Streamlining an “Expensive Democracy”
Nigeria’s reform-minded central banker discusses government waste, austerity, and growth.
Sanusi Lamido Sanusi, governor of the Central Bank of Nigeria
Perhaps because his father was also a central banker for his country, it didn’t take long for Sanusi Lamido Sanusi to warm to the job of being governor of the Central Bank of Nigeria after his appointment to the spot in 2009. Instead, he promptly set about making waves as a relentless critic of Nigeria’s bloated civil service and as a tireless prosecutor of corrupt Nigerian banking officials. The 51-year-old graduate of King’s College Lagos, Sanusi has received international attention for that very public work, as well as for his more behind-the-scenes efforts to restructure Nigeria’s economy to enable new, job-creating industries to thrive. In 2011, Sanusi was named “central bank governor of the year” by The Banker magazine, as well as one of Time magazine’s “100 most influential people in the world.” His views on economic issues are frequently sought out by some of the world’s most elite publications, including the Financial Times.
Sanusi spoke in February 2013 at the Center for Global Business and the Economy at Stanford GSB. Before his address, he spent some time answering our questions.
Is it true you gave a speech last year saying that half of Nigeria’s public payroll should be laid off?
(Laughs.) Yes, I did say that. We spend 70% of government revenues on public servants. That’s an unsustainable economic model. I expected there would be push back to the speech, and there was. Nobody likes hearing bad news.
We have basic structural problems in Nigeria. Some of them are forced on us by our laws. For example, the Nigerian constitution says there must be a minister from every state. We have 36 states, but why do we need 36 federal ministries? And, of course, all of them come with special advisors and special assistants and a whole retinue of staffs.
It’s a very expensive democracy. But if you’re at our stage of economic development you need to be putting your money into capital expenditures, into building up the productive capacity of the economy.
Do you have a model in Africa of a country that gets this balance right?
I don’t think so. But a few governments in Africa have made progress in opening up their economies. Tanzania is creating an agricultural corridor, allowing infrastructure investments to go into private agriculture. You also have some work being done in Ghana in the agricultural space.
What sort of entrepreneurial opportunities exist in Nigeria?
A lot is happening. If you look at agriculture, the opportunities for growth are tremendous. There are many attempts to build up our agricultural infrastructure to provide incentives for foreign investments. We are trying to provide access to markets and to fix the value chain, whether it involves sorghum or rice or cocoa or tomatoes. Last year, we had about $8 billion of investments in this area.
Remember, Nigeria is a country with 167 million people. So opportunities exist for setting up industries that will produce consumer goods: processed food, footwear, leather products, textiles, and other basic industries. A number of companies that have invested in Nigeria have produced very high returns, so the opportunities are there.
Oil obviously plays a big role in the Nigerian economy. What is your long-term price outlook?
Most people expect the price of oil to come down. The United States is going to be self-sufficient in oil in about seven years. And in about 10 years it will be producing more energy than Saudi Arabia.
Is that a problem for Nigeria?
It will be if we don’t fast-track our structural reforms. While oil is only 14% of GDP, it has a major effect on exchange rates, reserves, and government revenues. A crash in oil prices would lead to increasing fiscal deficits. So we need an acceleration of reforms in the agricultural sector and an increase in Nigeria’s capacity to refine oil, rather than just export crude.
Nigeria is sadly plagued by association with internet scams. Are there other business transparency issues you face as well?
It’s a problem, but you have to remember to look at these things in perspective. People say there is much more fraud in Nigeria than in, say, Ghana. But Nigeria has 10 times the population of Ghana.
This is not to excuse it. It is a problem. Clearly, it’s not as bad now as it was in the past. But the problem with reputations is that once you’ve acquired a bad one, it takes a very long time to clean it up. Having a reputation for fraud and corruption is something that concerns us, and something that the government across the board is trying to work on.
Most of the world’s central bankers are currently debating the question of austerity vs. growth. Your thoughts?
As an economist, I think there’s always something patently wrong in thinking that austerity is a solution to a recession. You don’t reduce spending when your economy is shrinking. Does that mean that austerity is incompatible with growth? Definitely not. If there is waste and you cut it out, that’s fine. But if you cut the sort of government spending that increases demand, then you are compounding the problem. I fear that Europe and America may be repeating the mistakes of the Great Depression.
What can central bankers in the U.S. and Europe learn from Africa?
If you take banks in Europe, their greatest problem involves market confidence. But that’s because European central banks and their governments have not come out and decisively said, “This is the extent of the problem, and this is how it’s going to be solved.” You’ve had measures that are too little and too late.
I think Europe will ultimately have to go to China for money. There isn’t enough money in Europe to fix Europe’s problems. And the Americans aren’t going to give them that money.
What about the role Germany is playing?
Germans have no choice. The truth is that German prosperity was built on the profligacy of the periphery. It’s fine to complain about the Greeks and the Italians. But you can’t be European when the times are good, but German when times are bad.
The good thing is that the German chancellor is committed to the euro. The many people who were forecasting the collapse of the euro were assuming that all European politicians would simply jump ship when the going got tough. But it turns out that not everyone is like the British. The others in Europe are staying with the euro.
There is increasing concern in the United States about income inequality. Do you see that elsewhere?
Yes. The inequalities have been part of the reason for the instability of the system. You have this situation where Wall Street recovers, and as usual, because Wall Street recovers, everybody thinks the economy has recovered. But all the money being printed by the Fed and the Bank of England: Is it going to the real economy, or is it just going into capital markets to inflate assets?
Even with the current recovery, 80% has gone to the top 1% or 2% of the population. And a lot of that wealth is in capital markets, meaning it’s basically wealth from asset prices, rather than from real income generation or job creation or the production of new services. So it’s a big problem, and not just in America.
To what extent do development-oriented agencies like the World Bank and the International Monetary Fund still preach the ’90s-era “Washington Consensus,” which among other things, urges developing countries to open up their borders to “free trade”?
I think the World Bank and the IMF themselves recognize that they lost credibility with the Washington Consensus. But I am not convinced that the post-Washington Consensus era is much better, because all that has happened is some minor tinkering.
The World Trade Organization is still around. Third World countries are still signing up for “free-trade” agreements that make them dumping grounds for industrial products from China and Asia. At least in Africa, that’s what we see. All our goods are produced in China under free trade. Our industries have been wiped out. We’ve had total deindustrialization. These are all the results of the Washington Consensus.
So, in theory, in academic books, we are in the world of a post-Washington Consensus. But in reality, what has really changed? If African countries wanted to amend WTO agreements to protect local industries, how do you think the world would react?
For media inquiries, visit the Newsroom.