© 2011 H. Kwame Afaglo Topic: Analysis of Economic Reforms in the Public Sector of Nigeria and Public Sector Management Reforms Author: Dr. H. Kwame Afaglo (PhD, MBA, BSc-Hons) Affiliations: Internet Society (US, Ghana), IAF, Authrostream, Project Management Association-Wiziq Abstract: A critical analyses of how Nigerian public sector has evolved under its economic reforms policies in line with New Public Sector Management (NPSM) as a planning and evaluating tool, for an accelerated growth that will serve as a economic catalyst for the West Africa sub-region. Nigerian Public Sector Reforms in practice is more of an Economic Reform (NER) that emphasis finance and human resource as the pivot that the Financial Sector Reforms, Structural Reforms, Banking Reforms, Power Reforms, Telecommunication Reforms and Service Sector Reform among others revolve around. Unlike NER, NPSM hinges directly on ensuring public sector understand and align itself with private managerial practices, that operates along the lines of; Efficiency, Effectives, Sending services to stakeholders and Result oriented. Hood (1991) did propose NPSM along practices as: • ‘public sector costs should be cut and labour discipline raised so as to improve resource use; • Private-sector-style management practices applied to increase flexibility in decision-making; • Competition in the public sector (through term contracts and tendering) increased, as rivalry is the key to lower costs and better standards; • The public sector disaggregated and decentralized to make units more manageable and to increase competition among them; • Controls shifted from inputs to outputs, to stress results rather than procedure; • Explicit standards and performance measures established, because accountability requires clearly stated aims and efficiency requires attention to goals; and • Managers given powers to conduct hands-on professional management, • because accountability requires clear assignment of responsibility, not diffusion of power’. © 2011 H. Kwame Afaglo The NER is implementing the NPSM thought in various phases and with caution, that has lead to the purported slow achievements of the changes. As hindsight, Nigeria’s geo-political nature and lack of enough social support from the public sector to the citizenry has been factored into its implementation of NER that either is favourable or adverse to ensuring full results of NPSM. Inasmuch as there is an appreciable involvement of private consultants in public service delivery of some of its obligations, fulfilling some of the NPSM thoughts in the liberalization, deregulation and competition within the financial, telecommunication and energy sectors, the next phases of NER and NEEDS could be: establishing an independent public sector commission (IPSC); Employ an independent Public Sector Commissioner to head the commission, who will report directly to Parliament; The independent Public Sector Commissioner to lead the NPSM reforms instead of the current politically motivated and lead situation; Ensure the institutionalization of national developmental agenda to emanate from and be guarded by the independent public sector commission; Ensure social services (housing, health, education, social security and social work) are provided for the poor to bring and maintain human dignity to all Nigerians, irrespective of culture, language, ethnicity, religious orientation, gender or age. Main: History Immediate post-independent Nigeria had the focus of the federal government administering the country with developmental agenda as free education, free health, free transportation, readily available jobs, wealth creation mainly by the state among others and to be implemented by the public sector (Federal Ministries, Ministries, Departments, Agencies and local governments). In practice, federal government was in control of administering most if not all sectors of the economy (finance, education, health, utilities, energy, security, food, etc) using the proceeds from crude oil sales as main source of finance, until the drop in crude oil global pricing of the 1980s. Thereafter, the federal government began the thoughts of diversifying its sources of finance to include other natural resources besides crude oil, this © 2011 H. Kwame Afaglo was hastened by the nation’s huge budget deficit vis-a-vis proposals of Bretton Wood institutions Structural Adjustment Program (SAP). This necessitated the federal government to involve private enterprise in managing the economy as a mode of minimising exposure. However, the long spell of non-democratic governance from the early 1980s to 1990s, partly slowed down the implementation of the highly desired changes to governments mode of operation, as well as changes of its vehicle (Public sector). Nigerian economy witnessed significant economic reforms by