-Benin road and improve the Aba, Port Harcourt road, in the interim while other major projects are being implemented. And then what stops us from identifying a number of major highways in disrepair and tackling those?
A second point I want to make on infrastructure development is that we must further prioritize our infrastructure investments in the budget in the future. And this must be made explicit, so that in each annual budget we set aside some funds for major infrastructure investments throughout the country. In this way, by 2020, we can boast of highly developed infrastructure throughout the country, and befitting of a top-20 global economy.
A country which is among the 20 largest global economies must also make full use of current technologies to improve its productivity. This is an important challenge, and we have a lot of work to do, ranging from improving ICT skills for Nigerian workers, to adopting modern technologies in agriculture.
Take the case of agriculture for example. Although Nigeria's agricultural sector growth has been good in recent years, there is still room for improvement if more modern technologies could be more widely used, supported by irrigation and extension services for targeted crops. Agricultural yields in Nigeria are not competitive globally, especially when compared with other producers such as Brazil or Thailand. In the coming years, we must improve our agricultural productivity and reclaim our international market share in traditional export sectors (such as cocoa, groundnuts, etc) while continue to diversify production into other high-value agricultural exports such as sesame seeds and leather products.
But this technology challenge is not for agriculture alone. I believe Nigeria must strive to be on the technology frontier for all targeted sectors where we have a comparative advantage. So for example, if the solid minerals sector is a priority growth sector, then we must support private sector activities that use appropriate technology to add value such as refining bitumen, cutting and polishing of gemstones. In video and film, we must ensure that we are using internationally competitive technologies. And in the leather industry we must ensure that our hides and skins are processed using the latest techniques and processes.
Improve domestic investment climate
Another challenge which Nigeria needs to address is to improve the domestic investment climate for business. We need to create the environment conducive for private sector entrepreneurs, by removing the various bureaucratic obstacles which the private sector complains about, such as delays in obtaining permits to start a business, weak property rights in some states, and lengthy cargo clearance procedures at ports. The current administration has made progress in this regard, for example in establishing a one-stop shop for investors, in tackling the incidence of multiple taxation for businesses, and also starting the computerization of land registries (as in the FCT). However, many additional challenges remain, such as improving land registration titles in various states, improve the efficiency of the judicial system, and accelerating customs reforms.
Another challenge which Nigeria needs to address is to improve the domestic investment climate for business. We need to create the environment conducive for private sector entrepreneurs, by removing the various bureaucratic obstacles which the private sector complains about, such as delays in obtaining permits to start a business, weak property rights in some states, and lengthy cargo clearance procedures at ports. The current administration has made progress in this regard, for example in establishing a one-stop shop for investors, in tackling the incidence of multiple taxation for businesses, and also starting the computerization of land registries (as in the FCT). However, many additional challenges remain, such as improving land registration titles in various states, improve the efficiency of the judicial system, and accelerating customs reforms.
Prior to the recent reforms, and even at present, Nigeria's social indicators, such as infant mortality rates, percentage of population with access to clean water, and immunization coverage, were comparable to some of the least developed countries in the world. For example, look at infant mortality rates as reported by the UNDP Human Development Report from 2004. For every 1000 live births, we have about 101 infant mortalities in Nigeria, compared with 68 in Ghana, 26 in Egypt and 10 in Malaysia. A country aspiring to be among the top-20 global economies must improve on such social indicators.
As part of recent economic reforms, there has been targeted spending on various pro-poor programmes using savings from Nigeria's debt relief programme. In addition, some reforms have already begun in some areas such as the education sector. I believe that going forward, we must pay attention to 2 additional strategies which can help improve our social indicators.
First, we must work seriously at improving the efficiency of spending in the social sectors. It is encouraging to see the moves in this direction in the education sector because it isn't just enough to allocate large budgetary resources to these sectors. We must ensure that the allocated funds are well-utilized for the intended projects, and that the benefits reach ordinary Nigerians. One way to check the efficiency of spending is to monitor the impact on the ground, in terms of the number of children immunized, our primary school enrolment rates, and so on.
A second strategy which can be considered to improve our social sector spending is to develop programmes which provide both income transfers on a temporary basis, and also deliver social services. The common example of this is the Progressa scheme of Mexico, and Bolsa Escala in Brazil, which provides grants or cash transfers to parents for keeping their children in school. Therefore using one stone, the programme kills two birds by: improving enrolment rates for children, and also, making transfers to parents to help address extreme poverty. We can think of similar schemes in Nigeria, particularly at the state level, where for example, we provide parents with a cash transfer when they bring children in for immunization, or even stipulate that parents can obtain access to microcredit if they bring children in for immunization.
Tackle unrest in Niger Delta
Tackling the unrest in the Niger Delta should also be a priority policy area for the future. Even after 60 years of oil exploitation in the Niger Delta, high levels of poverty still exist in the region resulting in discontent and the breakdown of social capital. In a sense, residents of the Niger Delta have been let down by both their governments and oil companies alike. It is however important to separate the genuine concerns of Niger Delta residents from those of criminal gangs exploiting the prevailing situation.
