National Economic Empowerment and Development Strategy (NEEDS) (VI)
Contd. from last week

Creating a competitive private sector
For decades Nigeria’s economy was characterized by the growing dominance of the public sector, overreliance on a single commodity (oil), and the pursuit of a highly import-dependent, import-substituting industrial strategy. While these policy thrusts were justified at their inception, experience has shown that growth based on expansionary public expenditure, import-substitution industrialization, and reliance on the export of a few primary commodities is neither efficient nor sustainable. That the strategy did not work in Nigeria is evident from several indices of suboptimal performance: low per capita GDP, a low growth rate, a weak industrial base with declining industrial output and capacity utilization, large budget deficits and deterioration in the social and infrastructure facilities, low productivity in the real sector, and a high level of unemployment.
The private sector has been dogged by weaknesses inherent in its skewed structure. lt is dominated by a few large multinationals that are heavily dependent on imports and operate largely as enclaves and a large segment of small and medium-size enterprises with very little, if any, linkage to the multinationals. A rent-seeking and unproductive culture of overdependence on government patronage and contracts, with very little value-added, governs the sector.
As a result of these factors, Nigeria has become a nation of traders, with a very weak and stagnant domestic private sector. Other frequently cited problems in efforts at growing private sector include the poor state of physical infrastructure; the high cost and limited access appropriate financing; insufficient domestic demand and the low level of patronage by public sector institutions; the high cost of imported raw materials, equipment, and spare parts; and the lack of skilled labour. Growing the private sector also hinges crucially on domestic policies environmental factors, and investment flows.
The primary goal of the NEEDS strategy is to build a private sector that can take advantage of the opportunities that abound in the domestic, regional, and global markets. The strategy building on the achievements of the past few years transforming the private sector The main strategic thrusts include the following.
Redefine the role of government as facilitator and promoter in the economy, recognizing that market failures in developing economies require targeting incentives and interventions in specific areas to promote specific sectors and industries. The government hopes to complement the usual enabling environment model of development with some targeted entrepreneurial interventions to bolster weak and vulnerable sectors in consolidating and strengthening an enabling environment for a competitive private sector. Specific measures in this area include the following:
Continue to improve security, the rule of aw, and the timely enforcement of contracts.
Continue to reduce policy-related costs and risks, such as corruption, red tape, and administrative barriers to bussineses; a weak legal system; protection of property rights; inadequate enforcement of tariffs; and dumping of fake and substandard products; and policy and other uncertainties associated with exchange and other prices.
* Invest heavily in infrastructure, especially electricity, transport, and water. Studies indicate that about 25 percent of business start-up costs are spent on private power generators, and privately generated electricity costs about half times as much as electricity provided by the National Electric Power Authority. Reforming the power sector could significantly reduce the cost of doing business and improve competitiveness..
* Provide targeted intervention as incentives to grow the private sector. The government aims to play an active development role, while avoiding the mistakes of past direct interventions in the economy, by adopting the following strategies:
* Nationally coordinated strategies for the key sectors that drive growth— agriculture, small and medium-size enterprises, manufacturing, oil and gas sector, solid minerals, and services (especially information and communication technology and tourism). Explicit strategies and interventions are designed for each of these sectors to harness and maximize their potential for growth and poverty reduction. Cheap and easy access to finance. In the medium to long run, the government plans to drastically reduce the many costs of businesses in Nigeria face. In the short to medium term, it will direct low-cost credit to the productive sectors as an incentive to jump-start the private sector.
• Privatization and liberalization. Privatization of public enterprises is aimed at shrinking the domain of the state and enlarging the size of the private sector. It is also aimed at improving the efficiency and competitiveness of enterprises, leading to their long-term sustainability and contribution to poverty reduction. The liberalization of sectors hitherto monopolized by the government is expected to unleash competition by the private sector—and hence spur growth and employment generation.
* Promotion and development of industrial and science and technology parks and industrial clusters. The federal government will work with state governments and the private sector to promote the development of industrial clusters and science and technology parks as pilots for creating industrial growth poles in the county. Export processing zones are also being developed and strengthened. Rationalization of fiscal monetary and legal incentives to ensure that firms have access to them. The new paradigm that mainstreams service delivery as the key function of the public sector aims to provide public services to businesses efficiently and effectively.
