Awakening the Sleeping Giant: Making Nigeria Work Again (II)
AWAKENING THE SLEEPING GIANT:
MAKING NIGERIA WORK AGAIN (II)
By George B. N. Ayittey, Ph.D
In a three-part series on the Nigeria question, Prof. George B. N. Ayittey dissects the problems besetting Africa's most populated nation. Here is the second in the series:
The Constitutional Vacuum
Customary law is the cord that keeps a traditional society together; the Constitution is the yarn that weaves the fabric of a modern state together. Without it, a nation becomes an anarchy or a police state in which citizens have no guaranteed rights or freedoms and their obligations to the state are not defined. Also ill-defined or non-existent are the functions of state organs or institutions, such as parliament, the judiciary and the security forces. Under a constitution, parliament, for example, provides oversight over executive actions and the role of the judiciary is to ensure that the rule of law is upheld.
Without a constitution, there is no oversight over the executive, which means the head of state can literally do whatever he wants. Further, without a constitution, there is no law for the judiciary to uphold except decrees or diktaks from the executive. More importantly, democracy, separation of powers, checks and balances are all non-existent without a constitution. Neither are the principles of accountability, transparency and probity which vanish completely because there is no rule which stipulates how the head of state, the chief justice or the police chief should be chosen or held accountable and by whom.
The absence of a constitution also has deleterious economic consequences. The constitution defines the parameters within which economic activity can take place. Since there isn’t one, nobody is sure what constitutes a legitimate business activity or not and uncertainty prevails, which discourages investment – the key to economic growth and development. This creates a situation where hordes of businessmen must seek “approval” from the head of state before undertaking a venture and the head of state, often crooked, may demand a bribe or percentage share of the business before granting approval. Even business contracts become meaningless.
Suppose a businessman wins a contract to construct roads. Half-way through the contract, suppose the government arbitrarily cancels the contract. Under a constitution, he may sue the government for breach of contract but there is no constitution. He might take the case to court anyway but there is no constitution which authorizes the court to hear such cases. Or the president can order the judge to throw the case out.
Socially and more generally, a nation’s life hangs in abeyance when there is no constitution. Since there are no clearly defined rules or laws, uncertainty prevails. Nobody is sure about what is legal and illegal or how to deal with one another. In such a situation, people or groups may fall back on their traditional (customary) laws, religious laws or make up their own “laws” as they go along. The police, civil servants, armed robbers and even scammers may do so as well. A tapestry of “laws” comes into existence and applied an ad hoc basis. There is no predictability as these ad hoc laws can change suddenly. Inevitably, a clash of laws frequently occurs. Ordinarily, a constitution resolves such clashes but there isn’t one, which means they must be resolved by the head of state. And when one is dissatisfied with his verdict, there is no guaranteed right of appeal.
More pernicious and incurably damaging are the effects on the youth. In the absence of a constitution, they grow up without knowing the principles and values that serve as a glue holding the nation together. They don’t know what is right or wrong and what is social or anti-social. These young people become increasingly confused, disaffected, lost, and restless. Poorly educated and jobless, they have few role models with moral stature. The value system has collapsed because there are no values celebrated by a constitution. Hard work and entrepreneurship no longer assure success and wealth because what one builds can be wiped out in an instant since there is no rule of law.
Disenchanted by their own society, the youth become susceptible to radical ideas and drift toward religious extremists — not just the Islamist fanatics in northern Nigeria and Somalia, but also the Christian variety (the Lord’s Resistance Army in northern Uganda) and the traditionalist (the Mungiki sect in Kenya). Some seek escape in rickety boats to Europe. Others turn to crime (drug trafficking, Internet scams), prostitution, and extremist groups that seek violent change.
In sum, the absence of a constitution breeds lawlessness, government dysfunction and retards economic development. The moral and value system collapses in a constitutional vacuum. The youth become disoriented and lost. It is like driving on a road without traffic laws. One would be lucky to reach one’s destination in one piece.
