In 2003, Okonjo-Iweala returned to Nigeria to serve as finance minister in the administration of President Olusegun Obasanjo, but she resigned in frustration in 2006. (To opponents of her reform agenda, she had become known as “Okonjo-Wahala,” a play on the Hausa word for “trouble.”) After another stint at the World Bank, this time as a managing director, she was invited back to Nigeria by President Goodluck Jonathan in 2011 to head his economic team and once again take up the post of finance minister. With the election of Muhammadu Buhari as Nigeria’s President in March, Dr. Okonjo-Iweala now is a senior advisor at Lazard and the chair of the board of GAVI, The Vaccine Alliance.
In this unique interview, Dr. Okonjo-Iweala, who served on the UN Secretary General’s High-level Panel of Eminent Persons on the Post 2015 Development Agenda, reveals thoughtful and insightful guidelines for other developing countries, and discusses overarching goals for the advancement of the recently adopted Sustainable Development Goals (SDGs).
During your tenure as Finance Minister, Nigeria became the biggest economy in Africa, overtaking South Africa in 2014. You are credited with the measures taken to turn Nigeria around. The National Economic Empowerment and Development Strategy (NEEDS) development plan has been highly influential throughout the developing world. What are the lessons that you can share with other developing nations, both in Africa and around the world?
NOI: First of all, we tried to find out why has the country not been doing well all these years. You have to really dig. People talk very glibly about the lack of reforms or corruption and such, but you need to go beyond that—really get granular about why your country is not performing well. When we dug into it the first time in 2003, and did this study that lead to the NEEDS document and to the reform. It was finding out that one of the biggest sources of instability and lack of growth in the Nigerian economy—that had been growing at about 2.3 to 2.5 percent per annum, with a population growth rate of 2.8 percent—one of the biggest reasons was that we didn’t know how to manage volatility. Oil prices would go up, we’d spend everything, they’d then crash, and so on and so forth. So we really went to look at the core reason—no one had ever really done that in the country. The World Bank had done some studies, but none of the policy makers had really looked at this or paid attention. So when we tried to map this, we saw that our expenditures were volatile, incomes were volatile, GDP growth was volatile, and no country can reform with that kind of volatility. So of course we had to put in place a mechanism, and I think that was one of our biggest successes from the first time.
It must be difficult maintaining economic stability when so much of Nigeria’s success is associated with the current oil price? Despite having a massive oil industry, Nigeria famously struggled with paying back its outstanding debts to the IMF and Paris Club.
NOI: The first concrete step was to bring in some macroeconomic stability into the economy, managing the fiscal framework much better. We put in place what they call an “oil-price-based fiscal rule,” which the linking of the way we budget to the price of oil and just smoothing out consumption and expenditures. So we put all those things in place, and you could see – the World Bank had estimated that Nigeria was losing three percentage points per year due to volatility, and lo-and-behold, when we developed something called the “Excess Crude Oil Account” into which we could just put the savings. When we decided to budget at an oil price lower than the one prevailing in the market, and delinked our budget from the volatility, we were able to save an amount over and above that price we used in the budget because oil prices were going up then – I saved them into a sort of stabilization fund, which we call the Excess Crude OilAccount, so in bad times we could draw on those savings to smooth our consumption. When we put all of these mechanisms into place, growth tripled – almost to six percent to seven percent per annum. So one of the key lessons is that macroeconomic stability matters – if you’re a natural resource producer, managing volatility matters, grappling with that matters.
Oil is an exhaustible resource, and ultimately rather volatile. There have also been significant efforts to diversify Nigeria’s economy – to move away Nigeria’s economy from this central pillar of oil, right?
NOI: Very much so. The second thing we tried to do or beginning to do was some of the structural reforms that would be necessary for the economy. We tried to look at what were the biggest sources of fiscal drain, we looked at enterprises, and we looked at those places in the economy where we needed to tackle issues that could unleash private sector investment. Or course, infrastructure was one of the big ones. So we started with telecommunications reform, brought in the private sector, auctioned licenses, and lo-and-behold, that whole sector was unleashed. And you could see the effects: it used to be 0.8 percent of GDP, by my second time around, it had grown to 9 percent of GDP. Huge. Just as an example, and then we started reforming the power sector, we started looking at some of the really special issues, and then of course, the government was over. I’ve captured a lot of this in my book. So the lessons are macro stability, structural reforms, and building institutions. If you want to sustain development, and leave a lasting impact, you really need to put in systems, processes, and institutions that will drive development going forward – same with the SDGs. We really started to look, what are the missing pieces? Our whole financial management framework, if you’re going to finance the SDGs, you need to diversify your economy away from one resource, you need to strengthen your revenue management framework, you need to present leakages. We put into place financial management systems with biometrics that really began to build a framework that would take us away from cash management with the problems of corruption and leakages to electronic management systems for finance.
