Driving Nigeria’s Economic Transformation and Diversification

Olusegun Aganga

I would like to commend the Institute for choosing this topic. Every successive government in Nigeria has talked about the need to transform and diversify our economy for decades but none has identified corporate governance as a major catalyst for driving that transformation. And there is no better time than now to draw the attention of the nation and managers of the economy to this significant omission.

As I indicated in my recent book, Reclaiming the Jewel of Africa, the Economy is the number one priority of any government. In some countries, elections are won or lost because of the economy. Our economy today is relatively small; it is not growing fast enough and is not inclusive. It has all the features of a weak economy: Import-dependent, weak and unstable macroeconomic environment, export of primary products without value addition, high and unsustainable level of debt servicing cost to national revenue, fall in real wages, high dependency on foreign earnings without building productive capacity, high incidence of poverty, high rate of unemployment, high rate of emigration of skilled professionals, weak governance structure and prevalence of insecurity.

So, the recurring question many keep asking is, why has a country which has about 85million hectares of land where almost everything can grow, has more than 45 solid minerals in commercial quantity, a top 10 oil and gas producer, a young population which is the envy of the rest of the world, and some of the brightest people in the world, not been able to transform its economy and diversify its sources of revenue for decades? It is not because we do not have economic plans or policies to diversify and transform our economy. The simple answer is the lack of continuity and extremely poor quality of implementation of economic plans and policies.

I will give you an example, Nigeria officially launched its industrial plan to diversify the economy in 2014, although it commenced implementation in 2011. From 2015, the plan was put it in the cooler for about 8 years. As result the growth of manufacturing’s contribution to GDP which was in double digits throughout 2011 to 2014 peaking at 24.59% in 2013 crashed to negative 1.46% in 2015, another negative 4.32% in 2016 and only grew marginally by 2.45% in 2022. This is what the lack of continuity does to an economy. If it had been implemented rigorously, Nigeria would have become a top competitive global exporter of at least 3 or 4 of the 13 products identified for export by now. It is all about continuity and discipline. 2 We are long on plans and policies but short on implementation. And why is that so? It is because our institutions particularly the economic institutions are weak or do not exist. According to Daron Acemoglu and James Robinson in the book “Why Nations Fail”, Nations fail because Institutions are weak or do not exist.

Nations fail when they have extractive (weak) economic institutions, supported by extractive political institutions that impede and even block economic growth.’ The third question you may then ask is why are institutions weak? And the answer is that they are weak mainly because of the poor corporate governance, and governance in public institutions. An area that has been overlooked and rarely mentioned when talking about the economy. That is why I commend the Institute once again for the choice of today’s topic. I will be talking about Governance in the corporate world and in the government because the economy is driven by both the private and public sectors. What is Corporate Governance? The Organisation for Economic Co-operation and Development (OECD) defines corporate governance as “a set of relationships between a company’s management, its board, its shareholders and other stakeholders; it provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance”.

So, it is about the four “Ps”: People, Purpose, Processes and Performance. In Nigeria, where both public and private sectors play a significant role in the economy, we have to take a holistic view and expand the discussion to cover governance in the public sector. That was why the original National Code of Corporate Governance developed by the Financial Reporting Council in 2013/2014 when I was the Minister of Industry, Trade and Investment had three parts: codes for the private sector, public sector and the not for profit organisations. The public sector governance code was meant to cover all MDAs, state-owned entities, all parastatals and all government commercial agencies.

What is the Role Of Corporate Governance In Economic Diversification And Transformation?  Let me highlight a few key aspects of how corporate governance can drive Nigeria’s economic transformation and diversification: Attracting Investment: Nigeria needs substantial investments to develop and diversify its economy. In fact, the attainment of the National Development Plan 2021-2025 will require an investment of about N348.1 trillion and 85.7% of that is expected to come from the private sector. It is fair to say that Nigeria’s ability to attract investments into critical areas 3 of the economy has not been more important than now and the quality of the corporate governance in both the private and public sector will be a major catalyst.

Today we talk about the NLNG as the bird that lays the golden egg because of its remarkable success and its ability to diversify the economy and attract investments. A lot of the success, can easily be attributed to the strength of the corporate governance practices that were put in place by its owners 51% of whom are multinational oil companies. The success story of the privatisation and the transformation of the telecom industry will also not be complete without the mention of the strong corporate governance at the Nigerian Communications Commission (NCC), and the role of the Board led by the late Alhaji Ahmed Joda, the former Chairman of NCC and Dr. Ernest Ndukwe, the CEO at the time and who today, is the chairman of this session of your conference. We need to replicate this privatisation in other sectors.

Another example I gave in my book is the Saudi Basic Industries Corporation (SABIC), a Saudi Arabian multinational corporation that was established in 1976 by Aramco (Saudi Arabia’s NNPC) with an investment of $1.8 billion. Today, it is the second-largest diversified chemical company in the world and a market leader in many products. Its mandate was to pioneer and drive gas industrialization in Saudi Arabia by adding value to the gas produced. The company had total assets of $83.46 billion as at the end of December 2022, operates in 50 countries, and generated $46.6 billion in sales revenue.

The interesting thing is that SABIC has in turn created The Saudi Iron and Steel Company, one of the world’s largest fully integrated producers of Iron and Steel. Again, corporate governance has been identified as a catalyst for the remarkable success of SABIC. Strong corporate governance will strengthen institutions that are responsible for economic diversification and transformation: Governance in public sector enterprises ensures that they fulfil their mandates, achieve their intended outcomes for citizens and service users and operate effectively, efficiently, transparently and in ethical manner.

