If we are to attract the investment needed to meet the sundry economic goals we have set ourselves, reforms to the laws have to be implemented in tandem with reforms to our monetary policy environment.
This is the often unspoken argument for further domestic reforms. Changes to our rules will not of their own lead to improvements in our economic, social and or political options/outcomes. Rule changes that level the playing fields will. This is as much a function of how readily understandable the rules are, as it is a question of the fairness with which they are implemented. At heart, this condition reinforces an efficient market's requirement for easy exit and entry of all participants.
With its last breath, the Buhari administration appeared to bring down two birds with one stone: radically alter the economic power relationship among the country's constituent parties, while boosting the case for further domestic reform. At least three of the bills, which the president is reported to have signed into law last week, will help solve problems with the efficient running of the Nigerian state -- by moving economic, political, and social issues from the centre to lower administrative levels, consistent with their resolution. Yet, two stand out in terms of their potential long term impact: movement of railways to the "Concurrent Legislative List" from the "Exclusive Legislative List"; and broadening state governments' right to generate, transmit, and distribute electricity in areas covered by the national grid.
Expectedly, the more popular response has been to celebrate the prospect of "exponential growth in the power and railways sector over the next 18-24 months". Were this true, the subsequent reduction of costs across the country will equal a steroid-boost to the economy. Given how poorly the Buhari administration has managed the economy up until now, this would not be a bad bequest. Still, it is tempting to ask "Why, given the potential of reform efforts along these lines for driving domestic growth it took the government eight years to bring these changes about?" But that is to cavil. The weightier questions begin with how these changes affect the Nigeria Railway Corporation Act (1956), for instance? Do the states simply inherit the provisions in the Act that have, until now, held back private sector participation in that space? Or are they able to remove local risks to private investment in order to boost activity in the sector?
The ability of sub-national governments to vary the applicability of national laws and rules means that the resulting policy responses and interventions may be tailor-made to the peculiarities of their respective economies, without losing the broader purpose of the applicable laws and rules. This process of domestication also allows successful experiments in the different states to be copied by others -- allowing aggregate growth on the back of reduced resource use. However, policy sandboxes at the state level nearly always depend for their success on the configuration of the broader operating environment. The temptation to conceive of the latter constraint in terms of operating statutes alone is understandable. But success in driving multi-speed economic developments across an economy as diverse as ours requires a longer and broader road.
... any programme of successful reforms to the Nigerian economy will not just encourage private investment in the country. It will demand a substantial infusion of non-resident investments, too -- i.e. investments in productive assets (factories, real estate, etc.), as distinct from the yield-chasing portfolio variant. Up until now, domestic economic reforms have been autarchic.
Ultimately, any programme of successful reforms to the Nigerian economy will not just encourage private investment in the country. It will demand a substantial infusion of non-resident investments, too -- i.e. investments in productive assets (factories, real estate, etc.), as distinct from the yield-chasing portfolio variant. Up until now, domestic economic reforms have been autarchic. A mercantilist mindset continues to favour exports over imports -- persuaded that the latter is as harmful to the local economy as the former is beneficial. Atop this argument sits a nationalist mentality -- favouring local exporters over foreign ones.
The lousy basis of this economics is easily illustrated. But the anecdotal counter-case will do even better. Ignore the very useful example of North Korea. First, China, and as it moved up the production possibility frontier (labour costs in China are now high enough to undercut its competitiveness in the production of goods and services at the lower end of the technological rung), Vietnam, Laos, Bangladesh, all demonstrate the benefits of an economy open to foreign capital (and trade). The pool of money from foreign investors is nearly always bigger than that available locally. It is invariably more sophisticated. Has access to the fanciest technologies in the relevant sectors. And nearly always comes with better management practices.
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This is the often unspoken argument for further domestic reforms. Changes to our rules will not of their own lead to improvements in our economic, social and or political options/outcomes. Rule changes that level the playing fields will. This is as much a function of how readily understandable the rules are, as it is a question of the fairness with which they are implemented. At heart, this condition reinforces an efficient market's requirement for easy exit and entry of all participants. In the local case, our regime multiple foreign exchange rates belies this need for transparency. Foreign direct investors will need foreign exchange for their imports. It will help that this process is transparent if factories are not to stop working. And if profitable, they would need foreign exchange to return value to stakeholders. Export facilities will definitely baulk at having to part with export earnings at prices set below market rates.
If we are to attract the investment needed to meet the sundry economic goals we have set ourselves, reforms to the laws have to be implemented in tandem with reforms to our monetary policy environment.
Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