Tackling the unrest in the Niger Delta should also be a priority policy area for the future. Even after 60 years of oil exploitation in the Niger Delta, high levels of poverty still exist in the region resulting in discontent and the breakdown of social capital. In a sense, residents of the Niger Delta have been let down by both their governments and oil companies alike. It is however important to separate the genuine concerns of Niger Delta residents from those of criminal gangs exploiting the prevailing situation.
The upwards revision of revenues allocated to derivation has been considered and this is a good thing. However, where such additional revenues go and the efficiency and effectiveness with which they are spent must be a top priority. Additional revenues must be provided directly to local communities through community funds to support community-based development programmes. These funds can then support a bottom-up development strategy, in which local communities own, prioritize, and choose their social programmes. Again, these funds should have private managers, and be governed by a committee of community NGOs and leaders who oversee the performance of the funds earmarked for concrete community projects.
A second strategy must be to improve skills, create jobs and improve equity participation of local residents in the oil and gas sector. This is important in order to tackle the unrest among the youth in the region. And it is essential for any long-term economic development and diversification in the Niger Delta region.
Consolidate reforms
And then finally, I think we must not forget about our macroeconomic reforms. In this lecture, I opted to focus on the shift from macro to micro and sector reforms, and on what our next steps should be if we were to realize the Goldman Sachs predictions. But it goes without saying that the recent macroeconomic reforms must be maintained, and also institutionalized. Macroeconomic stability is simply indispensable for economic growth, no matter which country in the world you examine. The BRICs, other East Asian tigers, and many other countries aspiring to join the top-20 club are all pursuing these prudent fiscal and monetary policies. And so Nigeria cannot afford to get left behind. Various components of the recent reforms - macroeconomic, structural, governance and public sector reforms - must all be consolidated and also institutionalized with appropriate legislation. In this regard, it is crucial that pending legislation underpinning fiscal and governance reforms - such as the Fiscal Responsibility Bill, the Procurement Bill, the EITI Bill and other bills - be passed as expeditiously as possible.
We must learn that reforms are not something you do once every 20 years, and then think the job is finished. Well-managed economies are continually adjusting especially on the macroeconomic front. We must learn to adjust to tackle issues when their impact is small, and not wait till inflation is too high, exchange rates are completely misaligned, fiscal deficits are too large before we think of adjusting again! If you have a small wound and you treat it immediately the pain is less. If you ignore it and let it grow, you will probably end up in the hospital, and you may require surgery with more pain and larger expenses.
A bigger challenge is to devise ways of extending these reforms to the sub-national level. A number of states have embarked on some economic reforms, yet a lot more remains to be done. Fiscal decentralization in Nigeria implies that states and local governments account for nearly half of consolidated government expenditures. They also have significant independence in their expenditure decisions, which are supposed to be targeted at delivery of social services, such as in health and education. Clearly, the vision 20-2020 cannot be achieved at the Federal level alone. It will be important for state governments to adopt and implement the reforms, particularly in improving budget transparency, in strengthening public expenditure management, in adopting the Due Process mechanism, and in kick-starting their own sectoral growth strategies. In the next administration, state governments must really take ownership of the reform agenda, and present specific plans of how they are to tackle the fiscal, social and infrastructural problems besetting their states.
Conclusions
What is the relevance of all this then for you young students about to embark on your university education? As you embark on your university careers, I want you to bear these Goldman Sachs projections in mind. And I urge you to tailor your university education towards participating in a prosperous Nigeria of the future. I sincerely believe that Nigeria can be among the 20 largest global economies if we all make a concerted effort. As I have discussed above, there are eight key areas we need to focus on as a country, namely: focusing on employment generation, supporting entrepreneurs and small businesses, maintaining infrastructure investments, improving technology adoption in targeted sectors, improving the investment climate, improving social sector spending, tackling unrest in the Niger Delta and extending reforms to the sub-national level.
By the year 2020, most of you students here will be in your 30s - in your prime working years. You will be among the skilled work force in Nigeria, and the drivers of our country's economic growth. You must believe that our country's potential can become reality. You should work hard, and realize that other young students in China, in India, in Malaysia and son on, are similarly acquiring the skills they need to compete in the global economy of the future. Whether in your biotechnology or accounting or computer science courses, please remember that there is a long-term vision of being among the top-20 global economies.
Let me conclude with the words of Churchill again, from a speech he delivered in October 1941 to students at the elite Harrow School, his alma mater. This is what he said to the students: "Never give in--never, never, never, never, in nothing great or small, large or petty, never give in except to convictions of honour and good sense. Never yield to force; never yield to the apparently overwhelming might of the enemy."
I similarly urge you never to give in. Nigeria's future rests in your hands. Don't give in no matter how daunting the challenges, no matter the obstacles thrown in your way, and no matter the cynicism of some of your fellow citizens.
•Okonjo-Iweala, Distinguished Fellow, The Brookings Institution, Washington DC and former Minister of Finance/Foreign Affairs, recently delivered the lecture at the Matriculation Ceremony of the Igbinedion University, Okada, Edo State.
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