Author: Bamidélé ALY

1

Privatization of public enterprises, the role of banks and the domestic stock market as

engine for stable economic growth and political and national security

Abstract

Going forward, OECD banks will be restricted from investing in infrastructure projects in

frontier markets, as they will have to set aside more capital. However, investments in

infrastructure projects can underpin economic growth further and create jobs. Thus, the

financial regulatory authorities could find innovating ways to secure funding to maintain a

sustainable economic growth by channelling financing into non-extractive industries. One of

the main issues of Nigeria is to create jobs for the largely young and unemployed population

to prevent them from being attracted towards extremist movements and terrorism. First, the

Nigerian banking system could evolve to reduce financial exclusion, as the country remains

largely underbanked: it is important to enhance access to financial services for SMEs and

low-income households by changing the way property deeds are reported to be used as

collateral, and, by creating credit bureaus. Strengthening access to personal funding could

help the Nigerian economy to diversify to focus on improving technology, skills acquisition,

higher productivity, the industrialization process of the agricultural sector to reduce food

imports and enhance food security. Secondly, the privatization of state enterprises could be

viewed as an engine for growth by improving efficiency and corporate governance to attract

foreign direct investments and savings from the Diaspora, or, they could represent a threat to

economic security. Lastly, the tenets of the “Soziale Marktwirtschaft” (social market

economy) adopted by West Germany in 1949 could ensure economic security by combining

private enterprise and state intervention.

Key words

banking penetration, national security, food security, economic growth, role of banks,

credit intermediation, stock markets, social market economy

To Kudiratu Aina Giwa, Sekinatu Giwa, Sariyu Ilori Ajayi, Julianna Ajayi, my mother, my

mother’s sister, my late maternal grand-mother and my late maternal great grand-mother

(my mother’s maternal grand-mother)

Introduction

Since the Jasmine Revolution of Tunisia dated back from mid-December 2010, many

governments in the Western world and particularly in Africa realised that they can face public

unrest among the largely young and unemployed population. This population group could be

attracted by religious extremists’ movements out of disenchantment of the politicians and

their respective implemented policies, as an alternative and panacea to their recurrent

deteriorating living conditions by not being able to provide for their families and to secure a

Author: Bamidélé ALY

2

stable liveable environment and to access to stable and cheap sources of food and financing

to maintain their human dignity.

Over the years, most countries in Sub-Saharan Africa have been discussing the elaboration of

new policies and laws to create new jobs and maintain country security by improving access

to bank financing and to sustain extraordinary economic growth rates compared to most

OECD countries. Firstly, this study will cover the Nigerian banking system, secondly the

privatization of state-owned companies and finally the German economic policy called social

market economy (Soziale Marktwirtschaft in German).

1. The Nigerian Banking System

The Nigerian banking system has experienced a series of transformations. Before the banking

crisis of 2009, the system was largely overbanked but the access to banking products was not

widespread among the majority of Nigerian citizens. First, we will review the structure the

Nigerian banking system and its evolution, we will wonder why the Nigerian Stock Exchange

should be demutualise to support the funding of the economy and to contribute to the

economic prosperity and finally we will analyse ways to ease access to retail banking

products for the wider population to stimulate demand and to aid further diversification of the

economy.

1.1. Structure of the Nigerian banking system

According to the Central Bank of Nigeria (CBN), the Nigerian banking sector consists of

twenty-one commercial banks1. They are not all listed on the Nigerian Stock Exchange. The

universe of financial institutions in Nigeria is also composed of 5 developments financial

institutions, 3 discount houses, 20 finance companies, 2 merchant banks, 20 micro-finance

banks, 1 non-interest bank and 20 primary mortgage institutions. Following the 2009 banking

crisis, the CBN undertook some stringent measures and reforms by dissolving, acquiring and

putting into mergers any bank failing to meet the capital reserves of NGN25 billion. This led

to the trimming of the operational banks from 89 to 25 banks in less than one year. The Asset

Management Corporation of Nigeria (AMCON), a bad bank, was created in 2010 to absorb

the non-performing loans of banks, which subsequently resulted into a better-functioning

banking system and a significant improvement in asset quality of banks. In the short-term,

capitalization is at risk due to rapid expansion of banks domestically and internationally and

the continued concentrations of underwritten loans by industry and geography. Given the lack

of depth of the capital markets, banks are mainly funded by customers’ deposits.