the close of the 1990s to early 2000s, of which includes NPSM policies for the public sector and the involvement of private entities as partners in managing the public. With the introduction of the NER, this accentuated private involvement in managing the economy and the ‘rolling back of the state’. Expectations of public sector -NPSM Under democratic dispensation, the Nigerian political leadership of the early 2000s initiated the NER that sought to drive the various arms of public sector as banking, energy, telecommunication using human and taxation as the common dependent variable to achieve the reforms. Hitherto the NER, government was faced with mounting public debt, centralisation and pre-determination of currency exchange rate by the Central Bank of Nigeria (CBN), state enterprises with government been the major employer, non-competitive business environment, state run energy sector, etc. With NER inception, federal government aligned its public sector operations with the rest of the world’s public sector reforms as NPSM policies in other to circumvent its mounting national debt burden, degeneration of public services leading to provision of sub-standard services to citizenry, unbearable rate of unemployment, anti-competitive environment that stifled innovation, with the propensity of Nigeria heading for economic depression. Hood an authority in NPSM did propagate the following conditions for public sector management as; • ‘Direct public sector costs should be cut and labour discipline raised so as to improve resource use; © 2011 H. Kwame Afaglo • Private-sector-style management practices applied to increase flexibility in decision-making; • Competition in the public sector (through term contracts and tendering) increased, as rivalry is the key to lower costs and better standards; • The public sector disaggregated and decentralized to make units more manageable and to increase competition among them; • Controls shifted from inputs to outputs, to stress results rather than procedure; • Explicit standards and performance measures established, because accountability requires clearly stated aims and efficiency requires attention to goals; and • Managers given powers to conduct hands-on professional management, because accountability requires clear assignment of responsibility, not diffusion of power.’ (1991) NPSM in the Nigerian context seeks to thrive on the following dimensions; Public sector management along the lines of private enterprise administration; Encouragement of competition and innovation; Efficiency; Effectives; Sending services to stakeholders; Appreciable and bearable reduction in unemployment; Result oriented approaches. as the initial phase and growth stage and to be followed by stabilization and crowned with accelerated micro-economic paradigms. NPSM Initial stage NER introduced a more effective tax collection system by ensuring labour was on contractual bases of which attracted the appropriate tax, besides the tightening of direct taxes from public and formal sector employees, corporate tax collection has been intensified. This yielded an increase in revenue for both federal and state governments as well as reducing the unemployment rate significantly though not within the appreciable limits. Also, the © 2011 H. Kwame Afaglo restructured tax system reduced the over dependence on crude oil as the almost only source of public funds, here the diversification of finance began. The other twin dependable variable was the systematic inclusion of private sector in managing public service, specifically in capacity building. Hitherto , Nigeria was lowly ranked in the world in terms of Human Development index (HDI) partly due to the in-house training provided and by colleagues without external stakeholder involvement. Government introduced policies that liberalised the training of public sector employee, hence the involvement of independent consultants to train and re-train public sector workers, with the proffer to improve human resource capacity to an appreciable level if not topmost in the world. The liberalization of human capacity building of public service employees to involve private consultants has slightly improved Nigeria’s rating, though not out of the Low Human Development Index category. Currently (2011) Nigeria is ranked 156th nation in the world on the human development index by United Nations Development Program (UNDP). The implication is for Nigeria to: Continue pursuing the private involvement of human capacity development of its public service employees. Quality training must be benchmarked with the Nordic nations (Norway, Sweden, Denmark) and other top HDI ranked nations as; Australia, Netherlands, United States, New Zealand and Canada. Diversification of career must be vigorously pursued by public sector employees and encouraged by