• lmposition of selective import restrictions and aggressive export promotion as part of a strategy of industrial development. Recent empirical evidence from firm-level data across developing countries indicates that big bang import liberalization can hurt industrial development. Under a big bang liberalization, only a small proportion of firms operating at the frontier gain from competitive pressures; the vast majority of firms often risk being wiped out, with dire social and economic consequences. While the government is reducing the cost of doing business in Nigeria, it will use restrictions on imports as part of a strategy to ensure orderly restructuring of the industrial sector. The government will aggressively promote exports and general commercial policy to attract foreign direct investment, and it will pursue export orientation as a deliberate policy
• Create public-private partnerships. For government to be effective in its entrepreneurial or developmental role, it needs to actively interact with the private sector on an ongoing basis to ensure continuing feedback. Government at all levels will maintain structured interactions with private sector operators to ensure a true partnership in the development process.
NEEDS sees the rapid growth of a resilient competitive private sector as a key component and a sustainable reform programme. As part of the transformation agenda, the government is trying to diversify the economic base and reduce the dominance of the oil sector, mainstream the informal sector while strengthening its linkages to the rest of the real sector, increase local value added, increase the share of manufactured goods in total exports, and create incentives for a vibrant private sector that can respond to the rigors of market forces. The government has already taken a number of steps in this direction—by establishing the Nigeria Investment Promotion Commission and Technology Business incubation Centers, for example. These centers provide conducive environments for nurturing the start up and growth of small and medium-size enterprrises engaged in value-added and technology-related manufacturing.
NEEDS aims to alter the strategy for industrial development, to make it less import dependent more local resource—based, and more related to local research and development strategies, particularly those focused on small and medium size enterprises. This strategy will lead to the promotion and development of science and technology—based small and medium-size enterprises. These enterprises, which will be based mainly on national research and delopment activities and innovations, will genererate spin-offs and provide opportunities for creating entrepreneurial activities. They will target the following priority areas: food processing, industrial chemicals, information and communication technnologies, biotechnology, electronics and space technology, energy, oil, and gas.
NEEDS will also strengthen the growing partnership between the private and public sector, while advancing the policy of private and public sector-led growth. Enterprising Nigerians irrrespective of their location, will be encouraged to participate in the transformation of Nigeria into an economy that is robust, stable, dynamic, competitive, and export-led. The role of government will be redefined as that of a facilitator and a catalyst. Where it is in the public interest, deregulation will be vigorously pursued, with the government playing a supervisory and regulatory role. The tremendous achievements in the telecommunications sector, where the National Commission acts as a pivotal agency for regulation and consumer protection clearly illustrate the possibilities inherent in a successful deregulation programme. In 2004, the National Assembly is expected to enact a law to give effect to the Competition Policy and anti-Trust legislation, a key component of the private sector growth strategy.
The role of government
These policy thrust are realistic and realizable. All stakeholders in Nigeria would be better served if the concept of a symbolic relationship bdetween the public sector as enabler and the private sector as a primary engine of growth of the nation’s economy were fully established. In this context of partners in progress, public investment in economic activities that compete directly with the private sector will be drastically reduced. The public sector will emphasize reforms that lay a solid foundation for a prosperous and globally competitive private sector. This includes policy and regulation, public services, and facilitation and intervention to support other actors by targeting and addressing key drivers that will improve firm-level efficiency and reduce the cost of doing business. Government at all levels (federal, state, and local) commits to systematically:
• Mobilize national resources to facilitate the development of strategic economic infrastructure that improves the attractiveness of Nigeria as a preferred investment destination.
• Eliminate bottlenecks and red tape, and improve the social, legal, and regulatory regime in order to strengthen security of life and property, governance, the rule of law, and respect for the sanctity of contracts and rights of others.
• Increase opportunities for access to financial resources and strengthen or support other assistance initiatives, such as the Small and Medium Industries Equity Investment Scheme, that aim to improve efficiency and productivity, reduce production costs, nurture entrepreneurship, and enhance the attractiveness of Nigerian products and small and medium-size enterprises in an intensely competitive marketplace.
• Adopt and implement a simplified and transparent import tariff regime by harmonizing Nigerian tariffs with the common external tariff of the Economic Community of West African States (ECOWAS). lmplement fundamental reforms of the ports and customs clearance procedures to reduce turnaround time and provide Nigerian producers access to imported inputs at international prices.
* Implement a plan on rapid and focused commercialisation of the results of scientific researches that forges linkages and enhances productivity.
* Progressively reduce the government’s direct role in economic and business activities. Vigorously pursue the process of accelerated privatization of major utilities and public enterprises, liberalization, and deregulation of key sectors, accompanied by appropriate competition and consumer protection policies.
