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Key Text Nigeria: The Political Economy of Reform - Strengthening Incentives for Economic Growth

Author: Pat Utomi, Alex Duncan, Gareth Williams
Date: 2007
Size: 41 pages (448KB)

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Summary

How does reform take place within the constraints of political and economic processes? What has driven recent policy and institutional reforms in Nigeria, and how can Nigeria's reform process be sustained and extended? This briefing paper from the Policy Practice argues that the failure to achieve sustainable economic growth and poverty reduction in Nigeria is linked to institutional and incentive problems. Efforts are needed to strengthen incentives for economic growth and public accountability in Nigeria. All stakeholders must recognise the realities and risks to sustainable reform, as well as the long time-scale required.

Long-term growth and competitiveness have been impeded by misguided policy choices and weak government in Nigeria. Key challenges include a lack of public accountability regarding the use of large oil revenues, weak state-society relations, patronage politics, a personalised rather than an institutionalised policy process, the ongoing risk of violent conflict, and a value system that promotes opportunism and short-term behaviour.

Despite these obstacles, a wide-ranging reform programme was introduced by the government during the second term of President Obasanjo from 2003 to 2007. The scope of reform has however been limited to the federal government level and its impact remains fragile and uneven. While progress has been made in the area of public financial management, democratic accountability remains weak, as witnessed by the flawed 2007 elections.

Various political and economic factors have driven and supported the reform process. Contextual factors have played an important role, for example, through greater public acceptance of the need for change and increased government revenues that gave the administration more room to manoeuvre. Other key factors include:

Strong political leadership, particularly at the federal level.
Opposition to reform from interest groups has been addressed by compensating or sidelining opponents. However, it has proven difficult to challenge more powerful vested interests or to implement measures that are unpopular with the public.
Business interests of the political elite have been a significant driver of reform, reflected in the perception that these groups have been the main beneficiaries of privatisation.
Early ‘quick wins’ (e.g. deregulation of the mobile telephone sector) have been crucial to creating public support and raising public expectations for institutional change. However, the reforms have had little impact on employment opportunities and the lives of poor people.
Support from external actors has also played a role including: debt relief and technical assistance; cooperation with OECD countries on financial crime, corruption and stolen assets; commitments from multinational corporations to higher standards of ethics and transparency; and the influence of regional groupings (e.g. African Union, NEPAD, ECOWAS) on domestic policy reform.

There are many risks to sustained reform in Nigeria including weak political institutions, conflict relating to oil, and societal divisions. In order to sustain and extend reform, long-term structural economic change is needed to diversify the economy beyond oil and promote a more open and competitive private sector. Other key recommendations include:

Strengthening public accountability, in particular, democratic accountability and other forms of accountability in the area of public sector performance, service delivery, and due process in public procurement.
Ensuring that the benefits of reform are experienced by the wider population so as to build support for the reform process in the medium term.
Finding ways of making reform more durable, for instance, by introducing institutional or structural changes that cannot be easily reversed and accelerating the passage of legislation.
Extending reform beyond the federal level to the state and local government levels.
Addressing violent conflict in all strategies for economic growth.
Building the organisational capacity of public institutions through technical assistance on the basis of genuine demand.
Engaging with all domestic and external stakeholders.

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Source: Utomi, P., Duncan, A. and Williams, G., 2007, ‘Nigeria: The Political Economy of Reform - Strengthening Incentives for Economic Growth’, The Policy Practice, London
Organisation: The Policy Practice, http://www.thepolicypractice.com/