African Affairs, 119/1, 1–38 doi: 10.1093/afraf/adz026 © The Author(s) 2019. Published by Oxford University Press on behalf of Royal African Society. All rights reserved. Advance Access Publication 13 December 2019 THE SUCCESSES AND FAILURES OF ECONOMIC REFORM IN NIGERIA’S Downloaded from https://academic.oup.com/afraf/article-abstract/119/474/1/5673743 by guest on 03 July 2020 POST-MILITARY POLITICAL SETTLEMENT ZAINAB USMAN * ABSTRACT There are limitations in the explanatory power of prevailing theories on the political economy of Africa’s growth without industrialization that emphasize the resource-curse, ethnicity, neopatrimonialism, and the devel- opmental state. This article uses a political settlements approach to explain the institutional underpinnings of Nigeria’s economic transition. It shows how external constraints on ruling elites interact with the distribution of power and institutions to stimulate episodic reforms in an ‘intermediate’ Nigerian state. Rather than a ‘developmental’ state presiding over indus- trial upgrading or a ‘predatory’ state operating solely on neopatrimonial basis, this intermediate state presides over selective reforms and bursts of economic growth and diversification. Thus, specific constraints in Nigeria’s post-military political settlement from 1999 generated the initial impetus for successful telecoms liberalization, while inhibiting growth in the oil sector. This article contributes to advancing the political settlements framework in applying it to resource-rich countries, by outlining the four dimensions of the distribution of power and the constraints for institutional persistence or change, and their varying economic implications. It also reclaims the concept of ‘elite bargains’ as a defining feature of the horizon- tal distribution of power and demonstrates its centrality to the durability or fragility of institutions, especially at critical junctures of resource booms and busts. The contemporary understanding of the political economy of African states has largely been framed by resource-curse, ethnic pluralism, neopatrimo- nialism, and more recently developmental state theories. Despite providing important insights, the significant limitations in their explanatory power were laid bare by the recent rapid growth without industrial transformation of many African economies. In Africa’s largest economy Nigeria, for instance, recent growth has been driven by non-oil sectors, especially ser- vices, and the oil sector has steadily declined as a share of Gross Domestic *Zainab Usman ([email protected]) works at the World Bank. This paper is a derivative of her doctorate at the University of Oxford. 1 2 AFRICAN AFFAIRS Product (GDP) although without a concurrent diversification of exports and government revenue. The policy arena is more dynamic with varying reform outcomes in service sectors, contrary to predictions of inertia, stagnation and policy failure predicted by resource-curse, neopatrimonial, and ethnic pluralism theories. Downloaded from https://academic.oup.com/afraf/article-abstract/119/474/1/5673743 by guest on 03 July 2020 This article makes the case for using the political settlements approach as an alternative analytical framework on the political and institutional underpinnings of economic transitions in African countries. Using the period after military rule in Nigeria from 1999 as a case in point, the article shows how the interaction of external pressures with the domestic power configuration enabled a growth-orientation in service sectors such as telecommunications but not in the oil sector. It argues that the distribution of power and constraints on ruling elites are the political foundations of an ‘intermediate’ Nigerian state. Rather than a ‘developmental’ state presiding over industrial upgrading from low- to high-value economic activity, or a ‘predatory’ state operating solely on a neopatrimonial basis, this intermedi- ate state presides over selective reforms, thereby driving bursts of economic growth and diversification. This argument is pursued through the lens of political settlements, as the distribution of power in society between elites and other groups and within institutions. The political settlement is also an analytical framework for examining which institutions emerge in different contexts and how effective they are in achieving particular economic objectives.1 For decades, four sets of theories have dominated the scholarship on institutional foundations of the failure of economic transition in African countries. Firstly, the resource curse literature explains why resource- and especially oil-rich countries suffer from slow growth and political instability. Through the Dutch disease2 and rent-seeking, these resources undermine growth, ‘good governance,’3 political stability, and democracy.4 However, the rapid growth of resource-rich countries during the commodities super- cycle of the 2000s questions these deterministic assumptions about natural resource abundance. These resource-curse theories hardly considered how history, power relations, and political coalitions drive changes in policy 1. Mushtaq Khan, ‘Introduction: Political settlements and the analysis of institutions’, African Affairs 117, 469 (2018), pp. 636–655. 