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19September2017

Reforming the Unreformable - Lessons from Nigeria


When Ngozi Okonjo-Iweala (NOI) was asked why she returned to serve as the Nigerian Minister of Finance and Coordinating Minister for the Economy despite her previous experience on the job in the mid 2000’s; the media harassment and threat to her life, all she could say was that she has passion for her job and she believes in her country. She noted that there are better qualified persons who could have taken up the job but they are either scared or not interested. Most appropriately, they might have given up on Nigeria.

But that is not the case with NOI. Having successfully started the process to reform the perceived “unreformable” Nigeria, she considered it expedient to push the process further and probably see it to completion. In her 198 paged book, “Reforming the unreformable – lessons from Nigeria” which was published in 2012 by MIT Press, Okonjo-Iweala gave a sweet and sour account of what transpired at the capitol.

Setting the stage for reform was brilliant

The oracle of Delphi adjudged Socrates as the wisest man in his time because he understood his limitation and accepted that he was not wise at all. So did NOI in 2005. Noting the limit of her knowledge in managing the Nigerian situation, NOI approached Jim Wolfensohn, President of the World Bank and Amaury Bier, Brazil’s former deputy finance minister for advice which proved very useful in her assignment.  Bier’s advice were invaluable; one, set up an economic team of like minds that “can stick together to fight the tough battles” and two, develop a “comprehensive strategy that would set out the major challenges and the reforms needed to turn these around”. An economic team of 13 members was thus formed and a national strategy document named “National Economic Empowerment and Development Strategy (NEEDS)” was developed.  And in order to get the involvement of all the federating units, the State Economic Empowerment and Development Strategy (SEEDS) and the Local Economic Empowerment and Development Strategy (LEEDS) were also developed, thus setting the platform for the needed reforms.

Macroeconomic reforms first, then other reforms follow

Due to the over-dependence on oil revenues for economic functionality, Nigerian economy was susceptible to volatility in oil prices. The volatilities experienced by the economy over the last several years make a case for the reform of the countries budgeting process, which happened to be the first target of the Okonjo-Iweala’s economic team.  Part of the important tasks the team achieved was to encourage long term investments and spending discipline through a clear and consistent budget process. The economic team therefore introduced a medium term macroeconomic program and institutionalised the oil price-based fiscal rule (OPFR) through the adoption of a Fiscal Responsibility Act.

Privatisation, deregulation and liberalisation of public enterprises achieved a great success especially in telecommunications sector and the ports. The reform of the energy sector, comprising of power, oil and gas was not so successful but some progress were made in each of the subsectors.

According to NOI, sectoral reforms delivered mixed results. While the reform of the financial services industry, led by the banking sector was judged to be successful, the reform of the civil service was only partly successful. In the aftermath of the banking reforms, Nigerian banks, through mergers and acquisitions were reduced to 25 from 89 but with bigger capital bases. The banks raised the equivalent of US$3 billion from the local capital market and attracted about US$650m of foreign direct investment, leading to a significant growth on all indicators before most of the achievements were eroded by the global financial crisis. On the other hand, the success of the civil service reform was at best incomplete due to lack of buy-in by most civil servants and ministers.

Perhaps the worst experience was in her attempt at trade, tariff and customs reforms. As she stated, customs reform, in particular, was a failure. All her efforts at turning the Nigerian customs services into a modern operation were rebuffed, even at the cabinet level.

However, obtaining debt relief was a huge success

Perhaps the most challenging but rewarding of all her efforts was in obtaining debt relief for the country and it turns out that that was the most important reason (if not sole) for her appointment by the Obasanjo government. Through a lot of hardwork, lobbying and politicking, Nigeria became the first country to obtain such relief from private creditors and the approach became a template for other developing countries. According to the author, the debt relief opened several hitherto closed doors to Nigeria on investment front and allowed Nigeria to obtain its first-ever sovereign credit ratings from Fitch and from Standard & Poor’s.

We recommend this book for read. Not only did it present a template for economic management and administration, it also discusses the mistakes to avoid when navigating such political terrains, some of which appears to remain ubiquitous today in countries in sub-Saharan Africa in general and Nigeria in particular. 

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