the Independent Public Sector Commission (IPSC), based on quality training, global developmental trends and not necessary market drive. IPSC needs to sponsor its employees for the diversified programmes to be selectively determined by the commission based on an open bid system, that is competitive and eschew monopolistic tendencies. Training programmes to be approved by IPSC should be contextual though internationally aligned. Diversifying and increasing internally generated fund and human capacity development since became the pivot of the NER program. Intensifying the generation of internal sources of funds, thus requires the various levels of decentralization to plan strategically to raise funds within their constituents (local government structure). The federal government is expected to © 2011 H. Kwame Afaglo challenge the various states’ ministries, municipalities, districts and agencies (MMDA) to design a graduated scheme of generating internal funds for the management of their respective constituents. In other words, the Federal Government of Nigeria is expected to successively approximate the reduction of fund allocation to various state MMDAs whiles simultaneously the various state MMDAs successively increase their internally generated funds on an annual bases. Intrinsically, this decentralized internally generated funding scheme will strengthen the federal government in its micro-economic pursuit and political stability. Also, it will deepen the concept of NPSM at local levels, encourage competition and its resultant innovation, that will propel the growth of the region at large. National challenges or causes leading to reforms NER became necessary in the light of prevailing circumstances as; National debt, globalisation, strengthening institutions structures, competition and innovation, public management instead of public administration. National debt – Immediate post independence macro-economic indicators of Nigeria was worth recommending and enticing to nations that were fighting for independence or political liberalization. However, the economic conditions dipped in the 1980s, of which necessitated a meticulous remedial action, hence the NER to take care of the macro-economic and the current National Economic Empowerment Development Strategy (NEEDS) for macro-economic stabilization (deregulation, liberation and privatization) and a notch further into improved micro-economics status of the average Nigerian. The table (table 1) below indicates the trend of Nigeria’s macro-economic indicator status from 1970 till 2010. Year External debt (US$ billions) est GDP (US$) billions CPI (Inflation) Exchange rate US$ : ₦ 1970 0.86 1980 8.9 50,849 1.3 0.78 1990 33.4 286,374 8.1 8.94 2000 31.4 4,676,394 12.5 (1999) 102.24 2009 7.8 15,000,000 11.5 148.9 Table 1. Sourced from google search 2011 © 2011 H. Kwame Afaglo Inferring from Table 1 and fig.1 Nigeria’s external debt rose sharply for a decade or so (1980 – 1990) and this provoked the political and financial authorities to call for several meetings that led to NER and other strategies of mitigating the unpleasant debt rate as: Debt for equity strategy. Roll external debt into capital debt portfolio. Negotiate for a non-interest repayment scheme, among others from Bretton Wood institutions. Locally, the commercial banks are to be strengthened to serve as sources of government internal borrowing, although not highly preferred by the Central Bank of Nigeria (CBN). Another financial factor that is a still challenge for the Nigerian economy is the reduction and stabilisation of the currency strength. As per fig. 1 the exchange rate of the Nigerian Naira to the US dollar did rise extremely sharply from 1990s and it is still unacceptably high for growth . Probably, one approach could be for the CBN to re-denominate the Naira as the Bank of Ghana did to the new Ghana cedi in 2007. Fig.1 Sourced from CIA Worldfacrtbook 2011 * Correction – Naira and Niara as indicated in fig.1 and fig.2 0 20 40 60 80 100 120 140 160 1970 1980 1990 2000 2009 Historical Macro-economic Data -Nigeria External debt ($) CPI (%) Excahnge rate (US$:Niara) © 2011 H. Kwame Afaglo Fig. 2 Sourced from CIA Worldfactbook 2011 Observably from fig. 2 the historical inflation rate of Nigeria though steadily rising it is appreciable within the West African sub-region. Interestingly, with the NER, Nigeria could achieve a single digit consumer price index (CPI) within the targeted 2015. Invariable, the deteriorating macro-economic status of Nigeria that was sparked by mounting national debt (internally and external) in the face of dipping oil revenue, necessitated the internally authorities to vigorously conceive and implement the NER. On the external front, the close of the 1970 to early 1980s saw the World Bank backed by major financial institutions opting