Military Rule in Nigeria – No Constitution, No Rule of Law
After seizing power, the first thing a military junta does is to suspend the constitution. Libya is the African country that holds the record on such suspension. After seizing power in 1969, Col. Muammar Khaddafi ruled without a constitution for 41 years. Togo is next, checking in with 38 years. Nigeria clocks in third with 29 years of military rule without a constitution. Here is the slate of military dictators that ruled the country:
• GENERAL Johnson Aguiyi-Ironsi, Jan 16 to July 29, 1966
• GENERAL Yakubu Gowon, Aug 1, 1966 to 29 July 1975
• GENERAL Murtala Mohammed, July 29, 1975 to Feb 13, 1976
• GENERAL Olusegun Obasanjo, Feb 13, 1976 to Oct 1, 1979
• GENERAL Muhammadu Buhari, Dec 31, 1983 to Aug 27, 1985
• GENERAL Ibrahim Babangida, 27 Aug 27, 1985 to Aug 26, 1993
• GENERAL Sani Abacha, Nov 17, 1993 to June 8, 1998
• GENERAL Abdulsalami Abubakar, June 8,1998 to May 29, 1999
All were generals. From Jan 16, 1966 to March 1999 – a period of 33 years, the military monopolized power except when briefly interrupted by the civilian government of Shehu Shagari (Oct 1, 1979 to Dec 31, 1983) and the three-month interim administration by Ernest Shonekan (Aug 26 – Nov 17, 1993), leaving 29 years under military rule. It was during this period that the destruction of the Nigerian state began.
Reckless government spending by military vagabonds squandered away Nigeria’s oil bonanza. There was no constitution or institution to check government profligacy. The economy tanked in 1986, forcing the Babangida regime to seek relief from the World Bank to address the economic crisis. But one crisis after another followed each other. The currency, the naira – once the strongest in West Africa – collapsed. By 1993, the banking system was on the verge of collapse.
State institutions began to decay and crumble. Government ministries failed to deliver basic social services such as clean water, health care, sanitation, education and electricity. Nigeria’s Electric Power Authority (NEPA) was nicknamed “Never Ever Power Again.” Institutions such as the Police and the Judiciary deteriorated. The social fabric of Nigeria – whatever was left of it – began to shred, the government ceased to function, the moral and value system started to collapse, corruption began to spiral out of control and a whole generation of Nigerians was lost.
In historical terms, 25 years is generally considered a “generation.” Therefore, a whole generation of Nigerians was reared without knowing the constitution, its value or significance. About 60 percent of Nigerians today are under 40 years old, meaning the vast majority were raised in a constitutional vacuum. People hold the government in abject contempt, regarding the government as irrelevant in their lives. Said Simon Agbo, a farmer in Ogbadibo, south of Makurdi, Benue state capital: “I heard we have a new government. It makes no difference to me. Here we have no light [electricity], we have no water. There is no road. We have no school. The government does nothing for us” (The Washington Times, Oct 21, 1999; p.A19).
By 1998, Nigeria was a certified coconut republic where common sense had been butchered and arrogant idiocy was on the rampage. There was no rule of law; bandits were in charge and the victims in jail. The state-mobile was essentially kaput. Nigeria, then, was a thoroughly wasted nation. So much potential, such wealth in natural resources and such dynamism in its people but all squandered. Said Linus U. J. Thomas-Ogboji, a Nigerian scholar:
“Nigeria, the comatose giant of Africa, may go down in history as the biggest country ever to go directly from colonial subjugation to complete collapse, without an intervening period of successful self-rule. So much promise, so much waste; such a disappointment. Such a shame. Makes you sick” (African News Weekly (26 May 1995, 6).
Former head of state, Gen. Abdusallam Abubakar, himself admitted the serious economic deterioration for the country as a whole: “Every human-welfare and development index measuring the well-being of our people is on the decline. Currently, we are the world’s 13th-poorest nation. Given our resource endowments, this sorry state is a serious indictment” (The Economist, 29 August 1998, 45). Nigerian scholar Felix Oti lamented that:
“We have come to be regarded as empty vessels that make a lot of noise. There is a difference between academic intelligence and common sense. The latter is the motor that effectively and successfully drives the application of the former. Unfortunately, the average Nigerian intellectual, though overwhelmed with the former, fails to exhibit enough of the latter to be taken seriously. The very same squabble is just a replica of what is, and has been, going on in the Mother continent — the inability to put heads together and form a united front; the root cause of Africa’s many problems (African News Weekly, 21 April 1995, 22).