• Implement the comprehensive Tax Reform Bill in order to ensure the elimination of multiple taxation and fiscal harassment. Enforce jurisdictions, improve collections, a remove barriers to the growth of a vibrant private sector.
• Conduct a regular dialogue with private sector operators, and play an active role in economic planning based on market principles. Continue to promote periodic public-private sector dialogue under the auspices of the Better Business Initiative, Annual Competitiveness Forum, Nigerian Economic Summit, and other forums. A new annual forum for public-private partnership and peer review mechanism for performance evaluation of NEEDS and will be instituted under the auspices of the Nigerian Economic and Development Summit.
• State and local government levels also commit to dialogue periodically with the private sector and the civil society.
• Encourage the private sector to take advantage of global trade initiatives (such as carbon trading),
• Encourage the private sector to increase its investment profile in research and development activities at Nigerian research institutes and universities.
Seven specialized science and technology parks (one in each geopolitical zone and the Federal Capital Territory) will be established in a phased manner, with appropriate government support. Each park will house 300—590 companies aimed at unleashing Nigerian entrepreneurship. Some companies will have partnerships with global high-tech enterprises. Support facilities will include venture capital funds, business support services, human resources development facilities, intellectual property rights protection services, global technological databanks, and market support incentives, The parks, managed essentially by the private sector, will act as pilots. The model could be replicated in many more states based on lessons of experience. Each of the pilots would be located near a commercial center in order to exploit economies of scale. Each park could act as a growth pole in each zone, leading to an integrated national industrial infrastructure.
To enhance rapid industrial growth and efficient exploitation of resources, government will encourage the development of strong linkages between industries in the science and technology parks, research and development institutions, and university researchers. In addition, actions will be taken to promote technology acquisition and diffusion from within as well as across national boundaries to ensure global quality standards and competitiveness. Such actions will enhance the successful transition from an import-dependent economy to a knowledge-based, export promoting, diversified national economy.
In supporting private entrepreneurship and the drive for efficiency, competitiveness, and private sector—led growth, the government is fully aware of its duty to protect or expand access by vulnerable groups to basic social and infrastructure services. Government must also guard against the exploitation of consumers. Government at all levels will therefore remain committed to its overarching responsibility of ensuring access to basic services for all. It will enact consumer protection laws aimed at protecting consumers from monopolistic and unfair trade practices that are direct consequences of market deregulation and privatization. The strategies will be regularly fine-tuned on the basis of feedback to ensure that benefits to all stakeholders are maximized at all times.
The private sector will be expected to become more proactive in creating productive jobs, enhancing productivity and improving the quality of life. It is also expected to be socially responsible, by investing in the corporate and social development of Nigeria and by actively promoting the unity and cultural, educational, moral, and social development of the country. Among other things, the private sector will be expected to:
• Take advantage of opportunities for rapid and sustainable growth of a diversified economy with a modern agricultural sector, an export-led industrial sector, and an efficient and competitive service sector in line with Nigeria’s comparative advantages.
• Actively work to expand the export base and become internationally competitive by improving the quality of products and services and using the skills and professionalism of local human resources.
• Transform the structure of the economic supporting research and development focal economic sectors and significantly enhancing the potential of Nigeria to the demands for domestic production a consumption; by adapting to changing patterns of supply demand, and competition; and by developing strong linkages across the economy
• Stimulate the rapid implementation of the local content policy especially in the extractive and construction industries, by forming business partnerships and linkages that engender the processes of learning technology transfer. According to the National Committee on Local Content, this is the quantum of composite value added or created in the Nigerian economy through a deliberate utilization of Nigerian human and material resources in the exploration, development, exploitation, transformation and sale of Nigerian crude oil and gas resources without compromising qual ity, health, safety and environmental standards.
• Take steps to preserve environmental sources and maintain environmental balance.
Infrastructure needs cut across sectors and are central to economic development. Nigeria’s infrastructure does not meet the needs of average investor, inhibiting investment ann increasing the cost of doing business. Infrastructure development is one of the areas in which NEEDS intends to make a defference. The government intends to leave routine management of businesses to the private sector and to devote its own efforts to providing adequate infrastructure and a regulatory framework that is conducive to business
Policy thrust
Government’s policy maintain adequate and appropriate infrastructure that is conducive to private sector—driven economic growth and development, ensuring private sector participation in the process and creation of a competitve business environment.
