Skip to content

Nigeria’s political economy: Oligarchs at the gate?

August 18, 2009

Oligarchy can be defined as a “corrupt version of capitalism – when powerful corporations deliberately try to eliminate healthy competition to preserve their privileged position” say Raghuram Rajan and Luigi Zingales, authors of Saving Capitalism from Capitalists. This, they continue “generates economic inefficiencies and social injustice, thereby undermining political support for the free-market-based system”.

Both professors of economics contend that correct distribution of business ownership, the right dose of regulations and alleviation of social costs can achieve a political consensus in favour of markets. This consensus is what oligarchs do not want – over their dead body.

When vested interests hold sway

Oligarchic capitalism: in which the bulk of the power and wealth is held by a small group of individuals and families is at odds with competitive markets where ownership and profits are dispersed. One thing about competitive markets is that it is a public good. It is certainly not in the interest of distressed workers (labour unions) who lose their jobs because of competition. Neither does it favour large industrialists – as no one in particular makes huge profits in a competitive market.

Rather, free markets threaten the strangle hold of vested interests. It forces them to severally prove their competence. Thus political support for competitive markets is an orphan; explicitly opposed to by influential groups. Any whiff of increased competition is snuffed out.

Revelation that unpaid debt by motley politicians and business elite caused some banks to fail is one manifestation that Nigeria’s economic system is oligarchic. To boot, these elite are said to be muscling banks into writing off the loans. In addition, loans extended for fuel importation has been identified as a major “stress point” by the Central Bank of Nigeria (CBN).

These oligarchs, alluded to as a cabal by the presidency, have managed to corner the downstream sector: 85 percent of Nigeria’s fuel is imported. It isn’t implausible that the rent generated was juicy enough to command improperly processed bank loans. The Federal Ministry of Finance is auditing the NNPC’s claim of shelling 1.15 trillion naira to foot the country’s fuel subsidy. Reports, that five companies allegedly owe banks 1.25 trillion naira; have emerged since the audit of bank balance sheets, by the CBN, began.

The federal government’s decisions: to deregulate the downstream oil sector, pass the petroleum bill and change the CBN governor are adroit and laudable decisions. Will these reforms be seen to a logical conclusion? If yes, it will enable a level playing field that is competitive, rewards competence, honesty, hard work and calculated risk. Ideas alien to oligarchs.

To be sure, oligarchs are interested in promoting growth, but with constraints. Peripheral growth that ensures the bulk of national wealth, from which to expand their larceny, remains under their control. Meanwhile, the majority of Nigerians make do with the crumbs.

Hence a right dose of government (regulation), neither too much nor too little, is a necessary condition for competitive markets. The snail pace of reforms, however, raises questions. Are delayed reform policies eg, the Land Use Act (property rights) designed to favour an exclusive few? Do policies such as fuel subsidy, import quotas or tariffs promote the interests of a narrow (usually wealthy) portion of the Nigeria’s population? How can one tell?

Slow down, democracy at work

Indifference to the political preconditions for development of a free-market system in a country like Nigeria can have perilous consequences. Importation of American-like institutions isn’t sufficient to make free-markets blossom.

The power, prestige and money in Nigerian politics are incredible. Political office in Nigeria offers a lifetime’s chance to make a fortune. Coupled with fact that “the opposition in Nigeria remains fragmented, under-funded and disorganised”. And especially since the features of an oligarchic economy: inequality, informality, corruption and abundant natural resources are rife in Nigeria.

Extreme economic inequity characterises Nigeria. According to Financial Derivatives, a financial advisory firm, “[Nigeria’s] income distribution shows increasing inequality. Top 10 percent controls 35.2 percent of the resources up 31.3 percent in 1998. The next 10 percent had 15 percent of the resources compared with 18 percent in 2009. Whilst 60 percent of the population shares 44.8 percent of resources the remaining 20 percent has only 5 percent.

In a 2003 paper, Addressing the Natural Resource Curse: An Illustration from Nigeria, by Xavier-Sala-i-Martin of Columbia University and Arvind Subramanian of the International Monetary Fund (IMF), both authors noted that “Over a 35-year period Nigeria’s cumulative revenues from oil (after deducting the payments to the foreign oil companies) have amounted to about US$350 billion at 1995 prices. In 1965, when oil revenue per capita was about US$33, per capita GDP was US$245. In 2000, when oil revenues were US$325 per capita, per capita GDP remained at the 1965 level.” The more things change, the more they remain the same?

