– Ngozi Okonjo-Iweala is the immediate past minister for finance and coordinating minister of the economy.
– She spoke on how she turn Nigeria’s economy around in her first tenure as a minister.
– Her plans now that she’s out of government.
Nigeria’s immediate past minister for finance and coordinating minister of the economy, Ngozi Okonjo-Iweala in a new interview with diplomati courier, she spoke on various issues including those pertaining to Nigeria and its economy.
How she turn Nigeria’s economy around in her first tenure as a minister
First of all, we tried to find out why has the country not been doing well all these years. You have to really dig. People talk very glibly about the lack of reforms or corruption and such, but you need to go beyond that—really get granular about why your country is not performing well. When we dug into it the first time in 2003, and did this study that lead to the NEEDS document and to the reform. It was finding out that one of the biggest sources of instability and lack of growth in the Nigerian economy—that had been growing at about 2.3 to 2.5 percent per annum, with a population growth rate of 2.8 percent—one of the biggest reasons was that we didn’t know how to manage volatility.
Oil prices would go up, we’d spend everything, they’d then crash, and so on and so forth. So we really went to look at the core reason—no one had ever really done that in the country. The World Bank had done some studies, but none of the policy makers had really looked at this or paid attention. So when we tried to map this, we saw that our expenditures were volatile, incomes were volatile, GDP growth was volatile, and no country can reform with that kind of volatility. So of course we had to put in place a mechanism, and I think that was one of our biggest successes from the first time.
Why Nigeria struggled with paying back its outstanding debts to the IMF and Paris Club
The first concrete step was to bring in some macroeconomic stability into the economy, managing the fiscal framework much better. We put in place what they call an “oil-price-based fiscal rule,” which the linking of the way we budget to the price of oil and just smoothing out consumption and expenditures. So we put all those things in place, and you could see – the World Bank had estimated that Nigeria was losing three percentage points per year due to volatility, and lo-and-behold, when we developed something called the “Excess Crude Oil Account” into which we could just put the savings.
When we decided to budget at an oil price lower than the one prevailing in the market, and delinked our budget from the volatility, we were able to save an amount over and above that price we used in the budget because oil prices were going up then – I saved them into a sort of stabilization fund, which we call the Excess Crude OilAccount, so in bad times we could draw on those savings to smooth our consumption. When we put all of these mechanisms into place, growth tripled – almost to six percent to seven percent per annum. So one of the key lessons is that macroeconomic stability matters – if you’re a natural resource producer, managing volatility matters, grappling with that matters.
What steps she took to better incorporate SMEs into Nigeria’s economic growth
We also built, in order to finance SMEs – you find that they are excluded from the financial system; they don’t have access or it’s too expensive – so we built the Development Bank of Nigeria, and it’s just in its infancy now, but at full-fledge, it’s supposed to provide resources to SMEs so that they can begin to grow, since they’re the engine of job creation within the economy. This is another trend that is critically important: how do you foster growth within an economy, how do you help informal enterprises to grow and create more jobs, because often it’s not the huge businesses that create the most jobs.
So building an institution that can begin to plug the gap and be sustainable – the same as many countries have done: the German’s have KfW, the American’s have the Small Business Administration. We don’t have these kind of things in our countries, and because we’re missing these institutions that means we continue to struggle. So the second lesson that I’d say we learned that is important for development is to really look for what is missing institutionally from your economic landscape, and try to put them in, because without those institutions built, you will not be able to develop. And then undertake the right structural reforms in those regulatory reforms, freeing up space for business that will enable your private investment to take place, because the government create the jobs needed. So you really need to the necessary things.
Her plans for Nigeria now that she’s no longer in government
The last thing I want to say that we have not yet done – we haven’t done it, so I’m not claiming it – but we seriously looked at this, because we saw that the type of growth that we were getting was coming with more inequality and was not creating enough jobs. So we got the growth finally, but when you looked at the quality of the growth, it wasn’t something that you could really be too happy about, because we have youth unemployment, the growth wasn’t creating enough jobs, and it was leading to more inequality, which is a problem that faces the whole world.
So the last thing we’re doing is looking at the quality of that growth, to make sure that it’s being created in the right sectors that will create jobs, like agriculture for instance. We have a huge comparative advantage there, so trying to do the natural thing and enable growth in the agriculture sector and not just growth but development along the value chains to create jobs. Trying to encourage services, even the creative industries, like the film industry, the arts.
Her thought on developments like Mobile Banking as a potential vehicle to help with this process of normalizing growth
Mobile banking has taken off in places like Kenya like wildfire, and in Nigeria it’s taken off. It’s not as well as in Kenya, but it’s really helping. For instance, it’s also helping to fight corruption. One of the ways Akinwumi Adesina, the Minister of Agriculture and current President of the African Development Bank, during my second time in government, got rid of the corruption in fertilizer and subsidies payments to farmers – there was a lot of corruption, so that only 11 percent of farmers were ever getting their subsidies and fertilizer – and what it was getting rid of the intermediaries, the middle-men and women who helped to distribute this fertilizer. What he did instead was develop an electronic wallet, such that farmers, through their mobile phones, would receive electronic vouchers, which they could send to the agro-dealer. The agro-dealer can now go to the bank and submit these vouchers and collect their money.