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To create prosperity in Nigeria

 

To Create Prosperity In Nigeria

By Jude Uzonwanne

The central challenge Nigeria faces today is this: how do we create sustainable prosperity and opportunity for our citizenry. I believe that if Nigeria is to be a successful open society, it must radically reform itself. Such reform would entail building a market economy, where individual economic actors are responsible for creating prosperity. Backing that liberal, open and free economy, would be an unyielding government commitment to an efficient regulatory system, and public education and health care for citizens who are not well off. Now, the real challenge is how do we reach that point? How do we move beyond the recriminations and problems of the past to understanding the need for a new state-society dialogue and strategy for creating prosperity? The approach embedded in Vision 2010 while useful, is flawed because of the political irregularities under which it was drafted. A real reform process must hand back the right of economic activity to citizens, not in piece meal but in one fell swoop. Such an approach will break the oppressive ties between wide poverty, citizen political apathy and the zero–sum approach to political power in Nigeria. Returning to the initial question, how do we do that?

Preliminary Reform Requirements

To build a high performing and competitive economy which can generate sustainable wealth, reform will have to take place at two levels: the structural and mental.

Structural Reform

First, the structural reforms. Based on my revealed preferences for an open economy, I identify a few as the most important.

  • Exchange Rate Reform. The dual exchange rate system must be abolished. A free floating foreign exchange market must be authorized. The Naira’s value must be determined by underlying economic fundamentals (such as the growth rate of the economy, the level of inflation, the health of the financial system, the depth and speed of foreign investment flows into Nigeria).
  • Fiscal Policy: All levels of government must adopt a conservative fiscal policy, with the intent of maintaining a balance between government revenues and spending. Thus, government spending on non-essential items must be curtailed, with the bulk of spending going towards education, healthcare, social welfare, and some public good type long term infrastructure investments.
  • Monetary Policy Reform: The Central Bank of Nigeria must be given operational and legal independence from government so that it can properly set monetary policy. Maintaining price stability is of utmost importance. An honored tradition of using open market operations, or targeting the growth rate of monetary variables such as M1, among other tools of monetary policy, has to be developed so that our central bankers can focus on imparting stability to the economy, rather than fighting political games with Aso Rock.
  • Trade Reform: Nigeria must become a diversified export economy. The focus on oil and natural gas will not be sufficient to meet the nation’s financing needs. Government must remove all impediments such as anti-competitive laws, subsidies that favor importers, reduce tariff and non-tariff barriers, and open Nigeria’s borders to imports and exports alike. For Nigeria to become a successful trading nation, a mental shift is required to embrace the idea that one trades in order to expand one’s consumption choices. Thus, Nigerians, government and citizens alike, will need to rethink our attitudes to entrepreneurs, who are responsible for creating wealth. In so doing, we would be locating ourselves within a time-tested framework, which show a clear positive relationship between higher non-mineral exports and a better standard of living.

Attitudinal Reform

Second, a different attitude has to be embraced. To move from being one of the world’s 20 poorest nations, to one which possesses a high performance economy, a number of vital mental shifts have to occur. First, the Nigerian state has to admit that it should not dictate the economic choices her citizens will make. Instead, it must create the legal environment for them to exercise their own choices and have these respected. The role of the state should be that of a humble participant in frank dialogue about prosperity, and not as a domineering partner. Of course, to reach that position, the Nigerian state must be willing to admit that its approach to economic development thus far has been flawed, and it is willing to concede the stage to private actors. Second, and equally important, private actors must accept the responsibilities and challenges that come with successfully running a free, open economy.

To build competitive advantage in Nigeria

Putting both set of issues, structural and attitudinal, together, forces a profound question: can Nigerian firms succeed on the world stage? Can the introduction of a free market and free trade help us build prosperity in Nigeria? Should we not expect a rise in unemployment, poverty and as one famous Nigerian economist once noted, enslavement to the outside world? Would Nigeria not be better off if we turned inwards and handed control of the economy to the government, or its representatives? No, I argue. With her shrewd, innovative, entrepreneurial and hardworking cultures, Nigeria would be better off opening its economy to full international trade and creating a free market inside her geographical borders. However for that effort to be successful, we as a nation must come to terms with a number of flaws we have.

