Being the presentation of MR. PETER OBI, former Governor of Anambra State and Vice-Presidential Candidate of the Peoples Democratic Party (PDP), in the February 23, 2019 election, at the the 60th Founders’ Day Celebration of the University of Nigerian, Nsukka (UNN), on October 7th. 2020.
I wish to sincerely thank the Chairman and members of the Governing Council, the Vice-Chancellor and the Management of the University of Nigeria, the organizers of this occasion and my brother the Chairman of the event, Mr. Tunde Lemo as well as all my brothers and sisters who are Alumni of this great institution.
I deeply appreciate the honour and invitation as a Guest Speaker at this event today marking the 60th Founders Day of the University, which incidentally coincides with the 60th Anniversary of our country’s independence. The topic: “Nigeria at 60: The Journey Since the 3rd Republic and Way Forward” is very apt because it is precisely the fundamental question for all of us to answer. Though I am restricted to Nigeria’s 3rd Republic, I humbly request to be allowed to make a few comments about where we were in 1980, using my experience as a student of this great Institution to illustrate how terribly things have deteriorated in our country.
IN THE BEGINNING
I was admitted into the University of Nigeria as a 1st year student in September, 1980, and in October that year, just after I had settled down as a student, I took a taxi from the University to J-Allen sales office at Okpara Avenue in Enugu and paid N2,650 to buy a brand new Volkswagen Beetle with comprehensive insurance and every other requirement – all at the cost about N2,900.00.
A year after, I decided to change my car. I went to Umeano Motors, managed by my own elder brother, Ozo Umeano and paid N7,700 for a brand new 505. While the company was expecting a delivery up to 45 vehicles, they received only about 25 vehicles. I recall been told then that I had to wait because of that shortage. Their reason was that I was a student, and it would not be good if I received my ordered vehicle while so many lecturers (both Professors and Associate Professors) who paid even before me for the new vehicles would still be waiting.
In 1980, the Annual Salary of a Professor in a University was about N5,000 – N6,000, so in two years or three, he could save money enough to buy a brand new car. Today, with an Annual Salary of about N3/4 million, which often is not paid as and at when due, it could take up to 10years to be able to save money to buy a similar vehicle.
OUR NIGERIA TODAY
For my specific topic, “Nigeria at 60: The Journey Since the 3rd Republic and Way Forward”, it is important that I start from where we are today before I can compare how we have travelled to this destination by highlighting Nigeria’s current situation:
- According to a recent study on global poverty, the World Poverty Clock shows that Nigeria today is a nation with the largest number of poor people in the world, about 91.8 million people are extremely poor (about 46.5% of the population), with the poverty rate growing at the rate of 6 persons dropping into poverty per minute. The study has clearly shown that this will worsen in coming years. We have more people living in extreme poverty than the two biggest nations: China and India combined
- Today, Nigeria has the highest number of out-of-school children, about 15 million and this will also worsen in the near future. The challenge goes beyond children dropping out of school, but those that have not stepped into the school. About 75% of the children out of school have never stepped foot in any classroom.
- Nigeria has overtaken India as the world capital for under-5 mortality, according to 2020 mortality rate estimate released by United Nations Children’s Fund (UNICEF). These developments come two (2) years earlier than World Bank projection.
- Nigeria is ranked 3rd as the most terrorized country globally, behind Afghanistan and Iraq. It is being speculated that we will soon overtake them.
- In the Global Competitive Index (GCI), we moved from 124 to 127.
- In Stress ranking, we are now 148 over 150: In fact, Bloomberg says that Nigeria is now the most stressful country to live in.
- Nigeria is among the countries with the worst inequality rate 157/157 according to Oxfam Inequality Rating. While in comparable nations, the richest 1% of the population control less than 70% of national wealth, the richest 1% in Nigeria control about 90% of the country’s wealth. Inequality reduces economic growth and worsens health, education and poverty. Inequality crisis is not inevitable and government is not incapable of fighting it, but often it is worsened by government action and inaction.
- With comparable nations, in literacy rate, Nigeria is 2nd to the worst; only higher than Sudan, as growth recorded in 20 years is below 15% when compared with global average growth rate of above 30%.
- With about 50% of under-employment and unemployment especially high level of youth unemployment, Nigeria ranks among the worst globally.