The Nigerian economy is expected to grow by 6.8% in 2014 and 6.7% in 2015 thanks to the

country’s oil and gas resources. The economy is thus prone to any price swings from the

global demand of oil and gas. In spite of the dislocation in the global asset markets since

2008 and the sovereign debt crisis, the Nigerian economy and banking system remained

1 http://www.cenbank.org/Supervision/finstitutions.asp

Author: Bamidélé ALY

3

resilient. In the short-term, the performance indicators are expected to remain stable thanks

to the sustained economic growth and the cross-border expansions of banks to diversify their

revenue and risk profile. However, banking penetration remains low in Nigeria and the rest of

Sub-Saharan Africa, which presents tremendous opportunities for growth. In a recent report,

the International Monetary Fund has recommended the Nigerian regulatory authorities

strengthen its cross-border oversight due to associated liquidity risk from international

expansion of the banks’ business activities, cross-border credit risk and new operating and

regulatory environments faced by these banks.

1.2. A case of demutualization of the Nigerian Stock Exchange (NSE) 2

According to the of the NSE’s website3, the Nigerian Stock Exchange (NSE or the Exchange)

was founded in 1960 and today services the second largest financial center in sub-Saharan

Africa. The NSE, a registered company limited by guarantee, is licensed under the

Investments and Securities Act and is regulated by the Securities and Exchange Commission

of Nigeria. The Exchange is a founding member and executive committee member of the

African Securities Exchanges Association, an affiliate member of the World Federation of

Exchanges and an affiliate member of the International Organization of Securities

Commissions. Its business model consist in providing exchanges services, listing and trading

services, as well as electronic clearing, settlement and delivery and data discrimination

services. It serves customers throughout Nigeria.

According to Bloomberg, the Nigerian Stock Exchange All Share Index was formulated in

January 1984 with a base value of 100. Only ordinary shares are included in the computation

of the index. The index is a value-relative and computed daily. The disparity between the

intraday official close value is due to Exchange limitation.

Figure 1: Key data of the NSE All Share Index as at 27/01/2014

Currency NGN

Volume 33.15 million Divisor 313.4070543

Index Market capitalization 13.05 trillion Trading hours 09:15-13:35

Composite volume N.A Members 193

Source: Bloomberg

Looking at the various stock exchanges in the past ten to fifteen years, more and more stock

exchanges representing a significant regional hub have demutualized. The process of

demutualization had to overcome regulatory obstacles. Taking a recent example from the

MINT Group (Mexico, Indonesia, Nigeria and Turkey), the Mexican exchange was recently

2 http://www.africancapitalmarketsnews.com/2145/nigerian-stock-exchange-seeks-advisors-for-demutualization/

3 http://www.cenbank.org/Supervision/Inst-DM.asp

Author: Bamidélé ALY

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demutualized. The advantages of the demutualization are immense: more funding

opportunities for corporates and businesses, a more open shareholding structure, significant

improvements in corporate governance, more investments opportunities to attract FDI,

foreign High Net Worth Individuals4, portfolio managers and institutional investors with the

main of diversifying their investment portfolio into the frontier markets.

Whilst countries tend to be reluctant in attracting foreign shareholders, in the case of the NSE

whose business model is to be driven by investments in new technologies, foreign

shareholding could further reduce operational risk and reputational risk. As exchanges are

systemically important and under increasing public scrutiny and subject to very strict

regulation, which will be stricter as policy makers require central clearing counterparties to

mitigate risks in a growing number of financial markets. Foreign shareholding could not only

result in a capital transfer and knowledge transfer but also bring new management methods,

skills and increase the competition regionally and at the scale of the African continent. Some

capital markets professionals have also observed some new business opportunities in the area

of the insurance sector such as micro-insurance5, in the issuance of Shariah-compliant

products (to attract investors from the Middle-East, Malaysia, Indonesia or North Africa) or

Diaspora bonds or funds to channel non-concessional funding into the real economy.

