Our Constitution Is A Disincentive To Economic Diversification, Says Moghalu
Nigeria’s 1999 Constitution, by placing ownership of natural resources
exclusively in the hands of the central government, creates a
dis-incentive for economic diversification, says Professor Kingsley
Moghalu, former Deputy Governor of the Central Bank of Nigeria (CBN)
diversification and economic management in what is a supposedly federal
state, Moghalu argued.
Moghalu a former flag bearer of the Young Progressives Party (YPP)
expressed these views in a keynote speech delivered during the annual
conference of the Nigerian Economic Students Association (NESA) in
Port Harcourt on Thursday.
Moghalu’s paper, which was titled: “Economic Diversification and the
Wealth of Nations: Lessons and the Path Forward for Nigeria, argued
for a constitutional restructuring that would devolve fiscal autonomy
to regions or states, which would engender competitive manufacturing
and the diversification that will drive it.
According to Moghalu who was the Young Progressives Party (YPP) flag
bearer during the 2019 Presidential election, Nigeria witnessed its
best broad-based economic growth in the First Republic when resources
were under regional control rather than its subsequent boom and bust
cycles that were driven by reliance on oil rents.
He proposed that Nigeria’s economic policy makers should help the
government develop targeted export policies and incentives that would
drive diversification, adding that “achieving economic diversification
in Nigeria would require a comprehensive and joined up approach to
economic policy, rather than the silo approach we have seen for many
years.”
According to the former Presidential candidate, Nigeria cannot achieve
development unless it makes economic diversification the central
thrust of its policy while recommending a policy based on a clearly
defined vision that sets out the balance between the role of the
government and the role of the market.
Moghalu therefore advised that the Economic Advisory Council to the
President would need to become a full-time body because “managing
Nigeria’s economy to transformation would require capable hands that
work on it full-time, doing the granular work and analysis that will
drive policy.”
It is important, he insisted, that such a council, and the rest of the
country’s economic management apparatus, acquire and establish strong
competence in industrial policy if our economy is to become truly
diversified.
He supported his argument with the models of such countries as
Malaysia, Thailand and Chile
For such an approach to succeed, Moghalu argued, “the two most
important requirements, which are lacking in the Nigerian context,
are, first, a clear philosophical foundation for our country’s economic
policy that is based on a clearly defined vision and sets out the
balance between the role of the government and the role of the
market.”
This approach, he noted, has delayed development because specific
aspects of economic policy appear to be at conflict with stated policy
objectives of diversification.
The former Presidential candidate favours a competent political
leadership that understands and prioritizes economic development
backed by competent economic management and a capable state
bureaucracy and not crony capitalism of vested interests.
The political class, the former CBN Deputy Governor insisted, needs a
better understanding of the imperatives of long-term structural
economic transformation with an emphasis on periodic development plans
and industrialization.
He warned against undue pressure from the Bretton Woods institutions,
which in the past led to a decline in structural economic thinking.
This decline, he pointed out, also led to a premature shift to extreme
liberalisation of trade without an appropriate foundation of
industrialization that would have made us more competitive in the
global economy with diversified exports.
In this context, he noted, “the failure of the Ajaokuta Steel industry
represents a tragic failure of political leadership for economic
transformation in Nigeria, as iron and steel are an important basis
for an industrialized economy.”
“These policy errors, including a premature embrace of globalization
without the structural foundation to become part of the production
value chain of globalization — and thus competitive in it,” he
stressed, “have turned Nigeria into a global market but not a global
producer of the hard goods of the globalized economy.”
It is going to require political leadership with a sophisticated
understanding of economic transformation and the capacity and will to
execute it, if Nigeria is to be able to change course in the years
ahead, Moghalu warned.
Nigeria must become an economy driven by innovation such as financial
technology which he said, would require a revamp and socialization of
the idea of intellectual property, which drove innovation to become
the main creator of the wealth of economically advanced countries.
For Nigeria to drive economic diversification successfully, he said,
special attention must be paid to trade policy realizing that for two
decades running between 1998 and 2018, Nigeria’s share of global
merchandise exports remained virtually stagnant.
There is also the fact that most of NIgeria’s trade is with advanced
economies makes our trade disadvantage worse.
He continued: “With Nigeria’s ratification of the African Continental
Free Trade Act in November 2020, we must now shift our strategic trade
focus toward African countries. This requires that we manufacture
competitively and manage the phenomenon of dumping from foreign
countries such as China.”
According to Moghalu, “we need to seek a special dispensation from the
World Trade Organization’s Special & Differentiated tariff regime with
a compelling case for why Nigeria should adopt “smart protectionism”
for a limited period to ensure the survival of its Infant industry at
home.
“Industrial policy must be the basis of our push toward economic
diversification, since it is the basis on which we can push for a more
favorable international trade environment,” he stressed.
Industrial policy, he noted, requires a certain amount of state
intervention even in a market economy, provided that such intervention
is targeted and productive for broad manufacturing sectors, as opposed
to special favors for individual industrialists, a policy that
distorts the market playing field for competitors in the same sector.
Moghalu added that foreign exchange policy in Nigeria needs to be
revamped away from state control, “which encourages scarcities,
smuggling and arbitrage, if we are to create incentives for a
diversified economy.”
He also added that achieving economic diversification depends, at its
core, on the existence of knowhow or productive knowledge. “This
requires Nigeria to focus on creating the skills amongst its young
population that will drive competitive manufacturing for exports.
“This calls for a revamp of the education sector in favour of science
and technology, at least for the next two to three decades. This is
how China was able to achieve spectacular economic transformation and
become the world’s second largest economy.”