Recall that the situation in Nigeria and many African countries can be described as: Bad driver, bad vehicle, bad roads and ANGRY passengers FED UP with lack of progress. Changing the driver without fixing the vehicle is pointless as the new driver would also land in another ditch. But since the 1970s, that is exactly what has been taking place. The dilapidated state vehicle remains kaput.
Reckless Government Spending
The discovery and exploration of oil fields in the early 1970s led to a booming economy. Oil quickly became the dominant sector of the economy, accounting for more than 90 percent of exports and providing the federal government with 80 percent of its revenue. As money flowed into Nigerian government coffers, military dictators went on a spending spree. They frittered away the oil bonanza on extravagant investment projects — a new capital at Abuja with a price tag of $25 billion, and highly ambitious Third Development Plans, upon the false projections of oil output and revenue. Agriculture was neglected and food imports rose rapidly. There was no accounting system as there was no constitution.
In 1981, oil prices fell precipitously. Export receipts plummeted from $22 billion in 1980 to $10 billion in 1983 and then to $6 billion in 1986. To maintain income and the consumption binge, Nigeria borrowed heavily. Its foreign debts quadrupled from $9 billion in 1980 to $36 billion in 1990. Federal and state budgets sank into deficits. These were financed with the accumulation of more debt and the depletion of international reserves. External imbalance caused difficulties with debt servicing and forced the country to go into arrears.
To help improve balance, the Economic Stabilization Act of 1982 was passed by the civilian Shagari administration. Stringent trade controls, the rationing of foreign exchange, a restriction on import licenses, an increase in duties, and the initiation of an import deposit program were adopted. These measures however failed miserably and an economic crisis emerged in 1983. Growth rates turned sharply negative. The GDP growth rate in 1983 was -6.7 percent; non-oil sector growth fell to -9.3 percent and petroleum sector growth to -2.5 percent. By 1985, the distortions in the economy had reached alarming proportions. The exchange rate was grossly overvalued and the budget deficit out of control. The government resorted to heavy domestic borrowing from the banking system to finance its profligacy.
The supreme irony about Nigeria’s economic development is that, despite the flow of substantial oil wealth, the country entered the new millennium with real income per capita of about $290 today, which is nearly the same as it was at independence in 1960 and saddled with a foreign debt of $30 billion. About 60 percent of Nigeria’s population live on less than a $1 a day. The drop was more dramatic in the 1980s during military rule. In 1980, income per capita stood at $1029—the fifth highest in Sub-Saharan Africa. By 1990, it had dropped to a woeful $266. This sharp decline in economic performance was not due to external economic adversities but to grotesque mismanagement and brazen, unprincipled looting.
Back in the 1960s, 70 percent of Nigeria’s 110 million people lived on agriculture and the country was a major exporter of food. Benue state was known as the “food basket of the nation.” By 2000, Nigeria exports only cocoa, rubber and palm products and imports rice, corn, wheat and sugar (The Washington Times, April 13, 2000; p.A17). The value of food imports reached $3 billion in 2005.
The Collapse of the Naira
To stem the tide of inflation and rescue the economy, Maj-General Buhari changed the currency in 1984. It was a replication of a resounding policy folly by an economically illiterate military dictator, Fte./Lte. Jerry Rawlings in Ghana.
In February 1982, the military government of Ghana (the Provisional National Defense Council—PNDC) demonetized the 50 cedi note. The public was asked to deposit these notes in their banks in return for chits that were supposed to be redeemed later but never were as it was a ruse. Ghana shut its borders for two years. The official reasons were: to mop up excess liquidity in the system, to crack down on tax evasion, to punish corrupt politicians, and to render useless large amounts of the currency circulating outside the country. Additionally, the exercise was intended to crush currency smuggling and thereby shore up the external value of the currency. The government insisted that “the withdrawal of the 50 cedi note was not against the poor or the genuine rich but rather it was meant to withdraw excess liquidity in the hands of a few greedy and corrupt businessmen” (Daily Graphic, Feb 24, 1982; p.1). The other official reason for the currency change was to reduce excess liquidity in the banking system and ease inflationary pressures.
