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| SOLUDO |
One of the asymmetries of globalisation is that whereas
productive assets (highly skilled labour and capital) are mobile across
boundaries, it is still the responsibility of governments in individual
countries to secure jobs and prosperity for over 90 per cent of the population
trapped within specific geographic boundaries.
Mechanisms and institutions for global coordination of development are
very weak. For about 70 years since the end of the Second World War and the
setting up of the Bretton Woods Institutions and the United Nations (UN), the
world has had tepid attempts at codification and enforcement of ‘international
standards’. Despite all the rules under
the UN Declaration of Human Rights (UNDHR), the World Trade Organisation (WTO),
and the World Bank and IMF among others as well as all the ‘indices’ by the new
industry of rating agencies, the global economy is still one governed by the
survival of the fittest.
Countries do not just compete but also exploit each other in
pursuit of their national interests to secure maximum security and prosperity
for their citizens. Genuine cooperation is possible only when all parties win
something for their people. In this game of development, there are leaders and
there are followers as well as spectators. Leaders in development are those
with the capacity to think outside of the box, exploiting (and sometimes even
circumventing) the international rules in order to appropriate a
disproportionate share of the global development dividends to their citizens.
The leaders write the new rules of the game which at the time are often thought
to be ‘impossible’ or ‘bad practices’ but which turn out to become the
orthodoxy when they succeed. The experiences of the South East Asian countries
and currently China bear bold testimonies to this.
The followers are those which continually adapt, almost
always relying upon yesterday’s rules and practices to run tomorrow’s
development race. Spectators in development are simply awed by what is going on
and react each day to the circumstances others foist upon them. I am afraid to
admit that much of African countries are either followers or spectators in the
game of development. Despite all the hype about ‘Africa rising’, much of its
“growth” is still largely a peace dividend and capacity utilisation story
rather than a trajectory of productivity and prosperity. Africa seems to be learning the wrong lessons
so far.
Let me state that the major tension or divide in development
discourse between those who emphasise the universal nature of a development
path and thus the need to follow “international best practices” versus those
who argue for local peculiarities and hence for the development of authentic
local models, is a false dichotomy. Both paradigms are right and each only
partially describes the reality. As an
economist, I understand that people respond to incentives and sanctions
everywhere. If you want to change behaviour, alter the incentives and sanctions
regime and people will react differently. If prices go up with given incomes,
people will, on the average, demand for less of normal goods. So, there are
fundamentals of development with universal applicability. However, we also know
that initial conditions, history, culture, and institutions differ and matter
greatly, and could significantly alter the outcomes from one society to
another.
Leaders in development have shown a remarkable knack to
adapt international best practices to local conditions, and also exploiting all
the potentials which their local endowments could offer – for the benefit of
society. Whenever a government gets its acts together and on a prosperity
trajectory, the attacks will come. Talk to the leaders of Japan, South Korea,
Singapore, Malaysia, Indonesia, and lately China. Chinese leaders understand
the development game. The Washington Consensus prescribed export promotion
(with competitive exchange rate) as a development strategy. China has grown
rich by exploiting that model (with undervalued real effective exchange rate)
thus ensuring that imports into China are too expensive with cheap exports
thereby creating jobs and accumulating huge foreign reserves. Having beaten
everyone to the game, the new mantra is to urge China to revalue its currency
so that Western countries can export to them. It is an interesting game! I
recall that the IMF had pressured me as CBN Governor to sell down the external
reserves (when we were accumulating huge reserves like China —as Nigeria’s
self-insurance) because, according to them, we had ‘undervalued’ real exchange
rate. My response was that I expected a trophy for maintaining a competitive
REAL exchange rate in the face of an export boom -- which was a world record.
Of course, when the global crisis hit Nigeria, the ‘excess’ foreign reserves we
had accumulated became the saviour otherwise the exchange rate would have
depreciated to several hundreds of naira per US dollar (that is story for
another day). The lesson is that African
leaders should worry whenever excessive compliments or awards start coming from
the rest of the world.
An important lesson of development is that countries which
made it had bold, innovative thinkers as policymakers -- those I describe as
entrepreneurial policymakers with high execution capacity. Not administrators
who merely maintain the system by tinkering at the margins in the name of
‘reforms’. You need policymakers who
understand that they are engaged in a global race to procure as much development
dividends to their citizens as possible, and more often such quest conflicts
with the interests of their “foreign partners”. Such policymakers must
understand the extraordinary magnitude and urgency of actions needed to unleash
uncommon revolutions in several sectors to leapfrog the stages of development
and never be contented with the usual template of gradual reforms. You cannot
run at the speed of the crowd and expect to overtake it!