- Our Revenue to Debt Service Ratio is one of the worst as a result of mismanagement of debt. While the average Revenue to Debt Service Ratio is between 20% to 30% in most comparable nations, ours is now about 90% and the huge debt accumulated has not reflected in our growth. More worrisome is the fact that most of these debts were not acquired for capital investments but rather for consumption.
v Development Agencies i.e World Bank, UNDP and similar bodies have clearly shown that issues enumerated above depend on education as a critical driver of human capital development and economic growth as well as employment generation. It shows clearly today that the more you invest in education, the better your economy, and the more employment opportunities, the better the improvements in security, peace and stability. It further shows a strong relationship between economic growth, MSMEs growth, GDP per capita growth and overall development of the economy.
v Employment: Various studies have shown clearly that tackling the deficiencies of underemployment and unemployment is the greatest contributor to economic growth. I had mentioned earlier that the level of unemployment is concomitant with the various vices that plague our nation today.
In my comparison of our journey so far, I am going to use ten (10) countries with similar large population, political and economic trajectory. Those countries are: the two biggest countries in the world in terms of population, China and India; country with the largest Muslim population and a MINT nation, Indonesia; the three fastest growing countries in Asia which I consider were behind Nigeria a few years ago, Philippines, Bangladesh and Vietnam. And in Africa, the 2nd and 3rd biggest economy, South Africa and Egypt; the fastest growing economies, Ethiopia and the 2nd biggest economy in West Africa, Ghana.
Today, the most important measure of development of any nation is Human Development Index (HDI), which is statistical to be used to measure a nation’s overall achievement in its social and economic dimensions. The measurements are based on health of the people (Life Expectancy), level of Education and their standard of living (or per capita income). It is categorized as Very High, High, Medium, Low and in some cases Very Low.
HUMAN DEVELOPMENT INDEX (HDI)
|S/N||COUNTRIES||2000||2005||2010||2015||2019||RANKING||LITERACYRATE %||GDP $||EDUCATION EXP. TO GDP $||%||POPULATION||LIFE EXPECTANCY|
GDP PER CAPITA
|S/N||COUNTRIES||2000 $||2005 $||2010 $||2015 $||2019 $|
Many studies have shown a strong relationship between support for Micro, Small and Medium Enterprises (MSMEs) and employment creation, growth of GDP per capita, and overall growth of the economy. Again, I will be illustrating with the two economies I had earlier mentioned: China, which is the fastest growing economy within the block of the Brazil, Russia, India, China and South Africa (BRICS) and Indonesia which is the fastest growing economy within the Mexico, Indonesia, Nigeria and Turkey (MINT) nations.
- CHINA: MSMEs in China which constitute about 95% of Chinese firms, account for 60% of China’s GDP and contributes more than 65% of the import and export business in China. They also contributed about 50% of the overall tax revenue of government MSMEs constitute about 95% of all enterprises in China. China’s GDP is today about $14 trillion, which means that 60% translates to about $8.4 trillion – about 21 times the GDP of Nigeria.
- MSMEs account for over 60% of industrial output and provide over 60% of the overall employment and 80% of urban employment in China. Talking about the growth of the MSMEs, 10 years down the line, 60% of these MSMEs have shown to become large corporate when compared with Nigeria that 96% are still at the Micro stage.
- China has about 840 million people employed (which is 60% of the population), and MSMEs provide 60% of these, which is 500 million people. In urban employment, the contribution of MSMEs is even greater; 80% of urban employment is attributed to MSME; of about 500 million people employed in urban areas, MSMEs employ 400 million.
- China had planned to create 50 million jobs from 2015-2020, which is 10 million annually, and is religiously following the plan year-on-year. In fact, China has consistently surpassed its annual target. China has an unemployment rate of only 3.7%.
- INDONESIA: MSMEs in Indonesia are contributing about 65% of the GDP. So, with their GDP currently at about $1.120 Trillion, the contribution of MSMEs is $720 billion (which is about twice Nigeria’s GDP), with MSMEs employing over 90% of the Indonesian workforce.
- Indonesia, with a population of 260 million, has about 150 million of its population as the workforce, and MSMEs employ over 90% of this workforce, which is about 135 million.
- Indonesia has a specific ministry dedicated to cooperatives and MSMEs.
- MSMEs are the backbone of the Indonesian economy. Indonesia has an unemployment rate 4.5%.
You can see that while both countries have under-employment/ unemployment rates of below 5%, ours is clearly above 40%.
I know there is much talk about MSMEs and grant support in Nigeria, but I can categorically say that, that sector lacks all the required support.
Let me mention here first that any country where the public debt is higher than the private sector debt, that economy will not do well. That means it is not a productive economy, which is the case of Nigeria. This means that the MSMEs are not supported, in spite of all the noise making.