Channelling of savings from retail customers and the Diaspora, which has showed a keen

interest in investing in Nigeria and promoting Nigeria as an investment and professional

destination, could circumvent the regulatory hurdles faced by banks in OECD countries in

investing in frontier markets with the coming introduction of Basel III rules and new

regulatory rules adopted locally to avert a new banking crisis. Improving the financial

intermediation locally could lead to a lower reliance on FDIs and concessional foreign aid for

the SME sector and for them to thrive in order to create jobs for this populous youth. All in

all, in spite of the lack depth of the Nigerian capital market in comparison with the South

African one, Nigeria has key assets owing to the high literacy rates across the rest of West

Africa. Thanks to the experience of the Nigerian Diaspora and the level of education of many

4 According to Investopedia, it is a classification used by the financial services industry to denote an individual

or a family with high net worth. Although there is no precise definition of how rich somebody must be to fit into

this category, high net worth is generally quoted in terms of liquid assets over a certain figure. The exact amount

differs by financial institution and region. The categorization is relevant because high net worth individuals

generally qualify for separately managed investment accounts instead of regular mutual funds. The most

commonly quoted figure for membership in the high net worth "club" is US$1m in liquid financial assets. An

investor with less than US$1m but more than US$100,000 is considered to be "affluent", or perhaps even "sub-

HNWI". The upper end of HNWI is around US$5m, at which point the client is then referred to as "very

HNWI". More than US$50m in wealth classifies a person as "ultra HNWI".

5 Microinsurance is a mechanism to protect poor people against risk (e.g. accident, illness, death in the family,

and natural disasters) in exchange for payments tailored to their needs, income, and level of risk. It is aimed

primarily at the developing world´s low-income workers, especially those in the informal economy who tend to

be underserved by mainstream commercial and social insurance schemes. Microinsurance products are

typically available through a range of distribution partners. These are mostly banks, microfinance institutions

and cooperatives. This product is also highly suitable for workers in the agricultural sector.

Author: Bamidélé ALY

5

Nigerians, the NSE has the ability to become a significant regional hub for financing local

companies intending to expand within the ECOWAS, for instance, to allow a more efficient

allocation of capital, funding and financial resources. It is common knowledge that that intra-

regional trade remains low in most regional economic associations and unions on the scale of

the continent.

Finally, the Nigerian government has been successful in improving its image and that of the

country as an investment destination thanks to the works and negotiation skills of Finance

Minister Ngozi Konjo-Iwala, the additional debt relief obtained with the Paris Club and the

London Club respectively in 2006 and 2007, the constant high oil price; and these actions and

results facilitated the return of the Nigerian sovereign and government debt onto the global

capital markets. In 2013, Nigeria issued a US$1m Eurobond6, which as oversubscribed,

showing a keen interest and risk appetite for the country as a whole from the international

investment community. Furthermore, at this stage, there is no evidence that frontier markets

will fare worse when the US Fed phases out its asset purchase programme and eventually

hikes interest rates. Finally, like most Sub-Saharan African countries, Nigeria was not

affected by the global financial market volatilities due to its lack of integration in the global

capital markets. Poor infrastructure of the country, increasing transportation and trading costs

and limiting intra-regional trading is restricting the potential economic growth of the country.

Furthermore, poor access to bank financing for small businesses and low income households

limit growth potential of the country and national security.

1.3. Access to banking for Nigerian SMEs and low-income households

Access to finance is a major obstacle for business growth and to improve infrastructure to in

turn facilitate business and secure employment among the wide population.

One of the main issues in Sub-Saharan Africa is the access to banking products for the low-

income households (representing the majority of the population) and the SME sector. The

penetration of banking products and services is low in relation to its Nigeria’s potentials and

it is expected to improve significantly in the short-term. The latter represents a huge

component of the economy given that the capital markets are sufficiently developed to

provide funding and channel savings for and from every Nigerian citizen. Looking through

the annual reports of banks approved by the CBN, most banks mainly cater for the corporate

sector and the SME sector and less so for the retail sector, which still requires to be built out

and presents some tremendous opportunities for growth.