We also built institutions – you notice that in many developing countries, owning a home is not very easy. There is no robust mortgage system that works, like in America, the UK, and so on. This is also one of the reasons why people become corrupt – they try to steal money because they want to go and build their house, they don’t have any way to get money or resources, they have to save until the end of their working life before they’re able to own a home. That’s not really the way that it should be. In developed countries they tried to put in place a system so that you’re young, you get married, you can start paying, and by the time you retire you can own your home. So this is a big, institutional and social gap in many of our countries. So in Nigeria, the second time around, we tried to build the Nigerian mortgage refinance institution – a system that could begin to put liquidity into the mortgage system and allow our young people to have homes, that one day they can own a home. I also strongly believe that it contributes to tackling corruption, because all of the corruption of people stealing this and that is them trying to save up resources for homes and so on.
How do Small and Medium Enterprises (SMEs) play into the economic landscape of Nigeria? Many developing nations have struggled to foster SMEs growth, as many lack access to capital they require to expand. What steps did you take to better incorporate SMEs into Nigeria’s economic growth?
NOI: We also built, in order to finance SMEs – you find that they are excluded from the financial system; they don’t have access or it’s too expensive – so we built the Development Bank of Nigeria, and it’s just in its infancy now, but at full-fledge, it’s supposed to provide resources to SMEs so that they can begin to grow, since they’re the engine of job creation within the economy. This is another trend that is critically important: how do you foster growth within an economy, how do you help informal enterprises to grow and create more jobs, because often it’s not the huge businesses that create the most jobs. So building an institution that can begin to plug the gap and be sustainable – the same as many countries have done: the German’s have KfW, the American’s have the Small Business Administration. We don’t have these kind of things in our countries, and because we’re missing these institutions that means we continue to struggle. So the second lesson that I’d say we learned that is important for development is to really look for what is missing institutionally from your economic landscape, and try to put them in, because without those institutions built, you will not be able to develop. And then undertake the right structural reforms in those regulatory reforms, freeing up space for business that will enable your private investment to take place, because the government create the jobs needed. So you really need to the necessary things.
You’ve now left the Nigerian government twice – each time before all of your developments could yet come to full fruition. What other plans did you envision for Nigeria?
NOI: The last thing I want to say that we have not yet done – we haven’t done it, so I’m not claiming it – but we seriously looked at this, because we saw that the type of growth that we were getting was coming with more inequality and was not creating enough jobs. So we got the growth finally, but when you looked at the quality of the growth, it wasn’t something that you could really be too happy about, because we have youth unemployment, the growth wasn’t creating enough jobs, and it was leading to more inequality, which is a problem that faces the whole world. So the last thing we’re doing is looking at the quality of that growth, to make sure that it’s being created in the right sectors that will create jobs, like agriculture for instance. We have a huge comparative advantage there, so trying to do the natural thing and enable growth in the agriculture sector and not just growth but development along the value chains to create jobs. Trying to encourage services, even the creative industries, like the film industry, the arts. And the thing with this sector is that it creates a lot of jobs without government help, this was happening on its own. But they were getting to the point where they needed additional help. Nigeria has developed a whole film industry, called Nollywood, which is the third largest in the world after Hollywood and Bollywood, and it’s created a lot of jobs – 200,000 direct jobs and about one million indirect jobs. So encouraging the film industry, which went from 0 percent of GDP ten years ago to about 1.4 percent now.
We’re also working on a social safety net, for those at the very bottom of the ladder, because sometimes people are so down they cannot talk advantage of the economic improvements. So how do you pick them up and make sure that their children do not fall into the poverty trap all over again? So we’re looking at what the Brazilians, Colombians, and Mexicans have done so well. The building of a national social safety net centered around conditional cash transfers, and using that as a basis to make sure that we start transforming the lives of child at the bottom end of the income ladder by giving them, their parents, their mothers in-fact, cash-transfers to make sure they send them to school, get them immunized, and things like that so that the next generation would not also fall into poverty but have the tools to which to escape poverty. That last part is what we were working on when the government was over, and it’s something that some would suggest that some countries should look at if they really want to improve the quality of growth and move towards the SDGs.
Do you see developments like Mobile Banking as a potential vehicle to help with this process of normalizing growth?
NOI: Mobile banking has taken off in places like Kenya like wildfire, and in Nigeria it’s taken off. It’s not as well as in Kenya, but it’s really helping. For instance, it’s also helping to fight corruption. One of the ways Akinwumi Adesina, the Minister of Agriculture and current President of the African Development Bank, during my second time in government, got rid of the corruption in fertilizer and subsidies payments to farmers – there was a lot of corruption, so that only 11 percent of farmers were ever getting their subsidies and fertilizer – and what it was getting rid of the intermediaries, the middle-men and women who helped to distribute this fertilizer. What he did instead was develop an electronic wallet, such that farmers, through their mobile phones, would receive electronic vouchers, which they could send to the agro-dealer. The agro-dealer can now go to the bank and submit these vouchers and collect their money.
As the final word, you’ve passionately fought corruption throughout your career. What is the role of fighting corruption and illicit cash flows in achieving the SDGs?
NOI: The size of the flows, not just African countries, but worldwide – is estimated at one trillion dollars a year according to International Financial Integrity. But even if you just look at the costs to Africa, 50 billion (from the Thabo Mbeki report on illicit financial flows) is significantly more than the aid flows to the continent. So in terms of the numbers, the issue of transparency, and the issue of fighting corruption, the world needs to pay very strong attention to this issue of illicit financing and illicit capital flows. Harnessing this will help with the financing of some of the goals of the SDGs.