Yes, it is true that the changing dynamics of globalisation,
aid dependency and policy conditionality, as well as the WTO rules have
somewhat circumscribed the policy space thereby making it more difficult for
new comers to deploy the same instruments that earlier developers employed. It
is not true however that these have completely wiped out any room for creative
discretion and thinking outside of the box. There is still significant room to
manoeuver, but only for those with the capacity to see the opportunities and
know how to play the game.
It is a wrong lesson of development to believe that other countries
would willingly wish to “HELP” your country develop. No! Countries do not do
charity; they only pursue their national interests which are the security and
prosperity of their citizens. If the pursuit of such benefits others, it is
only accidental. Perhaps, the only effective development aid in history was the
US Marshall Plan for Europe -- designed to rebuild European infrastructure
after the Second World War. Europe was America’s major trading partner and
ally, and rebuilding Europe was in America’s interest to buoy up its market.
Aside from humanitarian purposes, aid is largely a control instrument: many
governments don’t care to know the price.
It is not that countries can’t use aid, but it depends on
the national consciousness and strategy of the governing elite to play the aid
game and win in their national interest. Otherwise, aid can become opium, with
the temporary elixir blinding the governments who think of survival one day at
a time to the long term debilitating effects. It is not surprising that much of
Africa’s debt is indeed odious. Cash starved African governments sign very bad
mining contracts and numerous ‘concessions’ with multinational corporations
which predate and siphon away hundreds of billions of dollars in illicit
financial flows. Only a tiny fraction returns as ‘aid’ and ‘loans’ and for
which the ever grateful governments roll out the red carpets. Here African
governments don’t often connect the dots. If an African president were to keep
records of the ‘issues’ which ambassadors of the major ‘donors’ or aid givers
come to discuss with him, I will bet that more than 70% of the time it will be
directly or indirectly about securing lucrative businesses for their companies
-- which is their primary job anyway. These companies pay taxes and create jobs
in their home countries, and their governments extend more ‘favours’ by way of
‘increased aid’. That is fair game, at least from their point of view.
But do we connect the dots and frame national aid policy
accordingly?
Furthermore, it is wrong to think that foreign capital or
foreign direct investment (FDI) can lead the way to national development. The
lesson of development is that domestic capital leads and foreign capital
follows. One is often bemused by the sometimes seeming obsession to “attract
foreign investment”. No doubt, every country needs higher levels of productive
investment to create and sustain prosperity. Investors have no other objective
than to maximize profits, and they will go wherever there is an opportunity to
do so. As chief economic adviser to the President, I received tens of ‘foreign
investors’ purportedly with billions of dollars to invest. I found it amusing
the way each of them pitched his case: they all claimed to have come to “help
Nigeria”—to create jobs, industrialise Nigeria, save foreign exchange for her,
etc. I always waited to hear their shopping list of ‘concessions’. Needless to
say that most of them did not come, as we insisted on a level playing field for
both local and foreign investors.
Evidence shows that investment promotion jamborees are a
waste of time and resources. Serious foreign investors probably have more
information about the country and its underlying fundamentals than the
propaganda PowerPoint presentations we make in the wasteful jamborees of
‘investment promotion’. If domestic investors are rushing to a sector,
foreigners usually take a serious look at it. But if they come with a shopping
list of preferential treatments and concessions, one must then ask why wouldn’t
the same preferences or even better be extended to local entrepreneurs? Indeed,
it is my experience that in certain sectors, domestic capital plays more
developmental role than the highly risk averse foreign capital. That is why
most countries that have developed have at the initial stages crafted national
strategies to deliberately build and prosper the nascent domestic investors as
a key component of national transformation and security. How we tried to do
this when I was chief economic adviser is a subject for another day.
Suffice it to note that even under the WTO, such
preferential treatments for local firms are allowed for poor countries,
although the European Union is struggling to wipe them off by smuggling the
so-called Singapore issues (investment, procurement, etc. matters) into the
Economic Partnership Agreement (EPA) with Africa-Caribbean-Pacific countries.
But Europe gives such concessions to its poorer European countries which is
proof that one lesson of development is that Africa must not deliberately
commit development suicide by acceding to EPA without scrutiny. Do African
countries have the capacity to negotiate an EPA that is beneficial to them,
with some of their advisers and consultants on EPA as Europeans?
Even as EU strives to enforce “free competition” in
procurement through EPA, I will be surprised to see a single major contract by
the European Commission that is won by a non-European company. Also, I have not
seen a European government that buys ‘official cars’ that are not made in
Europe. I can bet that citizens of any western country will feel scandalized to
see imported products being used in government offices while there are locally
made substitutes. A friend once asked me why there is no national policy to
force all governments in Nigeria to buy only made in Nigeria cars (Peugeot and
Innoson cars) as well as patronise only made in Nigeria goods to create local
jobs. I did not have an answer! In part II, we deal with some specific wrong
lessons of development.
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