On the one hand, by developing access to funding, Nigeria has the ability to create stable jobs

to support its economic growth and to transform the informal economy into a formal

economy, which is of paramount importance to extract taxes to support redistribution at

national, governmental and federal levels. With a strong literate population in its key regions

expected to grow further in absolute terms, Nigeria has thus a duty and an opportunity to

6 http://www.bloomberg.com/news/2013-07-03/nigeria-braves-emerging-debt-plunge-to-sell-1-billion-in-

bonds.html

Author: Bamidélé ALY

6

absorb a growing potential workforce by a continuous economic diversification away from

the oil and gas industry and by continuing to drive employment in the telecommunications, in

manufacturing, in tourism and the agriculture. With regards to the latter sector, Nigeria

benefits from large unused arable land, a large number of uncultivated cropland and

favourable weather conditions and can therefore develop downstream and upstream agro-

processing industries, such as food and beverage manufacturing and wood products to ensure

food security and exportations into and outside the ECOWAS to maintain economic

prosperity, to ensure reallocation of wealth among the large population and national security,

and to generate more revenues to satisfy the international demand. Aliko Dangote has shown

that it is possible to develop a manufacturing industry domestically and cross-border. Of note,

the telecommunications sector has created ca. three million jobs between 2002 and 20107.

Furthermore, Nigeria will be able at governmental and federal level to improve education and

vocational training to adapt the professional education of the youth to the needs to the real

economy of the public and private sectors. As most African nations, Nigeria experiences a

high unemployment rate for the youth: this has led to cases of armed robbery, hostage-taking

for ransom, illicit drug dealing and addiction, militancy in the Niger Delta, the religious

militancy for Boko Haram and human trafficking.

Furthermore, due to the low penetration of banking products and services among the Nigerian

population, the banks cannot gather customers’ data for the creation of a credit bureau, the

subsequent collateral valuation and the fair calibration of pricing of loans. However, a lack of

a stronger and more flexible property rights can affect the availability of collateral,

preventing small businesses from borrowing, expanding their activities and hiring new staff

to reduce unemployment and increase formal employment. Although the 1978 Land Use Act

delegated authority over land allocation to the 36 states and their local governments in an

effort to ensure that rural and urban populations had access and secure tenure to land, the

measure introduced obstacles to access and own land and did not widely materialise the

improvement in real estate valuation for collateral. For this matter, the Nigerian government

and the Central Bank of Nigeria introduced a scheme to facilitate and encourage financial

intermediation towards SMEs and the low-income households in order to bolster an important

economic sector to maintain political stability and food and national security: the NGN200

billion agriculture credit scheme and NGN600 billion Nigeria Incentive-Based Risk

Management System for Agricultural Lending (NIRSAL)8. This scheme provides guarantees

and incentivizes banks in underwriting loans to the agricultural sector. We also note that this

scheme has improved lending to this sector9 . The Nigerian government has also put in place

the Small and Medium Enterprises Credit Guarantee Scheme (SMECGS) to enhance the

7 Page 58 in “Africa at work: Job creation and inclusive growth, McKinsey Global Institute, August 2012”.

8 For more details, see the website of the Central Bank of Nigeria:

http://www.cenbank.org/OUT/2011/PUBLICATIONS/REPORTS/DFD/BRIEF%20ON%20NIRSAL.PDF

9 http://www.punchng.com/business/money/cbn-guarantees-n25bn-agric-loans-through-nirsal/

Author: Bamidélé ALY

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development of the SME sector in the Nigerian economy by providing guarantees to banks

for credit granted to SMEs10.

Thus, although some observers have noted that some banks were slow in participating in this

scheme or providing finance for large scale physical infrastructure projects to ease access to

electricity (limiting economic growth prospects and the poverty-reduction objectives set in

the United Nations’ Millennium Development Goals), they strongly believe that Nigeria is on

the right path to become self-sufficient in agricultural products and to build out a sustainable

commercial agro-industry for the national and international demand, provided that access to

electricity and road management are improved swiftly.

1.4. Conclusion

In this section, we have seen that Nigeria has a better-functioning banking system following

reforms. Nevertheless, it still fares poorly internationally in its credit intermediation role, as

the financial sector is still marred by poor corporate governance, a dearth of information

about the creditworthiness of borrowers. Nevertheless, capitalization in relation to its risk

profile improved thanks to the sale of legacy bad loans to AMCOM, better regulatory

enforcement; credit oversight and risk-management strategies remain patchy and there is still

a high concentration of credit risk in the corporate sector, most notably in the oil and gas and

telecommunications sectors.

Notwithstanding, Nigeria has ample foreign reserves, thanks mainly to its large current-

account surpluses and strong inflows of FDI in recent years. In addition to the central bank's

foreign-reserve holdings, Nigeria has an Excess Crude Account, which was created to build

up additional foreign reserves for implementing counter-cyclical measures during periods of

low oil revenues. The fund stood at nearly US$9bn at the beginning of 2013, but is now down

to US$6.82bn intended for "various development projects”. A Sovereign Wealth Fund has

been signed into to law with the goal of investing some of its holdings in higher-yielding

investments. Nigeria's import cover estimated to be around 14 months at the end of 2012, but

IHS Global Insight expects it to have been increased to around 19.3 months of coverage

during 2013, thanks to the continued high global prices of Nigeria's petroleum exports.