2. The Economist, ‘The Dutch disease’, 26 November 1977, pp. 82–86; Jeffrey D. Sachs and Andrew M. Warner, ‘Natural resource abundance and economic growth’ (NBER Working Paper 5398, 1995), http://www.nber.org/papers/w5398 (20 March 2015). 3. For a useful review of the resource-curse policy literature, see GIZ, ‘The political economy of extractive resources’, [Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), Eschborn 2016]. 4. Michael L. Ross, The oil curse: How petroleum wealth shapes the development of nations (Princeton University Press, Princeton, NJ, Oxford, 2012); Paul Collier, The bottom billion: Why the poorest countries are failing and what can be done about it (Oxford University Press, Oxford, 2008). THE SUCCESSES AND FAILURES OF ECONOMIC REFORM IN NIGERIA 3 responses to resource booms.5 The vicious scramble for political power in many countries predates a resource windfall.6 Rents from a centralized state authority generate neither uniform scales of rent-seeking nor uniform developmental consequences.7 The second set of theories posits that plural societies are vulnerable Downloaded from https://academic.oup.com/afraf/article-abstract/119/474/1/5673743 by guest on 03 July 2020 to poor economic outcomes because ethnic fragmentation undermines consensus for growth-promoting public goods.8 These countries make sub- optimal policy choices, which are consumption orientated, foster rent- seeking, and engender conflict. However, some of these large-n cross- country studies identified correlations are characterized by endogeneity and inverse-causality, rather than causations between diversity and economic performance.9 Multi-ethnic and multi-racial countries such as Brazil and Malaysia have successfully transitioned to upper-middle income status. Third, theories of neopatrimonialism point to the particularism in African societies, especially the prevalence of informal institutions, as the main obstacle to economic transformation.10 Neopatrimonialism characterizes the patron–client relations outside formal Weberian rational– legal authority as pathologies of Africa’s ‘retrogressive’ political culture. This clientelism undermines political stability and the administrative capacity to facilitate economic transformation. The ‘neopatrimonial logic’ operates through the application of public office to private ends, obstruction of a business class, expansionary monetary policy, and trade and indus- 5. For a critique of the resource curse, see: Samuel Hickey and Angelo Izama, ‘The politics of governing oil in Uganda: Going against the grain?’ African Affairs 116, 463 (2016), pp. 163–185. and Amy R. Poteete, ‘Is development path dependent or political? A reinter- pretation of mineral-dependent development in Botswana’, Journal of Development Studies 45, 4 (2009), pp. 455–456. 6. Terry-Lynn Karl, The paradox of plenty: Oil booms and petro states (University of California Press, Berkeley, CA, London, 1997); Riccardo Soares de Oliveira, Oil and politics in the Gulf of Guinea (Hurst and Company, London, 2007). 7. For detailed critique of both Dutch Disease and Rentier-State models of the resource curse thesis, see Jonathan Di John, From windfall to curse? Oil and industrialization in Venezuela, 1920 to the present (The Pennsylvania University Press, University Park, PA, 2009), p. 3,7. 8. Yusuf Bangura, ‘Ethnic inequalities in the public sector: A comparative analysis,’ Develop- ment and Change 37, 2 (2006), pp. 299–328; William Easterly and Ross Levine, ‘Africa’s growth tragedy: Policies and ethnic divisions’, The Quarterly Journal of Economics 112, 4 (1997), pp. 1203–1250, p. 300; Alberto Alesina and Eliana La Ferrara, ‘Ethnic diversity and economic performance’. (NBER Working Paper 10313, 2004) http://www.nber.org/papers/w10313 (20 March 2015). 9. For critique of ethnic fragmentation theories, see Christopher Cramer and Ha-Joon Chang, ‘Tigers or tiger prawns?: The African growth “Tragedy” and “Renaissance” in perspective’, in Célestin Monga and Justin Yifu Lin (eds), The Oxford handbook of Africa and economics: Volume 1: Context and concepts (Oxford University Press, Oxford, 2014), pp. 484– 504. 10. Thomas M. Callaghy, ‘The state as lame leviathan: The patrimonial administrative state in Africa’, in Ergas Zaki (ed), The African