to have countries in debt settle their debts through conditions as Structural Adjustment Policy (SAP) and Program of Action to Mitigate the Social Costs of Adjustment (PAMSCAD) of which Nigeria was no different. Largely, the mixed results of SAP from IMF reports and the non-culturally fair conditionalities attached to it, strengthened the thought of Nigeria political leadership to introduce its country bias reforms as NER. Role of government and inception of private sector It was easy to blame the political leaders of the early 1980’s to early 2000’s for contracting massive debts, however, it is worth noting that contracting loans in itself is not wrong, but its usage is the most important element for repayment purposes and national development. SAP and PAMSCAD loan conditionalities had no entrepreneurial repayment integral approach but solely for infrastructural development that lacked returns towards settling the debt, and this 1.3 8.1 12.5 11.5 0.78 8.94 102.24 148.9 1980 1990 2000 2009 Historical Data -CPI and Exchane rate of Nigeria CPI (%) Exchange rate (US$:Niara) © 2011 H. Kwame Afaglo was the weakness causing most developing economies including Nigeria to incur substantial external debts with little ability to repay. Therefore the structural changes as reforms of public services was not just relevant but highly desired. The early quarter of year 2000 saw the Nigerian political leadership initiate the debate and led NER for the public sector. Reform process Nigeria’s reform process has financial sufficiency seeking and human capacity development as the fulcrum of which banking, telecommunication, public services revolve around and started in the year 2000 and named the Economic Reform (NER) for macro-economic growth. This was followed by NEEDS to cater for both macro and micro-economic stability, based on concepts as effectiveness, efficiency, deregulation, liberation and privatization for healthy competition leading to innovation and creativity, increased variety of products that will cause organizations to enjoy economies of scale and consumers lower prices of goods and services. The process is expected to eventually improve the micro-economic conditions of the country. Deducting for the inception of NER and NEEDS from year 2000, the external debt has fallen dramatically, and CPI is not risen sharply. This partly implies the NER and NEEDS programmes have had some desired effect, though not sufficient to propel the Nigeria economy into an advanced status. The historical data from fig1 and fig.2 projects the impact of NER and NEEDS from year 2000 onwards by Nigerian political leadership as compared to the non-reform periods 1970s to 1980s. Another externally desired measure of the times by the United Nation (UN) is the Millennium Development Goals (MDG) that directs countries or nations to work towards the attainment of at worse minimum living standards for its citizenry by 2015. Although worth pursuing, the MDGs do not have defined processes for achieving the goals, hence it is worth Nigeria to integrate the MDG thoughts into its NER and NEEDS programmes. This will propel Nigeria into a higher economic taxonomy within appreciably milestones for her citizens. Sectional reforms and Achievements Some salient specific processes revolving around the common dependable variables are: Financial and Banking sector reforms – Both internal and external debt of Nigeria, the fixed exchange rate by CBN, entry barrier into the banking sector and the relative low © 2011 H. Kwame Afaglo reserve base of banks required NER to redress the deteriorating circumstances in the 1990s. From the later, the government privatized its owned banks, raised reserves to US$10 billion and assisted some weak banks by mergers and acquisition strategies. Also, the banking sector entry barrier was revised with the introduction of new policies that saw new entrants into the banking sector. Some tax incentives were offered some banks as stamp duty and capital allowance to keep them buoyant. Further, government deregulated the exchange rate of the Naira to other currencies whiles maintaining an indirect control over financial institutions. Repayment strategies as debt for equity, equity portfolio, cancellation of interest rates and gratis facilities were some strategies adapted by government to significantly reduce the Nigeria debt after the year 2000. These policies have seen government borrowing from banks highly reduced, the private banks have become more effective and efficient in their operations, a good number of the private banks have grown into multinational financial institutions that has increased balance of payment in services from foreign direct investments (FDI), e.g. Zenith Bank, GT Bank, UBA Bank, etc. Cumulatively the re-dressal policies of NER has also generated more revenue from