The Sovereign Wealth Fund could continue to support the diversification of the economy to

create formal employment and thus to avert security crisis from unemployed people attracted

by violence and extremists groups and to underpin the funding and guarantee schemes to

encourage lending being underwritten to the agriculture sector with a high potential growth

and contribution to the overall economy.

The further privatization of state-owned companies could facilitate the management of the

state assets and introduce some form of efficiency at the macro- and micro-economic levels.

10 Page 27 of the CBN Financial Stability Report, June 2013.

Author: Bamidélé ALY

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2. Privatizations of state-owned enterprises (SOEs)

In most economics or finance academic research, it appears to be a strong case for

privatization due to advantages of the market economy to leave space for the private sector,

as observed over the long-term following the collapse of the Soviet Union and the Iron Wall:

the former communist economies have converted to the virtue of the capitalistic economic,

where the SOEs were one by one privatised. Even China introduced form of market economy

from the 1980’s. As explained by Lucia Wenger11, an economist at the OECD in 2004 and by

Moussa Samb12, Francophone African countries started their privatization process in the late

1980’s followed by some Lusophone and Anglophone African countries. According to

McKinsey Global Institute13, Nigeria privatized more than 116 enterprises between 1999 and

2006.

We will first establish the positive points for privatization as we are observing a similar trend

in Europe where the UK has sold the Royal Mail in 2013 and Greece is still planning to sell

more its state-owned assets to cover the budget deficit and to bring more efficiency and room

in the private sector and more competition. The act of privatization of SOEs implies

liberalization and deregulation. Liberation should bring more competition in a specific

economic sector and deregulation should introduce more flexibility in the rules pertaining a

specific economic sector. The majority of these privatizations occurred in the manufacturing,

industry, agriculture, services, tourism and real estate under the recommendations of the IMF,

the World Bank and other donors. In spite of the donors’ guidance, most African

governments retained large equity in the energy, electricity, water and telecoms sectors.

Secondly, we will review the arguments of the opponents to privatizations, thirdly the lessons

drawn from privatizations in Sub-Saharan Africa.

2.1. A case for privatization of SOEs

In a country like Nigeria or other countries in Sub-Saharan Africa, SOEs are beset by a bad

management and corporate governance, the provisions of services is not reliable and secured;

they are also often unproductive and inefficient. There are thus opportunities for investment

in industries undergoing privatization, such as electricity provision, mining, agriculture,

financial services and manufacturing in order to diversify the revenue base of the government

in the form of tax receipts and the structure of the national economy. It also reduces

government expenditures.

11 She is the author of “Privatization: A Challenge for Sub-Saharan Africa”, OECD Development Center, 2004.

12 Assistant Professor (Maître de Conference Agrégé) at Cheikh Abta Diop University in Dakar, Senegal. He

published a paper in June 2009 on privatizations in Sub-Saharan Africa whose main focus is Francophone

Africa: “Privatisation des services publics en Afrique sub-saharienne”

13 Page 12 in “Lions on the move: The progress and potential of African economies”.

Author: Bamidélé ALY

9

According to the website of the Bureau of Public Enterprise14 (Secretariat of the National

Council on Privatizations) in Abuja, it executed a series of transactions; the federal

government had planned to sell some thermal plants, hydropower plants, electricity

distributions plants in 2013. Should the transactions properly executed with regards to the

current legislation, these planned transactions could significantly reduce the chronic power

shortages constraining the economic activities of Nigeria.

Furthermore, when well executed, there is empirical evidence to suggest that privatizations of

SOEs lead to the increased employment in a particular sector, as more skilled workers are

required. To be successful, privatizations should be adapted to the specific needs of the sector

in question and follow a proper sequencing.