It significantly improves the quality of implementation, allows for continuity and ensures sustainability which have been our biggest obstacle for decades; the real reasons we have failed to diversify our economy.  Corporate governance frameworks that encourage entrepreneurship and support micro, small and medium-sized enterprises (MSMEs) can be instrumental in diversifying the economy. MSMEs are often engines of growth in emerging economies. In Nigeria, they account for 76% of the workforce, about 50% of the GDP and 7% of exports.

Effective corporate governance and its mechanisms will foster innovation which can drive new industries and create opportunities for diversification, improve accountability and transparency which will lead to better quality of implementation of plans to diversify the economy and curb corruption and waste. It will also build trust in citizens and investors.

Distinguished ladies and gentlemen, for Nigeria to truly harness the power of corporate governance in both the private and public sectors for economic diversification and transformation, it must address certain challenges. These include Political Interference: When political considerations heavily influence the decision-making process in public organizations, it can compromise the impartiality and objectivity needed for good governance. It starts with the process and quality of making appointments. Why must critical appointments such as heads of parastatals, board members, etc, go to party members as ‘dividends of democracy’? That is not the dividend of democracy.

The dividends of democracy should be good governance. The appointment and promotion of individuals based on personal relationships and political party affiliations rather than on merit weaken the very institutions we need to diversify and transform the economy. We cannot eat our cake and have it.

There is no effective mechanism for holding our economic institutions that are supposed to drive the economic transformation the country requires accountable. That is why we have had a high level of waste, leakages and corruption and poor execution of existing diversification plans and policies. We have heard about oil theft for years, we know about insecurity, high levels of unemployment, poverty, inflation, low manufacturing value addition, tough macroeconomic environment. Who has ever been held accountable and how many people have been sacked? Can you imagine this happening in the private sector and the management and board will remain?

 Ineffective Oversight: Limited checks and balances on government agencies and public institutions have led to inefficiencies, misuse of public funds, poor implementation of economic plans and policies. There is no effective oversight because of the poor quality of the board, no relevant key performance indicators (KPIs), no reward for good performance and consequences for bad performance or behaviour.

So, distinguished ladies and gentlemen, before I conclude, I would like to leave you with some recommendations: The NCCG 2018 for the private sector has been issued and has strengthened corporate governance in the sector. But focusing on private sector corporate governance alone to drive economic diversification and transformation is recipe for failure. The public sector has a major role to  play, particularly in developing countries.

At the very least, it determines how high you can jump and how fast you can run. That is why it is critical for the Financial Reporting Council of Nigeria to issue the National Code of Corporate Governance (NCCG) for the public sector as soon as possible, after due consultations. Full implementation of the Nigerian Code of Corporate Governance in the public sector will have a dramatic and positive effect on our economic institutions. The National Assembly should amend the Acts which established the Ministries and their agencies to make the adoption of the code mandatory for the public sector.

In addition, the Acts should specify the skills, competence, and experience (number of years in the profession) required to chair or sit on the board and to be in the executive management team of an Agency. That was one of the strategies employed to have strong governance and effective leadership at the Sovereign Wealth Fund (Nigeria Sovereign Investment Authority) and which regulators like National Pension Commission (PENCOM) have used effectively to regulate the pension industry which is now one of the best regulated sectors.

Economic Institutions and Agencies Must be Held Accountable: Nations fail because institutions are weak or do not exist. Any industrial plan will fail if the relevant economic institutions are weak. Government agencies are economic institutions and the implementing arm of the Ministries and are therefore critical to any economic diversification plan. At a minimum, competent technocrats or even competent politicians who have a reputation for delivering should be appointed to the boards and management of these agencies. The dividends of democracy as I said earlier should not be about sharing positions to party loyalists but should be about good governance. KPIs should be set, and a comprehensive review of their performance regularly undertaken before any reappointments.

Both the private and public sectors need to show more commitment to environmental, social and governance (ESG) practices. Investors are beginning to demand this to invest in companies and countries. 6. Capacity Building. There is a need for continuous training and capacity building for corporate leaders, regulators, and stakeholders to enhance their understanding of governance principles, particularly in the areas of digitalisation and cyber security.

The CIoD as a very important institution in the country has a major role to play as well. It was one of the reasons I made it absolutely clear to the FRC that they must work very closely with the Institute when I inaugurated the Technical Committee that worked on the National Code of Corporate Governance.

For efficient and effective corporate governance practices to thrive in the country, it is critical that the CIoD become advocates and facilitate the adoption of the NCCG in the public sector. To focus on corporate governance in the private sector only will miss the mark and will not work.

To improve the corporate governance environment particularly in the public sector, the CIoD should develop an index for ranking Corporate Governance in the public sector particularly the institutions that are responsible for economic diversification and transformation. You will be amazed how that Index will transform our economy and nation. Remember nations fail because Institutions are weak or do not exist.

In conclusion, distinguished ladies and gentlemen, unassailable corporate governance is not an option but a necessity for Nigeria’s economic transformation and diversification. It is the lighthouse that guides us through the complex waters of modern economics, helping us navigate toward sustainable growth and shared prosperity. Nigeria, with its vast potential and human resources, has an incredible opportunity to redefine its economic landscape through effective corporate governance and become the Jewel of Africa again. Together, let us work towards a future where Nigeria’s economy is diversified, robust, and inclusive, built on the solid foundation of good governance.

Aganga, former minister of finance presented this key note address, “Driving Nigeria’s Economic Transformation and Diversification: The Role of Corporate Governance,” at the Chartered Institute of Directors 2023 Annual Directors Conference in Abuja on November 16