African countries should rebuild their fiscal buffers and diversify their economies away from commodities in order to protect themselves from another possible global downturn, says Nigerian Finance Minister Ngozi Okonjo-Iweala.
Despite an unsuccessful bid for the World Bank’s presidency, Nigeria’s charismatic finance minister has much to celebrate. She is a leading light in Africa and her country’s economy has been powering ahead at around 7 percent over the last three years.
In an interview with IMF Survey online, Okonjo-Iweala explains how her country has achieved this impressive economic performance, and what policies African countries should pursue to achieve solid and inclusive growth.
IMF Survey online: Many Africans were very disappointed by the fact that you were not selected as the new president of the World Bank. What are you going to do to try and ensure a greater voice in the selection process the next time around?
Okonjo-Iweala: I know there might be a little tinge of disappointment, but actually many people are elated. Yes, Africans would have loved it, but they also recognize that the continent has achieved a great deal.
I went into this with the support of our leaders. They actually asked me to and they were very steadfast in their decisions. Africa showed unity.
All the countries were supporting the same goal for the first time. It was amazing.
If another similar issue ever comes around, we will have shown that we can do it. We have opened a door. The process for selecting the World Bank president can never be the same again. Everybody acknowledges that.
Next time around, it is going to be a different, more open process, and maybe another African can go for it.
IMF Survey online: Africa is not immune from a downturn in the global economy and, especially not, from a renewed crisis in the euro area. What should Africa’s priority be to protect itself from a possible downturn?
Okonjo-Iweala: Firstly, I think African countries will need to cushion their economy. After 2008, most countries depleted their buffers. There are many types of policy buffers such as reducing taxes and so on.
Countries put them in place in order to make food cheaper or cushion people. By phasing out subsidies in good times, the savings generated can be used in a downturn. This is what we did in Nigeria.
The amount of fiscal space left, for many countries, to take those measures is now limited. We now need to look, with the help of the international institutions, at how we can rebuild fiscal space and rebuild buffers.
Secondly, I think that African countries also need to look inward. They need to learn how to better mobilize their own domestic savings, be more robust in their approach to tax, and also stimulate the growth of sectors that can diversify their economies to limit their dependency on commodity booms.
IMF Survey online: What should countries do to achieve growth that is both inclusive and solid?
Okonjo-Iweala: For one, we should look for sectors that create jobs.
Very often, natural resource and mining sectors do not create a lot of jobs. They tend to be capital intensive. Many of them do not employ too many people. So, one really needs to look at other options.
Agriculture is something all African countries can do very well. In fact, we really have no business importing any food on the continent. African countries should also trade with each other. These things create jobs.
There is also manufacturing. China is moving up the value chain. Countries need to look at whether we can take up some of the manufacturing China is letting go of at the low end of the value chain.
Ethiopia is currently doing so with shoes. Nigeria is looking at it with electronics. Those are the kinds of things that they need to do.
IMF Survey online: The IMF has forecasted a healthy 8 percent growth for Nigeria. Why has the country performed so well?
Okonjo-Iweala: I think that the country has performed well because we have got several sectors of the economy, which are good sources of growth, quite apart from the oil sector, which is doing relatively well.
We also have agriculture, which is doing reasonably well. We have got a solid mineral sector with small-scale mining. The telecom sector is booming. Services, retail trade, housing and construction are also doing well. So we have several sectors that are performing relatively well.
But more fundamentally, we have macroeconomic policies that created a stable environment where growth can occur. Furthermore, we are carrying some structural reforms in the power sector, in the downstream petroleum sector as well a in the ports and transport sector; these reforms are also helping to unleash growth.
I think that once they are completed, Nigeria could see growth at much more than 8 percent.
IMF Survey online: Aare you worried about inflation in this scenario?
Okonjo-Iweala: Yes, we are worried. Even though we produce crude oil and export, we do import refined petroleum and we are a big importer of food items. So, we also suffer from imported inflation in oil prices and foods.
Food price volatility has reoccurred this past year of 2011 and food prices have now reached their peak of 2008. All this, also affect our economy. But, we are fighting it. The Central Bank is really focusing on this issue.
At the moment, inflation is down to about 11.9 percent. We are hoping to keep it either in the low double digits or drop to the high single digits over the next year or so.
IMF Survey online: What is Nigeria going to do to reduce its dependence on oil?
Okonjo-Iweala: We are not happy with it. We would like to improve our non-oil revenues. We would like to create jobs. As you know, oil is not a sector that creates jobs.
The big problems faced by Nigeria and many African countries are the issues of job creation and of growth that is not really inclusive. What do I mean by that? You can have growth as we are having, but that growth is not creating as many jobs, especially for youth, and is leaving some people behind.
That’s not really the kind of growth we want. We want the growth that will create enough jobs for youth, and that will include people in the rural areas as well as in the cities. That way the whole country is improving together. We do not want increasing inequality. Youth unemployment, both in Nigeria and on the continent, is a huge problem and we need to tackle it forcefully.
IMF Survey online: What policies are you thinking of implementing to tackle this problem?
Okonjo-Iweala: We need to diversify the economy itself into sectors such as agriculture, where we have a strong comparative advantage. I think Nigeria should not even be importing most of the food it currently imports.
We spend about $10 billion a year on food imports of things that we could grow, like rice, fish, sugar, and wheat for bread. Actually we do not grow wheat very well, but we can substitute cassava flour for wheat flour.
If we pursue the development of these sectors, then we will create jobs and we will diversify.
We are investing, and we are also encouraging active investment in agriculture for both small and larger farmers because Nigeria only uses 44 percent of its arable land. There is also scope to increase our productivity, which is currently about one-third of that in South Asia and East Asia.
We are also doing some targeted programs as well. We have an extremely popular program, which creates jobs by supporting young entrepreneurs.
It is a business plan competition and those who win get anything from $10,000 to $100,000 to support their businesses. They also receive mentorship, access to credit, and support.
Finally, we also have a public works program targeted towards parts of the country that are falling behind because of the inclusiveness issue.
So, there really is a range of instruments we are deploying now.