2.2. A case against privatization of SOEs

One of the main reasons against privatizations has been the fear of massive job losses and the

maintenance of access to the key public and vital services such as water, education, health,

transportation, electricity and telecommunications15 for the poorest segments of the

population. In the case of the Nigeria, the legacy of privatizations has been mixed:

privatization has aggravated the job security in Nigeria and has increased unemployment and

the privatization of National Electric Power Authority (NEPA) now Power Holding Company

of Nigeria (PHCN) has not led to material improvements of electricity provision and

distribution. One could also argue that privatization is not conducive to growth and national

stability as we have observed in Europe in the 1920’s, in the 1970’s and the years following

the sovereign debt crisis in Europe and the collapse of Lehman Brothers in 2008.

2.3. Results and teachings resulting from privatizations in Sub-Sahara Africa

In his research, Thierry D. Buchs16 , an economist at the International Finance Corporation,

draws a comprehensive series of relevant impacts of privatizations on government financial

flows, enterprise performance, employment, FDI and local capital markets, ownership,

regulation and competition, and, consumer benefits and income distribution:

- In the short-run, privatization has had a minimal one-off impact on the government budget,

- On average, the overall remaining level of subsidization after more than a decade of

privatization is an open question mark, although there is limited evidence that direct subsidies

decreased dramatically;

- The impact of privatization on tax revenue has been mixed at the microeconomic level;

- Privatizations results have generally been positive in the manufacturing, industrial, and

service sectors;

14 http://www.bpeng.org/sites/bpe/Pages/default.aspx

15 Page 11 of “Privatisations des services publics en Afrique sub-saharienne”.

16 In Privatization in Sub-Saharan Africa: Some Lessons from Experiences to Date, Revised Version, December

2003.

Author: Bamidélé ALY

10

- Firm turnover and profitability have generally increased immediately following

privatization but the evidence is mixed regarding the sustainability of the initial post-

privatization upswing;

- Notwithstanding measurements problems, private investment has generally increased

following privatization relative to public investment;

- Employment has been adversely affected mainly in the period leading up to the privatization

or in a case of liquidation;

- Even if the workforce of privatized/liquidated firms diminished in relative terms, there has

not been massive lay-offs in absolute terms. In some countries, retrenchment packages have

become a serious issue, however;

- Although the general trend is a continuous decline in employment levels over time, there are

few cases where employment increased in the years following privatization, reflecting good

performance and new business opportunities;

- Stock markets have played a limited role in privatization transactions despite some

showcase transactions;

- Some privatizations have stimulated embryonic stock market activity in the short run;

- Local entrepreneurs have bought the vast majority of small and medium sized SOEs;

- Large SOEs in the “strategic” sectors (e.g. mining, public utilities) have almost invariably

been taken over by foreign investors. As a rule, the larger transaction value, the higher the

involvement of foreign investors;

- Whenever nationals purchase a public enterprise, they are more likely to buy it on credit

than on a cash basis compared to foreign buyers, with potential default implications;

- In the first half of the 1990s, neither the regulatory framework nor the competition

framework was developed as an integral part of the reform;

- In the second half of the 1990s, when large utilities were privatized in some countries,

although regulatory frameworks were put in place, enforcement problems have limited the

effectiveness of both regulation and competition in several countries.

- There doesn’t appear to be any association between privatization, poverty and income

distribution trends;

- On average, the price increases following the privatization of some public utility services

have only marginally affected the poor living in urban areas;

- On average, the effect of privatization on the poor living in rural areas has been neutral

except in a limited number of negative cases.

The Nigerian experience has been mixed and has not led to material improvements in

economic security of its citizens.

2.4. Conclusion: Is this model adaptable and applicable to the Nigerian economy

to the full?

We have seen in this part that privatizations present some significant advantages but some

countries, well anchored in the market economy with proper legislations for deregulation and

liberalization and corporate governance rules in place, have chosen a third way like France or

Author: Bamidélé ALY

11

Norway with an equal participation of the private initiative and the state ownership to allocate

resources equally to the wider population to maintain social cohesion17.

Unfortunately, the wave of privatization, which started in the 1980’s and 1990’s in Nigeria

under the impulse of IMF and the World Bank did not materialise in fully reaching the United

Nation’s Millennium Development Goals18 targets. As explained in a research paper

published in Journal of Arts Science & Commerce in October 201019, the privatization

programmes led to a number of constraints in Nigeria. As such, these constraints consist of

policy inconsistencies of the government, poor enlightenment, ailing state of earmarked

enterprises for privatization, huge debts of SOEs, corruption and lack of transparency.

