In light of declining oil prices on the world market since the middle of 2014 due to the expansion of fracking in North America among other developments, Nigeria just like most petro-states has been exposed as being over-reliant on oil as the main source of economic activity, government revenue, and foreign exchange. Consequently, Nigeria has been in a massive economic down turn in the past few years with collapsing government revenues, increasing levels of debt, rising levels of inflation, and rising unemployment. Compounding the crisis has been the economic interventionism of the Nigerian government especially in the currency markets with capital controls which have been compounded by policy incoherence and uncertainty. In short, the policy incoherence of the Nigerian government has made the down turn worse and has created a very uncertain economic climate in which some businesses have scaled back on expansions plans while others have folded all together and the levels foreign investment have dramatically contracted.
With hard economic times, the chorus for true and lasting economic reforms which shift Nigerian away from being a petro-state has increased. Suggestion ranging from patronizing nationally manufactured goods to a program of increasing Nigeria’s business competitiveness by at least 50 places in the world have been suggested. While many of these suggestions have great intentions, all suggestions except the idea of increasing Nigeria’s business competitiveness by at least 50 places miss the mark totally and are statist/protectionist policies which at best will bring Nigeria temporary result which can’t last and would never make a country like Nigeria to achieve its potential.
Recently, I came across a campaign encouraging people to buy products from Nigeria’s manufacturing hub of Aba in Eastern Nigerian in order to strengthen the Naira (Nigeria’s currency) and promote economic activity and encourage Nigeria’s federal government to come up with appropriate policies to encourage the growth of Aba. While this effort is encouraging and will definitely lead to individual businesses getting potential investors to invest in them along with the necessary capital and expertise they would need in order to expand, this effort does not address the underlining problem which a country like Nigeria needs to tackle head on; the sorry state of economic freedom which stands at 115/173 in the world. What Aba and Nigeria needs is not the disproven infant industry model but rather the widest scope of economic freedom possible in which entrepreneurs and businesses have the widest scope of commercial freedom. In a climate with the widest scope of economic freedom possible, even though individual industries might not like its impersonal nature -which is why big business and entrenched industry players never lobby for economic freedom- this system is what lifts all boats together and radically transforms societies and has brought billions throughout history out of grinding poverty.
If asked to name a place which one day I believe can rival the manufacturing hubs of China, I would say Aba in a heartbeat without much thought. The level of industriousness, hustle in its rawest and most unrefined form and go-getting attitude in Aba is what keeps the city chiming in spite of the obstacle around it. Within a system of the most economic freedom possible, Aba within a few decades can become a major world manufacturing hub. From making leather derived products such as bags and shoes to reverse engineering many products, Aba gives a glimpse of what some of the so-called poorest in the world are capable of if a climate of economic freedom exist. The sad thing is that in many places which desperately need economic freedom to reach their potential and release their people from grinding want and poverty, too many from those who occupy the lowest to the highest positions of society have never fully grasped what economic freedom is and look at it with very deep suspicion and spout many economic fallacies too many to count.
For Aba and Nigeria to thrive and become some of the most economic free places on earth, the model of Hong Kong should be carefully studied. Over 60 years ago, Hong Kong was a poor third world territory within the British Empire heavily damaged during the Second World War and was being flooded with refugees fleeing communist China. On virtually all levels, Hong Kong was worse off than other nations within the British Empire and had no resources except a natural deep sea port. But under the leadership of Hong Kong’s Financial Secretary and later Governor General, J.J. Cowperthwaite, policies which moved Hong Kong toward the path of economic freedom began being implemented at a time when such principles were said to be dead and everything from heavy state interventionism in the western world on one side of the spectrum to state controlled central planning on the other side of the spectrum ruled the day. Some of these policies implemented included sound and secure property rights, stable monetary system, the enforcement and sanctity of contracts, zero state meddling in the setting of prices of any kind, a light and predictable regulatory framework, a low and flat tax rate along with a simple tax code, zero state subsidies or bailouts for industries, virtually unrestricted free trade, and the rule of law. Cowperthwaite did something interesting; he instructed the office which collects statistics to stop the practice because he figured that doing so increased the urge for interventionism in the economy. In fact, Cowperthwaite spent most of his time protecting Hong Kong from the meddling of London because what he implemented in Hong Kong never had the sanctioning of London because at the time quasi-socialism and massive state interventionism was the norm in the highly uncompetitive British economy of the time. Since the Index of Economic Freedom began being published in 1975, Hong Kong has always held the #1 spot. It’s been said, that the so-called Asian Tigers got their inspiration from what Cowperthwaite did in Hong Kong and began imitating.
For a country like Nigeria, implementing the Hong Kong model will face more difficulties than Cowperthwaite ever faced. Cowperthwaite never had a legislature or contesting interest of a complex country to deal with and was the man who for all intents and purposes called the shots. In one area, rather than piece meal reforms, a one strike must be made at all impediments which hamper the formation and operation of businesses. Technicalities and legalities should be examined into how with one law all regulations are repealed and the regulatory process is given a new and clean slate to begin from and mechanisms which guide the growth and review of regulations are put in place. If a few piece meal reforms are made and hundreds of major and minor regulations till exist which impede the performance of those reforms, opponents of more economic freedom will castigate those reforms as not working when in fact a web off intricate and unseen impediments still exist. The position of property rights must be well defined and secured and constitutional level protections must be put in place which address this issue and allow property owners to use and transfer their property as they see fit along with protections which prevent the arbitrary destruction, seizure, and diminution of the value of property without proportional compensation. For the most part, Nigeria has probably the best financial system in Africa but the missing link is the position of private property which can be used as collateral. In terms of government taxation/size-of-government as a share of the economy, this is the only area in which Nigeria has very high and exceptional marks in terms of economic freedom and would be the envy of economic liberals worldwide. At a taxation level of 2.8% of the economy (thanks to oil revenue), Nigeria must do all that is possible to maintain that level despite whatever urge might exist to set goals to increase it. But more can be done to reduce the current flat income tax rate of 24% by around 10 points (Hong Kong has a flat rate around 15%) along with its corporate tax (it should look into totally eliminating the corporate tax and taxing only dividends and thus eliminating double taxation of corporate profits) and capital gains tax; in fact, such a move would massively stimulate economic activity.
As Adam Smith said in The Wealth of Nations – the book which guided Cowperthwaite – over 200 years ago:
“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things.”
Even though operating under a very harsh climate with some of the least economic freedom on earth, the industrious small and medium size traders and craftsmen of Aba have thrived in spite of the barriers before them. As developing world nations and petro-states explore their options as they face a myriad of economic challenges, they must never forget that the ultimate resource which they have are their people. They must have an unwavering faith in the ability of their people to radically transform their societies when given economic freedom. Just as the people of Hong Kong did the heavy lifting of transforming Hong Kong after Cowperthwaite put in place the most economic freedom possible and its complementary institutions, so can the people of the developing world and many petro-states do if given the same.