Today, the overall banking loan is about N20 trillion of which about 5000 firms control 75% which is about N3 billion each. The total number of MSMEs in Nigeria is about 45 – 48 million MSMEs according to SMEDAN. With total loan of under 5% (about N1 trillion which is just about N22,500 each), this makes it impossible for them to make meaningful contribution to our economy. Compare this to China where the MSMEs currently own 25% of the overall $36 billion debt of China, which is about $9 trillion in contrast to Nigeria where MSMEs are holding only about $2.5 billion (N1 trillion).
In fact, in the recent China Annual Parliamentary Gathering, Premier Lee Keqiang said that Commercial Banks should increase their lending to MSMEs to 30%.
In Indonesia, the case is similar; MSMEs hold about 20% of the overall debt of about $1.5 Trillion. The Government has taken significant measures to increase assets to banks; the most important of these is that banks must give loans of at least 20% to these MSMEs and this is strictly complied with.
One could ask: Where do you get the money to effectively support MSMEs? Before I go on about the sources of the money, let me give an example from a last year conference of Tony Elumelu Foundation which I attended. The CEO of the Foundation, Mrs. Ifeyinwa Ugochukwu, unequivocally stated that every entrepreneur they have supported with $5,000 creates twenty (20) jobs after a year of operation. Many other speakers after her confirmed that position.
Our current total public debt profile today is about $100 billion. Once again, let me state categorically that there is not much to show for this huge debt, yet we are piling up more. If as a nation we had set aside a quarter of this debt, which is $25 billion, and committed it to grants and credits to support MSMEs and entrepreneurship, we would have been able today to support 5 million MSMEs and entrepreneurs. Let me assume that only about 75% of them, which is 3,750,000, are able to create 50% of the jobs that the CEO of Tony Elumelu Foundation mentioned (which is 10), that would be a total of 37,500,000 new jobs. With this, we would not be talking of the number of people living in extreme poverty and the number of unemployed youths we have today. Similarly, both our GDP and our income per capita would have been on the increase and not on the decline, as they are today.
Today, all you hear is that our tax revenue to GDP is too low. Everybody knows that when it comes to tax revenue, it is directly linked to employment and economic growth. The better your economy and employment, the more tax revenue you would collect because you cannot tax unemployed people or businesses that are losing money, which is what we are doing today. This is not to overlook the issues bordering on efficiency of our tax administration, enforcing compliance by businesses and households and reciprocity on the part of government to provide public goods and services. For example, in China, MSMEs do not just contribute over 60% of GDP, and over 60% of Industrial output and over 60% of employment, they also contribute about 50% of tax revenues. China’s $4.00 trillion annual expenditure budget is 80% financed through tax (about $3.2 trillion) and MSMEs contribute 50% of this ($1.6 Trillion). So, if you want more tax in Nigeria, all you need is to aggressively support the economy, to be driven by the private sector by supporting entrepreneurship, especially within the MSMEs, to pull the 98 million Nigerians out of poverty.
Even with the disruption of our economy by the COVID-19 Pandemic which has helped to clearly show that our economic compass is no longer pointing in the right direction, thus making our country economically unviable, we are yet to come up with the required stimulus for turning around the economy.
If you look at the COVID-19 stimulus interventions provided by most comparable nations, you will see that our intervention is the least and it has to be looked into and aggressively supported, in line with other nations. I will start with the examples which I had provided before; in this case, I will bring in countries with comparable economies like India, Indonesia, Vietnam, Philippines, Bangladesh and then in Africa we will use the second biggest economy which is South Africa, the third biggest economy which is Egypt and Ethiopia which is the fastest growing economy in Africa.
These comparisons are only the fiscal stimulus that is supported by strong monitory stimulus.
- India, with a population of about 1.4 billion people, has just provided a stimulus package of about $300 billion (approximately 10% of $3 Trillion GDP) for COVID-19 Stimulus intervention.
- Indonesia, with a population of 264 million people, is coming out with a stimulus package of about $65 billion (approximately 6% of $1.112 Trillion GDP).
- Vietnam, with a population of 95 million people, is releasing a stimulus package of $26 billion (approximately 10% of $262 Billion GDP).
- Philippines, with a population of 110 million people, are releasing $20 billion as stimulus package (approximately 6% of $355 Billion GDP).
- South Africa, with a population of 55 million people, is giving out a stimulus package of $26 billion (approximately 8% of 320 Billion GDP).
- Egypt, with a population of 99 million people, is releasing about $12 to $15 billion as a stimulus package (approximately 5% of $300 Billion GDP).
- Bangladesh, with a population of 165 million people, is releasing $8 to $10 billion as a stimulus package (approximately 3% of $350 Billion GDP).