And what are these flaws I speak of? They are what strategy consultants, (and colleagues), Michael Fairbanks and Stacey Lindsay, call the "seven deadly patterns of uncompetitive behavior." In no particular order, they are excessive reliance on natural comparative advantage, poor knowledge of final clients, poor knowledge of a firm's (or country) position relative to its competitors, making inadequate choices regarding forward integration, weak or non-existence inter-firm cooperation, high levels of paternalism, and defensiveness. These shortcomings, argue Fairbanks and Lindsay, doomed many seemingly promising Latin-American firms. The authors draw examples from work carried out by our parent company, Monitor Company, a Cambridge, Massachusetts–based global strategy consulting firm. For example, they work through a number of cases including Colombian leather products firms, Peruvian alpaca wool processors, Bolivian soy processors, Peruvian fish meal companies, Peru’s tourist industry, Colombian flower farmers, and the Venezuelan national oil and petrochemical firm. In the process they interacted with corporate leaders, community leaders, heads of government, ministers, and non-governmental groups. In every single case, and overwhelmingly so, the central problem encountered was the absence of an explicit competitive strategy, a term that captures questions of pricing decisions, degree of innovation, and inter-firm cooperation among others.

In the case of Colombia's flower growers, represented by their industry grouping, Asocolflores, the planters firmly believed that Colombia's natural advantages, that is, cheap labor, good weather, and fertile soil, would guarantee success in exporting flowers in the highly competitive United States market. Their intuition was correct in so far as they where the only players. Once Mexican and Ecuadorian growers, who matched and often undercut the advantages the Colombians possessed, came on the market, the days of the Colombian exporters were numbered. Fairbanks and Lindsay systematically work through the weaknesses of the Asocoflores strategy, and conclusively demonstrate that unlike their real competitors (Dutch producers), the Colombian had little to no knowledge of the final client, relied too heavily on quickly eroded competitive advantages such as an overvalued exchange rate, cheap labor and fertile land, and created a draining alliance system with brokers in Miami when one was not needed. For that reason, it was no surprise that Colombian flowers had only one real market: Valentine's day, as opposed to the entire year as Asocoflores had erroneously assumed.

The central lesson the authors and I want to drive home is this: if a firm does not map out an explicit strategy, even one as basic as competing on the basis of cost or product quality, the market would implicitly force one on it. Thus, as was the case for Colombian leather products firms, they unwittingly found themselves located between the high differentiation, high value–added Italian houses, and the low–cost producers from East Asia. For anyone who has been following the debate on Nigeria's textile industry since its 1994 liberalization, the plight of the Colombians sounds too familiar. Nigeria's unsuccessful producers have either been hurt on cost or product differentiation grounds. The more successful Nigerian firms (Afprint for example) have already started engaging in explicit decision making, in the process working to counter the plaguing many a developing country firm. They are the firms who can and will create prosperity. Thus, for any Nigerian company to create wealth, a unique strategy is vital. To be successful, CEOs, management and workers, all the stakeholders in a firm, first have to change their frame of reference, and start learning anew ways that put themselves at the center of business decisions. In essence, an appeal to government to reverse liberalization policies, fix exchange rates, or a general cry of helplessness cannot be a reasonable escape valve. The core point Fairbanks and Lindsey make, and a compelling one at that, is that people can make choices about who they want to be and then map out what steps they will take to achieve those goals. Among those choices are decisions on how much human capital to develop, technological innovations to utilize, and what type of knowledge to acquire.