However, this was criminally dishonest. Borrowing from the central bank to finance soaring budget deficits was the primary source of excess liquidity in the system. Even Ghana’s own 1978-79 budget statement admitted that “over the past 5 years, more than 70 percent of every budget has been financed by the Bank of Ghana, resulting in the injection of substantial amounts of money into the economy” (p.2; paragraph 6).
On February 13, 1982, exactly one day after the deadline for the deposit of the demonetized 50 cedi notes in Ghanaian banks, the PNDC announced that those whose bank balances exceeded 50,000 cedis would be subject to investigative probes to determine their compliance with tax obligations. In one stroke, this inane policy shattered confidence in the currency and dealt a devastating blow to the banking system, from which it took decades to recover. Traders and innocent farmers, who had toiled and placed their savings in old currency under mattresses, suddenly found them worthless because they could not meet the deadline. Billions of the old currency were thrown into rivers.
In 1984, the Buhari administration copied exactly the same idiotic measure and in one stroke destroyed the value of the naira. At that time in the 1980s, the naira was even stronger than the dollar. It was the preferred currency for trading in West Africa. To facilitate trade and convertibility, most traders plying West African routes carried naira.
The official reason for changing the currency was that “there was too much money in circulation” (West Africa, May 28, 1984; p.1106). Nigeria’s Central Bank director of domestic operations at the time, Chief Nwagu, argued that the change was necessary to demonetize the N2 billion illegally acquired by corrupt politicians and held outside the country (West Africa, May 28, 1984; p.1107). But the fact of the matter is, when corrupt politicians rape and plunder their country, they take the booty out in foreign exchange, not in naira.
When Nigerians deposited their old currency to exchange for the new one, “persons who had deposited up to N5,000 were informed they would have to produce their tax clearance certificates, showing that they paid their taxes over the last 3 years, before they could be allowed to withdraw any money” (West Africa, May 28, 1984; p.1108). This was exactly the same ruse military dictator, Rawlings pulled off in Ghana. The Buhari regime changed the currency and sealed the country’s borders, ostensibly to “catch big-time hoarders who had tucked money away overseas” (West Africa, May 28, 1984; p.1108). Nigeria reopened its borders in March 1986 after two years of closure.
Those who take the local currency out of the country are generally illiterate traders and migrant workers who have no access to foreign exchange at the central banks and therefore use whatever currency that is acceptable to trade along the West African coast. Why should these innocent traders be punished for the actions of corrupt politicians?
When “the news of the exercise (50 cedi note demonetization) leaked out, many people in Accra and other parts of the country went on shopping spree, before the Feb 12 deadline to get rid of their notes” (West Africa, Feb 22, 1982; p.536). Exactly the same phenomenon was observed in Nigeria: “Several people went on spending sprees, buying among other things, cars, air-line tickets, anything that could later be sold” (West Africa, May 24, 1984; p.1106).
In Nigeria, the public responded similarly — shunning the banking system – just like in Ghana. To attract funds, banks offered fantastic rates for short-term deposits — 6 months or less. The banks had considerable difficulty attracting funds for long term. In both countries, loss of confidence and flight from the currency, also drove people to hold foreign currencies, which they could only obtain at the black market. The results were soaring black market rates and thus declining external value of the currency — a result clearly opposite to what the currency change was intended to achieve. Within one year, the black market rate for the cedi jumped from 40 to 100 to the dollar. In Jan 1995, the rate was 1,200 cedis to the dollar. In Nigeria, N1 exchanged for a dollar in the early 1980s. By Jan, 1995, it had reached N100. The naira, which was the preferred legal tender among West African traders, lost its pre-eminence because traders who held large amounts of old naira outside Nigeria suffered heavy losses because they could not get into Nigeria to exchange the old for the new naira as the borders were closed.