Finally, Justin Yifu Lin favors an indigenous economic policy away from the subscriptions

and structural programmes dictated by the IMF and the World Bank from 1980’s to the

1990’s for the developing countries in the world and aligned with the local economic

realities.

3. The basis of the social market economy or Soziale Marketwirtschaft

One of the reasons for potentially applying the tenets of the social market economy is that

Nigeria has a federal structure like Germany. We will first see the definition and the context

of this political economy and then explain the reason this political economy is applicable to

Nigeria.

3.1. Definition and context

In a nutshell, as per the definition provided by Duden20, the social market economy, in which

the government intervenes to mitigate social hardship and to ensure free competition, was

introduced in 1947 and was coined by the German political economist and sociologist A.

Mueller Armack, 1901-1978.

17 Read a series of articles published by the Economist in the print edition of 11 January 2014.

18 The Millennium Development Goals (MDGs) are eight international development goals that were established

following the Millennium Summit of the United Nations in 2000, following the adoption of the United Nations

Millennium Declaration. All 189 United Nations member states at the time (there are 193 currently) and at least

23 international organizations committed to help achieve the Millennium Development Goals by 2015, the goals

follow: i) to eradicate extreme poverty and hunger, ii) to achieve universal primary education, iii) to promote

gender equality and empowering women, iv) to reduce child mortality rates, v) to improve maternal health, vi)

to combat HIV/AIDS, malaria, and other diseases, vii) to ensure environmental sustainability and viii) to

develop a global partnership for development.

19 Privatization, Job security and performance efficiency of privatized enterprises in Nigeria : A critical

reassessment

20 The Duden is a dictionary of the German language, first published by Konrad Duden in 1880. The Duden is

updated regularly. It is like the Webster's Dictionary in the United States or the Larousse’s Dictionary in France.

Author: Bamidélé ALY

12

In more details, it is a neo-liberal or ordo-liberal conception, which was developed in the

1930s by the Freiburg School to which, among others, the economist Walter Eucken and the

corporate lawyer Franz Böhm belonged, and by the liberal socio-economists Alexander

Röpke and Wilhelm Rüstow.

The term "social market economy" itself comes from the Cologne economist Alfred Mueller

Armack; in addition to his teaching at the University of Cologne, he was for Federal State

Secretary in the Federal Ministry of Economic Affairs under Ludwig Erhard and played a

significant role in the economic policy of the Federal Republic of the post-war years; Ludwig

Erhard could politically implement this doctrine. The basic principle of the market economy

is a functioning price system of perfect competition." The market is defined by the meeting of

supply and demand, perfect competition means that the price is based on supply and demand.

In the eyes of the neo-liberals, the market economy tends automatically to balance by the

exploitations of production lines, the willingness of workers in employment and the

realizations of consumption needs. The fixing of prices by a political authority is thus

excluded. This system requires free competition but social subsidies such as housing benefits

are allowed. The aim of the social market economy is not only the construction of a

functional economy but also secure the rights of the individuals and social welfare to help the

weak, the needy, which means that the population prosperity and consumption are possible.

3.2. Potential applications to the Nigerian economic landscape and to improve the prospects

of a very young population to ensure national security

The approach of the social market economy is not in contradiction with the current market

economy conducted by the Nigerian government and the fundamental cultural values of the

Nigerians. A more solid social welfare could be establish to secure sufficient means in the

short-term for the poorest parts of the population. Nigerian cultures are such that they see an

opportunity in any obstacles and tend to have an entrepreneurial spirit. The key issue is to

secure trust in the banking system, which is at the centre of the well-functioning market

economy. Finally, this economic policy could lead to more social welfare, resource sharing,

and peace for the Nigerian communities and enhance coexistence.

4. Conclusion

Job creation to secure social peace and security is not only a priority of Nigerian or other

African nations but also of OECD countries. Idleness of the youth could not only trigger a

revolution or popular uprisings but could also lead to riots as experienced in major British

cities in the summer of 2011, increase in militancy and recruitments for Boko Haram or

religious extremists groups as seen in France and Britain, where some youth decided to travel

to Syria. One of the key issues for the overall prosperity and security of Nigeria is to allocate

sufficient resources at all levels to provide its youth education and professional skills they

need to thrive professionally and to sustain the economic prosperity of the country and to

avoid the skills mismatch.

Author: Bamidélé ALY

13

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