A double jeopardy for economic development. Firstly, the powerful and wealthy can and tend to misallocate capital – fuel importation and margin loan bubble. Secondly, narrow and powerful elites ensure that institutions and rules, if any, that are put in place benefit only themselves – reluctance to pass the freedom of information bill foot dragging with the electoral reforms and earlier postponement of the common year-end come to mind.

A high informal sector (prevalence of a popular economy) is another feature of an oligarchic economy. This is noticeable when inherently constructive economic activities operate under the cover of illegality. The informal economy thrives due to the absence of official approvals, licenses or land titles.

Though informality is distinguishable from criminality eg, money laundering and drug peddling, it is not uncommon for such activities to accompany informality. Extension of formal rights, say, to property, which facilitates access to credit and networks, and thus boosts rapid expansion, isn’t in the narrow economic interest of the ruling elite.

Self-interestedly so. Broad access to credit, for instance, lowers the barrier for new formal entrants into markets they have cornered. In short, competition, which they loath, is bound to introduce efficiency and reduce their influence. Therefore, control over the markets is sought, backed by government officials.

Invariably, such a market is plagued by corruption. Corruption isn’t unique to oligarchic economies. However, difficulties in registering or closing a business, obtaining building permits etc, create bribe-taking opportunities for government officials.  As a result, a vicious cycle is entrenched. Oligarchs must continually curry the favour of government officials in order to keep receiving patronage. Entrepreneurial and productive energies and activities are dissipated.

In their place, socially wasteful activities hold sway – Nigeria, one of the world’s ten largest oil producers, doesn’t have a single refinery functioning. Prohibitive transaction costs scare away local and foreign private investment. An anomaly starkly captured by comparing Nigeria to Equatorial Guinea.

In 2007, according to the United Nations Conference on Trade and Development (UNCTAD), FDI per head in the tiny West African country ($3,402) was the highest in sub-Saharan Africa (SSA); 41 times higher than Nigeria’s ($84). Its population and GDP are 6 percent and .045 percent of Nigeria’s respectively.

Resource trap (and it’s propensity to lurch into a conflict trap) means that plenty of natural resources – oil being the most notorious – cements oligarchies. Vast amounts of petrodollars dispense the ruling elite from being accountable to the populace. Prestige projects are embarked on to siphon money. Political opponents are bought off to silence them.

Development as freedom

More so, there’s less incentive to foster entrepreneurship. Federal, state and local government officials are not bothered about providing infrastructure and incentives to enable wealth creation. The size (particularly the ease) of oil wealth negates the need for broadening the tax base and effective tax collection.

It is thus hardly surprising that the popular economy prevails. Chances of a poor urban hawker of, say, homemade TV aerials, transiting from hawking to being an established vendor are slim. Likewise is the fate of the poor landless rural farmer and the seamstress or ‘fashion designer’. Without access to credit, titled property, modern tools etc, they are tethered to the margins of the economy.

This “model of state and market, this commercial economy” is what Prof Jane Guyer, an economic anthropologist, refers to as “a do-it-yourself affair, abandoned to its own devices. An entire popular economy comprising livelihood, employment, and capital asset creation that has precipitated out as oil and the state retreated into their own fortress, literally off-limits to citizens. Certainly the popular economy invests in, takes resources from, and generally runs up against regulated institutions, but the latter are too unstable and contradictory to inspire confidence.”

Unstable, contradictory and apathetic institutions are substituted with ‘big men’. The rule of law is a ruse. Justice eg, a functioning police force, an independent judiciary, is inaccessible. Injustice, palpable and unaddressed, projects the state as the enemy, stifles development. A political jungle where only the fattest survive, dominate this model of state and market. Majority of Nigerians, thus, lack economic freedom.

Economic freedom – the ability to choose – to realize ones full potential, is elusive. Credible hope: belief that things will be better tomorrow because of positive changes today eg, provision of public goods, say, security, healthcare, roads and schools, is a luxury. As a result, dire poverty and widespread unemployment becomes unbearable. Fighting-age youth turn into willing recruits of militants in the south and religious sects in the north.

Nigerians trudge on. They eke a living to salvage their self-esteem, sense of worth and self-respect. Conditions which are necessary for development are given short shrift. Just as rising income inequality, unemployment and poverty are accepted as their inevitable lot.

For as long as the range of economic and social choices remain limited; political, economic and religious agitation will keep raring its head. Personal security, rule of law, freedom of expression, political participation and an honest, competent and accountable government are staples of development.

This article appeared in BusinessDay on Thursday 13th August 2009

No comments yet

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s

%d bloggers like this: