Nigerian know-how

6 Jan 15
Nigeria’s recent story is one of rising prosperity underpinned by abundant natural resources and a surging economy. But the country’s Finance Minister, Ngozi Okonjo-Iweala is confident there is still much more to come

By EY editorial team | 6 January 2014

Nigeria’s recent story is one of rising prosperity underpinned by abundant natural resources and a surging economy. But the country’s Finance Minister, Ngozi Okonjo-Iweala is confident there is still much more to come.

Nigeria is Africa’s largest and most populous country. The megacity of Lagos - a rising powerhouse blessed with rich natural resources - has grown from a population of 300,000 in 1950 to more than 21 million today, coupled with surging economic growth. Unlike many of its neighbors in West Africa, Nigeria is Ebola-free.

Few of its leaders occupy a more pivotal position than the country’s Finance Minister, Ngozi Okonjo-Iweala, who also serves as the Minister for the Economy - a role in which she leads the efforts of all key ministries in boosting economic growth. A two-time occupier of this post, her career has, in addition, taken her to senior roles with the World Bank Group in Washington, DC, both before and after her first appointment as Minister, and it is clear that her experience as a worldrenowned economist and finance leader has left her well placed to Nigeria keep moving forward at pace.


Lessons from change

Certainly, her knowledge of life in the corridors of power — in Nigeria and beyond — means that she is highly accustomed to the challenges of implementing change programs.

“When you’re talking of structural reform, I could talk a long time because I’ve written a book about it called Reforming the Unreformable and it tells the story of pursuing structural reforms in Nigeria during my first time as Finance Minister which was a really challenging period,” she says. “I think that all countries need structural reform but the point is that you have to look at the country context. The sequence of the reform process is very important. The way we went about it was to look at where it was weighing most on our balance sheet. And at the time the state owned enterprises were the largest fiscal drains and therefore it was very clear we would have to act on this to release a lot of resources that could be factored into infrastructure and other things that we needed.”

Okonjo-Iweala goes on to say that when it comes to pushing through reforms, she has learned that it is crucial to identify those who will benefit from the proposed changes as they can then be enlisted for much-needed support. “You look to the low hanging fruit and it is important to act in a way that can pull along a greater number of people,” she says. “It all sounds very nice when you’re talking about it in academic terms but when you actually get to do it, some of those things you think will work don’t actually do so.”

Here, she goes on to cite her experiences of overseeing efforts to remove or reduce the government fuel subsidy — a move that proved highly unpopular with many Nigerians as the subsidy was seen as a key benefit they received from the state. While only half of the subsidy was eventually removed, their unhappiness manifested itself in widespread public protests across the country, which grounded the country to a halt for about a week in 2012.

“Everyone saw the President on television agree to phase out the subsidies, which were really high and not well targeted,” she recalls. “But the political reality of doing this makes it difficult and you have to build up trust between government and the people. We had to do so by outlining where we would reinvest the money and really persevere to push this through. It wasn’t easy and shows why you have to really think these things through and identify the winners and how to get the population to back you. If you don’t sequence well and don’t identify the winners then you can make a lot of mistakes.”


Going for growth

Nigeria has featured among the top five countries for foreign direct investment (FDI) since 2011, according to EY’s latest Africa Attractiveness Survey. Our respondents — more than 500 business leaders from around the world — also ranked Nigeria as the second-most attractive country in sub-Saharan Africa, a result that reflects its sizable, young and increasingly urbanized population of about 170 million and its improving business environment. Plans to establish a smart city (called the Abuja Development City) are further fueling investor confidence and interest has also been boosted by the privatization of several state-owned power companies in one of the world’s largest electricity privatization initiatives.

However, it is also clear that OkonjoIweala is not standing still. In terms of its long-term development strategy, she and her ministerial colleagues are increasingly looking toward the service sector as the engine of the country’s future economy. “We’ve discovered that agriculture is not as bigger share of GDP as we thought,” she says. “Even though it is still significant at 22%, it used to be 33% a little over a decade ago. The services sector is now 51% of GDP and this shows that we need to have a more service-based approach. We need a new strategy to put finance in the hands of service-based SMEs that can boost their technical capacity otherwise we will not be able to create the number of jobs we need.”

She goes onto cite manufacturing as another priority sector, paying tribute to its ability to create jobs. “We are a big consumer society with our middle class approaching a third of our society,” she points out. “We can’t depend on just importing goods so manufacturing has to be a part of that. And agriculture — especially agri-processes — are also important in creating jobs. So, these are the main plans of what we’re trying to do to continue our momentum.”


Spending solutions

Nigeria’s growing economy has also led to increasing pressure to spend these proceeds of growth on key priority sectors. But this doesn’t make for a peaceful life for a finance minister, says Okonjo-Iweala. “You’re sitting there and your colleague in education comes to see you and says that UNESCO recommends that 25% of the budget should be devoted to education,” she explains.

“Then your colleague in agriculture comes and says that the African Union has agreed that 10% of the budget should go to agriculture. And in health you’re told that the World Health Organization is recommending we spend 6% on health care. Everybody is giving you a percentage but when you add it all up it comes to more than 100%. It means that the finance minister is often portrayed as the bad person who doesn’t want to support development. Of course we do, but I also think that the quality of spending needs more attention from international finance institutions. We could get better results and more impact by actually focusing more time on the quality of spending. We need to do this much more carefully than we’re currently doing.”

The pressure on spending means that each decision has to be carefully weighed in order to get the biggest bang for the buck. “When you have a limited purse it is a very tough thing but it makes you focus quite intently on identifying the top priorities that you are committed to as a government,” she admits. “Where will give the highest returns? Typically, in a government, every sector must get money — it’s not like you would tell the Labor Minister, for example, that suddenly their ministry won’t be getting any money. The issue is within the priority set and identifying the binding constraint to the country’s development in order to catalyze even more investment from the private sector.”

With this in mind, Okonjo-Iweala and her ministerial colleagues are very much focused on creating higher levels of employment. “We have high growth but it’s not job creating growth,” she admits. “By 2050 Nigeria will have the fifth youngest population in the world and if we don’t revise our strategy now we will have a serious problem.” The target is to create 1.8 million jobs a year but there is currently a 600,000 shortfall, she concedes. “We also have 5.3 million people unemployed which we have to deal with. So, we are now looking at areas such as youth entrepreneurship. But the biggest priority is to support those sectors that have the biggest potential for growth and jobs in the economy — agriculture, the creative industries and so on.”

Despite these challenges, OkonjoIweala remains confident that Nigeria is poised to continue its ascent in the years ahead. She concluded by saying, “We have a long way to go but I think that we have the right strategy in place to make the progress we need.”

This feature was first published in the December edition of EY's Dynamics 

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