UnderNEEDS the government will:
• Rapidly privatize key infrastructure services ensure effective service provision.
• Finance and enforce relevant laws to improve competition and protect consumer welfare in industries providing infrastructure services.
• Provide targeted interventions in the provision of infrastructure, especially to rural areas and vulnerable groups.
• Encourage private sector initiation and participation in the provision of infrastructure using such methods as build-operate and-transfer (BOT), build-own-operate-and-transfer (BOOT), rehabilitate-operate-and-transfer (ROT), concessioning.
• Provide counterpart funding for major infractural projects for which either the resource involvement is too high or the incentives for private sector participation. Increase the share of renewable energy in the total energy mix.
Transport sector
Infrastructure reforms in the transport sector will aim to:
• Complete ongoing construction of a 3,000-kilometre network of roads, and embark on new construction if fund specific assistance or finance becomes available. Rehabilitate and maintain the 500 roads commissioned by the President under Operation 500 Roads.
• Strengthen the newly created roads maintenance agency, and involve the private sector in the management of roads.
• Create a prominent role for Nigerian sea ports within ECOWAS by encouraging private sector participation in coastal shipping activities.
• Develop a seaport with capacity to handle modern shipping activities, and establish inland dry ports. Provide incentives to use other seaports.
• Make Nigeria’s ports more efficient and competitive, with capacity to handle modern shipping activities. Implement policies that target local human capital development.
• Rehabilitate and upgrade the railways with a view to restoring their relevance in transporting bulk, haulage, and passengers.
• Ensure the achievement and maintenance of world class standards in all aspects of aviation operations, by developing local manpower and maintenance capacity and adopting other measures.
• Achieve total radar coverage of Nigerian airspace, and establish an effective and efficient emergency rescue unit under the Federal Airports Authority
Specific strategies for the sector include the following:
• Provide, through the draft Public-Private Partnership in Infrastructure Provision Bill, the enabling legal framework for private sector participation in several infrastructure projects, including roads, railways, and port development.
• Privatize or concession Nigerian Railways to the private sector in order to rehabilitate and modernize it. The government will continue to restructure and strengthen the company to make it functional until it is privatized or concessioned.
• Mainstream the maintenance culture for all infrastructure facilities.
• Provide the Road Maintenance Agency with sufficient capacity to undertake rehabilitation and maintenance of federal roads.
• Ensure that infrastructure development is consistent with environmental regulations.
Power sector
Power is a strategic sector. Indeed, it represents the most important infrastructure requirement for moving the private sector forward.
NEEDS envisions reforms that will transform the power sector into one led by the private sector, with the role of government primarily in policy formulation and establishment of an appropriate legal and regulatory framework. Full implementation of the NEEDS retorms would eliminate generation deficits; rehabilitate, reinforce, and expand transmission and distribution networks; impose payment and collection discipline; and increase rural access to electricity, using grid and off-grid approaches.
Nigerias power system is so inadequate that it has held back economic progress and social wellbeing. The system is unreliable and incapable of meeting the demands placed on it. The following facts underscore the neglect of the sector:
• No new power stations were built between 1990 and 1999.
• No major overhaul of plants was carried out between 1990 and 1999.
• Only 19 out of 79 generating units were in operation in 1999.
• Actual daily generation fell to less than 2000 megawatts (MW) in 1999.
• No transmission lines have been built since 1987.
• Federal government funding to the sector decreased continually between 1980 and 2000.
Some improvement took place between 1999 and 2003, with generation rising to about 4,000 MW a day. Problems of adequacy, transmisstion and distribution remain, however. Improvement occurred largely as a result of the President’s mandate and the new funds and capacity injected into the National Electric Power Author. (NEPA). Some of the highlights of the mandate include the following:
• Expeditiously implement the electric power sector reform programme.
• Generate 10,000 MW a day by 2007, from existing plants, new host generation, and reasonably priced independent power plants.
• Develop the capacity to transmit and distribute the higher level of generation.
• Explore alternative energy sources, such as coal, solar power, wind power, and hydropower.
• Renew attention to the question of electricity tariffs.
• Deregulate the power sector to allow increased private sector participation.
These mandates imply increased system capacities (generation,transmission, distribution marketing) and reform of the electricity industry through deregulation to encourage private sector participation and attract investment. Deregulate and liberalization of the electricity industry will courage development and use of alternative energy sources. They will also affect electricity which will require regulatory attention.