In Search of The Rising Sun Economy

As we debate how it is we shall reverse the legacy of recent poverty, I am confident that this approach will be useful to Nigeria’s citizens, corporate community, labor movement, and government officials for the following reasons. For too long, we have blamed each other for the nation's economic malaise. While government has taken steps to correct some flaws, and in the process liberalized significant portions of the economy, something key is yet to undergo a systemic change: popular attitudes about the source of prosperity, wealth and job creation, and their impact on poverty reduction. In many minds, the government still retains responsibility for job creation. That should not be. And how then shall we create such wealth? We return to the themes I earlier hinted at: the need to build a free market economy, in which individual entrepreneurs, who trust each other, organize in firms of all sizes, to create prosperity and jobs. We must all enter into partnerships for creating prosperity. To be successful, we must identify common goals, commit to a long–term perspective, invest in human resources, and assign new leadership roles for business leaders and policymakers; every stakeholder thus must have a discernible role in generating prosperity!

Let me be more specific. As I read the case of Colombia's petrochemical giant, Propilco, I could not but help slot the Nigerian National Petroleum Company (NNPC) into the text. To properly define its competitive strategy, the Colombian stakeholders (public and private), working closely with Monitor Company, undertook a strategic audit against competing corporations, Mexico's Pemex, Indelpro and Venezuela's Propilven. When put through that type of scrutiny, it became painfully obvious that the perceived competitive advantages Venezuela possessed were rather transient. Naturally, a new strategic focus had to be mapped out. I cannot but help think that NNPC (and the broader oil industry) needs to go through a similar process. It would not hurt our corporations if they undertook, within their limited financial capacities such studies, and then made explicit strategic choices based on the results, rather than complain that industrial capacity utilization still ranges in the low thirties. Appealing to government for more contracts or a bailout must remain out of question. That is not a real solution. Nigerian companies can thrive, only if they are honest enough to admit whether they ought to be in a line of business or not.

A number of Nigerian firms such as the United Bank of Africa(UBA), Michelin, Nigerian Breweries, among others, who have made clear strategic choices, demonstrate that these are changes can be spread across the economy. Take for example UBA’s decision to reform itself. UBA aggressively studied the global banking industry, determined who its clients are, and began to bench mark against Citibank, among other changes. Today, after three years of continuous innovation, the bank is one of the finest in any emerging market, despite the immense challenges operating in Nigeria constitutes. UBA’s management is also working on obtaining the right to list her stock on the London and New York stock exchanges, so that international investors can also buy her stock. To obtain that right, and reap the capital and technological inflows that go with it, UBA’s bankers, senior and junior, have worked exceedingly hard, constantly working to raise their operating standards to global best practice. Their success is a bold testament to the possibilities before Nigeria’s entrepreneurs if only the entire society would be willing to sit down and negotiate a new role for her members. And the responsibility does not stop at the door of the government. To survive, create jobs, wealth and tackle mass poverty head on, Nigerians need to cooperatively change their mindset about competitive strategy, and our capability to navigate the global economy

Conclusions

Openness, political and economic, should not create fear in our minds. Quite to the contrary. It is a keen opportunity for us to rebuild our economy and break the cycle of poverty. We can do whatsoever we set our minds to, so long as we do our homework! Our challenge is to move beyond the current structure of society and develop a more dynamic system that encourages innovative entrepreneurs and rewards merit. Given the slide in our national reputation in international affairs and business, we will have to go many extra miles to ensure that we regain our credibility. For those who believe Nigeria possesses a rightful place in the world, you are wrong. Respect is earned not handed out for free. Nigeria will gain long lasting credibility by building a liberal democracy and open economy that challenges the norm. We must learn to challenge the world and push out the frontiers of human achievement.

Jude Uzonwanne is a strategy consultant with The Monitor Company, a firm that advises the world’s leading companies, and numerous governments on issues of strategy.

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The author is a strategy consultant, The Monitor Company

Date Uploaded 1/23/2008
Copyright Africa Economic Analysis 2005