The currency change exercises in both Ghana and Nigeria were maddening. If the military juntas wanted to mop up excess liquidity from the system, they should have looked at their own profligate government spending. According to Ralph Osayameh, president of the Chartered Institute of Bankers of Nigeria, “The cause of that is government expenditure” (West Africa, Feb 1-7, 1993; p.153).
And if they wanted to catch corrupt politicians, they should have gone after those gallivanting under their very noses. What did innocent traders and peasant farmers have to do with excess liquidity and corruption for them to be punished by rendering their savings in the old currencies worthless? If a genuine currency change is necessary, there should be no deadline, nor should the borders be closed. As it was, the change was not genuine but a ruse.
Nigerians chose to keep their money balances outside the country after the currency change. Who would keep their savings in a Nigerian bank and be subjected to probes by military coconut-heads? The Morgan Guaranty Trust Company estimated that Nigeria’s foreign debt of $32 billion would have been only $7 billion had there been no capital flight (Business Week, April 21, 1986; p. 14). Capital flight accelerated in the 1980s as policy zig-zags further undermined confidence in the banking system. By 1990, as the Lagos National Concord (Aug 16, 1990) reported, the staggering sum of $32 billion owned by Nigerians in foreign bank accounts was equivalent to Nigeria’s huge foreign debt. As a result, commercial banks in Nigeria still have difficulty attracting deposits, having to offer spectacular rates for short-term deposits — 6 months or less.
Buhari was overthrown by General Babangida, who seized power in 1985, but he was no better in terms of economic management. He respected no rules. Laid-down budgetary procedures were flagrantly skirted by top government officials. In 1986, Gen. Babangida publicly bragged that Nigeria would never seek any relief from the IMF or the World Bank. Then his administration secretly signed a SAP agreement with the IMF to rein in extra-budgetary spending and escalating defense expenditures. But even before the ink on that accord had dried, he had started the formation of his own private army (called the National Guards). He ignored the agreement and showered the officers of the Armed Forces with gifts of cars worth half a billion naira. In July 1992, his military regime took delivery of 12 Czechoslovakian jet trainers (Aero L-39 Albatros) in a secret deal believed to be part of a larger order made in 1991 year and worth more than $90 million. Earlier in 1992, Nigeria had taken delivery of 80 British Vickers Mark 3 tanks, worth more than $225 million.
Heavy outlays were made on grandiose investment projects with little economic viability. Among them is the Ajaokuta Steel Plant, which was commissioned in 1979. It cost more than $3 billion, never produced a single sheet of steel and was eventually grounded in the 1980s. Another was the Aluminium Smelter Project at Ikot Abasi at a cost of $1.2 billion — 60 percent more costly than a comparable project elsewhere in the world.
In August, 1987, Gen. Babangida limited debt-service ratio at 30 percent of export revenue, sending foreign investors scampering for cover. On March 5, 1992, the foreign exchange market was deregulated but in December, trading was suspended for about a week to probe irregularities. Foreign exchange controls were re-imposed in Oct 1993 when Gen. Sani Abacha seized power. Believing in the power of the gun rather than the market, he fixed the value of the naira at N22 to the dollar. Interest rates were also pegged, stifling bank profitability and pushing several banks to the brink of financial collapse. In Jan 1995, Gen. Abacha reintroduced the second-tier system, leaving the official rate fixed at N22 to the dollar while the rate on the parallel (autonomous) market was N80. Nothing, it seemed, had been learned.
By Jan 1988, the Structural Adjustment program had stalled. The banking system was in disarray. Financial controls were either non-existent or hopelessly ineffective. To finance its reckless spending the Babangida administration borrowed heavily from both the commercial and the Central Bank of Nigeria (CBN), injecting excess money into the economy. The money supply registered a staggering 43.9 percent growth, against a ceiling of 15 percent. The rate of inflation accelerated. In March 1989, the rate was 45 percent compared to 25 percent a year earlier. Were these not the same reasons why the currency was changed in 1984 – to mop up excess liquidity? A banking crisis was looming.