President Goodluck Jonathan on Tuesday stirred the hornet’s nest with his Democracy day broadcast. He raised fundamental issues of the economy, some of which are mere wishes as usual with Nigeria leaders. He said:
“We must use our population to create markets for what we produce. We must grow local, buy local and eat local. To promote this, I have directed that all official functions of government serve local foods, especially our local rice and cassava bread and other foods. In the State House, I am faithfully keeping to my promise of eating cassava bread and local rice.”
Yes, Nigeria has a huge population that could constitute a big market, but out of the 160 million Nigerians alive today, official figures put 112 million as poor. It is the purchasing power in the hands of the individual, the disposable income, that constitutes a market. A large proportion of the adult and youth population are unemployed; yes, the market potential is here but not realistically the way the president wants us to see it.
Rice and cassava farming in Nigeria today is constrained by access to finance and the small holding nature of the farmers as well as the traditional technology applied to farming. Besides, the land tenure system and its availability make commercial farming a mirage.
The expectation was that the president’s speech would have identified out-of-the-box innovative technology options that would add significant value for smallholder farmers in agriculture by reducing inefficiencies in the value chains, especially the harvest and post-harvest value chain elements. The roadmap to transforming the economy is massive investment, local or foreign.
The key driver in President Goodluck Jonathan’s transformation agenda is investment in agriculture. This is why the Ministries of Commerce and Industry were merged to form Ministry of Trade and Investment. While it is important to seek to attract foreign direct investment into the country, creating the ministry and Presidential directives to buy Nigerian and eat Nigerian menus are no baits for foreign investors to want to come to Nigeria.
Globally, investors are interested in places where their return on investments is high. Nigeria certainly qualifies as investors have found out that they reap higher benefits if they invest in Nigeria. The few that have done so, despite the challenges of infrastructure, have found this to be true. Yet, Nigeria is not a haven to foreign investors. There must be reasons why they shy away from Nigeria. Many investors out there who speak privately to Nigerians at investment fora are quick to point out that in Nigeria, there is no sanctity of contract and property rights are not clearly defined.
Most foreign investors see this as the most inhibiting factor that scares away would-be investors. They are not worried about the lack of infrastructure as is always claimed by those who explain away the Nigeria situation. Shell, Mobil, Chevron, MTN, UACN and others know too well the infrastructural deficiency in the country, yet they invested and are reaping the benefits.
The truth is that both local and foreign investors are wary of investing in Nigeria because the state and its agents have no respect for property rights and sanctity of contract. They are worried that if they invest in Nigeria, their investment can be taken over by the state. Contracts have been breached with impunity by federal and state agents and servants who outrightly disregard or disobey court orders. Bi-Courtney Aviation Service Limited and Maevis Nigeria Limited are two examples of the major concessionaires in the Aviation sector with complaints of breach of contracts. The two companies have said the Federal Airports Authority of Nigeria (FAAN) is to be blamed for the confusion and controversy that have trailed their concession pacts. Fagbemi who manages Maevis said: “We are here under what you will refer to as PPP project in which we deploy assets that are required to keep the operations of FAAN at internationally acceptable standard”.
If the government is serious on its transformation agenda, it should have given the infrastructure concession commission the opportunity to midwife projects that will fast-track the nation’s economy. The Central Bank in one of its monetary policy committees said that banks were not usually disposed to lending to the real sector given current efforts being made to de-risk the industry and get banks to lend to the real economy because, a bank would only lend if it was satisfied with the risk criteria. Investors anywhere in the world look for environment where there is certainty, enduring economic policies and standard rules that are not changed overnight as in Nigeria and where they can perm the risk associated in a given project or investment.
Normally, before any foreign investor commits his capital into a project, he will want to be assured that there shall be stability in the investment regime. That is to say, the whole or key aspects of the agreement will be respected by the host state and that the rules of the game will not be changed unilaterally. The foreign investor needs such an assurance not only as a means of ensuring that he realises the expected benefits for his shareholders, but also to convince other sponsors of the project that the project will generate enough capital to pay off their loans and meet their supply requirements. These objectives may only be realised if the terms of the investment agreement are respected by the host state. Hence, for that reason, the principle of sanctity of contract is regarded as one of the most important legal concepts in the investment process.
The President’s dream of a transformed economy will be largely illusory except agriculture is seen as a business that is private sector-driven and one that can generate wealth and create meaningful jobs. Whatever reforms are being carried out in the sector must be targeted at private investors. Import substituting policy has never worked in Nigeria. The nation must begin to pursue value-added production in every sector of the economy. This is the true path to economic transformation.