- Nigeria combined fiscal and monetary stimulus so far is about $5.5 Billion (N2.3 Trillion) (about 1.3% of $400 Billion GDP).
To further illustrate how inadequate our provisions are, let me use South Africa, Africa’s 2nd largest economy after Nigeria, with about a quarter of our population. South Africa’s fiscal stimulus is R500 billion ($26 billion), while our entire provision is $5.5 billion. South Africa is providing $5.5 Billion for MSMEs, providing $5.5 billion for Job protection to support corporations, not to sack workers. In Nigeria, many companies/ businesses are going through very difficult times and are laying off workers, if they have not collapsed completely (for instance, hotels, transporters etc) and nobody is asking them how they can continue.
South Africa is spending about $2.5 billion on creation of new job. All these are for a country that is supposed to be 2nd to us and with a quarter of our population. South Africa had just reported a fall in unemployment rate to 23.5% from 30% in 2nd quarter of 2020 while ours is the reverse.
The only known MSME stimulus today is the CBN monetary provision of N50 billion CBN (about $115 million) for over 48 million MSMEs and 80 million households which is about same as GH cedi 600 million ($105 million) Ghana is providing for 200,000 MSMEs to GH 3000 each ($525).
Having elucidated the low and sorry state of our HDI and economy before the Coronavirus, the situation has escalated with the Coronavirus outbreak. We just witnessed a minus 6% GDP growth and a similar situation at the third quarter, will be pushing us into another recession (the second in 4 years) We are becoming fiscally unviable because:
1. Our complete lack of understanding and investment in Education.
2. Consumption Economy rather than Production Economy that we operate today. Our economy is not productive and has attributes that make growth and sustainability impossible as a consequence of high level consumption and waste, corruption, rent-seeking, and high non- productive debt.
To reverse the present situation to achieve economic sustainability, we must as a matter of urgency, take some difficult but inevitable measures:
Education: Funding of Education is an investment, not an expense. Now that it has been established and accepted that Education is the most important contributor to the development of any nation, it is understandable why nations that have knowledge and technology are more successful than the ones that have not.
Consequently, government should aggressively invest in basic education with a clear monitored target of drastically reducing the number of out-of-school children by the year 2030.
These investments must be concentrated on Science, Technology, Engineering, Mathematics (STEM) Studies, as they are shown to be an asset and certificate for global employment.
- The economy must move from Consumption to Production; there must be articulated and coordinated expansionist fiscal and monetary policies that will be rigorously implemented and monitored; a massive government-backed fiscal and monetary stimulus to MSMEs and industrialization, especially for exports must be put in place.
- The approach must be aggressive and multi-dimensional support to MSMEs with grants; single digit interest rate loan, capacity building and automation to enable them have meaningful contribution to the economy, as is the case in other comparable nations.
- A well thought out policy will be to deliberately build a reserve account that will support our MSMEs to develop and acquire scale in a sustainable manner.
- These will reduce poverty level, create jobs especially for the youths, reduce over dependence on oil as only main source of Forex revenue, and help to stabilize the value of our local currency.
- By reduction of poverty, you will increase local demand and increase revenue accruable to government through various forms of taxes.
- The Nigerian economy must move to be genuinely Private Sector-Lead in order to be productive; ensure prudent and transparent application of resources; reduce consumption, waste, corruption, rent-seeking; and reduce non-productive public borrowing and debts.
- With the Economy being private sector-lead, there will be increased Private/Public Procurement and Investment in critical areas which will reduce inefficiency and waste especially with borrowed funds.
- Government should now, as a matter of urgency, drastically commence the reduction of cost of governance and overhead and imbibe strict fiscal discipline to free up resources for investment.
With the application of the above and other required measures, there would be increase in revenue as a result of productive economy, less borrowing due to the economy being private sector-lead and reduction in cost of governance. Consequently, the government will have more resources to invest in many critical areas of development to improve our Human Development Index (HDI) – Education, health, poverty reduction (per capita) and invariably lead to economic growth and sustainability.
Examples are bound of where these measures are being practised and have helped to sustain their economic growth, especially in countries with comparative economic and population trajectory like Vietnam, Philippines, Indonesia, Bangladesh, Egypt, and Ethiopia. All these countries have maintained a GDP growth of over 6% while their population growth is below 2%, while in our own case, our GDP growth is below 2% and our population growth is over 2%.
All these countries in the last five years have maintained their GDP growth.
In summary, we need massive investments in the education space to improve the stock of human capital in the country, we need to scale up funding interventions/grants to MSMEs.