the widened tax barrack and created a good number of jobs for citizenry. Structural reforms – Here government de-emphasized the over dependence on crude oil and promoted diversified into the agricultural sector. Also Nigerian government abolished price control systems of commodities and services and has given into a mixed economy paradigm. Further, government restructured taxes and tariffs to encourage diversification and deregularise interest rates to the same effect. Government is serious about human capacity development by sponsoring public sector employees for annual training programmes and the employment of university graduates into the service forming a significant number of employees. NER accounts for public enterprise as the modus operandi of the public service, hence the involvement of private consultants in the training of public sector employees to that effect. © 2011 H. Kwame Afaglo Power sector reforms – Despite the monopoly enjoyed by Nigerian National Electric Power Authority (NEPA) it is still is struggling with providing adequate and continuous supply of electricity. Hence the government is encouraging private electricity distribution organizations to get involved in the power trade. Due to the high capital involvement in generating, storing and distributing electric power, government must do well not to seek an oligopoly but liberalise the market and encourage the oil companies (foreign and domestic) to venture the sector. This way, Shell, Elf, Chevron and indigenous entrepreneurs could venture the sector, be competitive and improve electricity supply for industrial and domestic purposes. Telecom market reforms – 1992 saw the telecom market reforms kicking in with the involvement of a private enterprise as Canadian DSL to partner the Nigerian Telecommunication Limited (NTL) in the mobile phone market. Further in 1998, the telecom law was revised to allow private enterprises to venture the landline telephone market in Nigeria. The reform has witnessed few private telecommunication companies kick-off and growing into continental giants, e.g. Glo. This is one market that generated an appreciable number of employment, and is opened further, quicker and grown the financial and business markets of Nigeria into the rest of the world. Although the reforms in Nigeria has accounted for significant rise in the economic indicators, a lot needs to be done to achieve the desired targets. Recommendations Simply put, NER is to improve the macro-economic growth of Nigeria, whiles NEEDS is to stabilize the macro-economic gains and shift into a micro-economic dimension, Then integrating MDGs into NER and NEEDS is expected to accelerate the economy of Nigeria as a nation, ameliorate domestic poverty, create jobs and wealth for citizenry. The following recommendations could ensure the growth, stabilization and wealth creating concepts of the reforms policies. Independent public service commission and commissioner – Though, NER and NEEDS were initiated and is still been operated by political leadership, the next stage will be for political leadership to hand-in the programmes to an independent public sector commission (IPSC). The independent public sector commission should have a © 2011 H. Kwame Afaglo commissioner who is also independent and reports directly to legislature and not presidency. This way, public services will build and strengthen its structure as well as drive the NPSM policies systematically and be custodians of ensuring holistic growth and stability of citizenry devoid of political bias. Independent financial services authority – An independent financial services authority may be established to cater for the controlling of the commercial banks instead of CBN. This establishment will cater for unethical practices by financial institutions and seek the interest of clients. Maintaining the independence of governor of CBN and the non-financing of budget deficit is a prudent measure that must be adhered to strictly and continued. References Aluko, M.E. (2001) Tackling Nigeria’s External Debt Available from http://groups.yahoo.com/group/AlukoArchives/message/12 Accessed on [15 November 2011] Falconer, P.K.. (2009) Public Administration and the New Public Management: Lessons from the UK Experience Available from http://www.mh-lectures.co.uk/pa_npm.htm Accessed on [16th November 2011] Hood, C.C. (1991) A Public Management for All Seasons?’, Public Administration, 69, 1, 1991, pp.3-19. Index Mundi (2011) Available from http://www.indexmundi.com/g/g.aspx?c=ni&v=71 Accessed on [16 November 2011] UNDP (2011) International Human Development Index Available from http://hdr.undp.org/en/statistics/hdi/Accessed on [16 November 2011] Worldfactbook (2011) Available from https://www.cia.gov/library/publications/the-world-factbook/geos/ni.html Accessed on [15 November 2011]