Nigeria's Okonjo-Iweala seeks reform without the 'godfathers'

Nigerian Finance Minister Ngozi Okonjo-Iweala is battling to reform one of the world's most corrupt nations without support from the shadowy "godfathers" who wield power from behind the scenes.

Summoned by President Goodluck Jonathan last year to restore some order to Nigerian public finances, the former World Bank managing director says her efforts are slowly bearing fruit.

But while Western nations and international agencies admire her drive from afar, they hold little sway in Nigeria. Ms. Okonjo-Iweala's ability to fight corrupt interests is constrained by her lack of support from wealthy figures such as ex-state governors, military officers, and ruling party hacks who use huge patronage – or sometimes violence – to drive politics back stage.

"Her only 'godfather' is the international community, and that doesn't cut it," said a senior adviser to the national assembly, who asked not to be named.

When she quit her Washington job and flew back home, Okonjo-Iweala knew her second stint as finance minister would be tough. She now admits it has been even tougher than she imagined.

"It was much harder. It has not been easy, and the struggle is still ongoing," she told Reuters in her office in Abuja, the capital, exhausted by a night negotiating with oil unions. "You make progress, then you get courage to make more ... Fighting corruption is something we need to keep working at."

Okonjo-Iweala has started to tame government expenditure and make limited reforms, but her room for maneuver is limited by her restricted access to state revenue, 80 percent of which comes from oil. She has also found herself again fixing problems she tackled during her first term that ended six years ago, only for these achievements to have been undone in the meantime.

Okonjo-Iweala, who missed out on the World Bank presidency earlier this year, may yet decide to take another high-profile international job. She is tipped as a possible next World Trade Organization head, although she has so far shown no interest.

Should she decide to leave Abuja, her biggest challenge will be ensuring any reforms she makes can't be undone.

Nigeria's dysfunction is hugely profitable for some. Its moribund power grid allows importers of generators and diesel to make immense sums; dilapidated refineries leave Africa's top oil producer dependent on imported petrol that has made billionaires of a handful of tycoons thanks to a corrupt fuel-subsidy scheme. Ports are clogged with goods held up by bribe-seeking officials.

Some of the elites which profit from these inefficiencies are blocking attempts at structural reforms, including Okonjo-Iweala's, such as curbs on state spending and the removal of the fuel subsidy, raising doubts about how much they can achieve.

"[Her] intent is absolutely the way for fiscal policy to go. The difficulty is likely to be in the implementation of those plans," says Razia Khan, head of Africa research at Standard Chartered. But she adds: "There is a sense that ... if it can't be done by Ngozi, then it is unlikely to be achieved by anyone."

Backing from President Jonathan has given Okonjo-Iweala some clout. Nevertheless, she has had to move cautiously, hoping for piecemeal rather than revolutionary change.

Analysts give as an example port reform and the Sovereign Wealth Fund (SWF), set up to manage Nigeria's oil savings, which her predecessor Olusegun Aganga designed and pushed through parliament. Okonjo-Iweala has in turn had to win over powerful state governors, who initially opposed the fund.

Okonjo-Iweala points out that the budget deficit fell from 2.95 percent of total economic output in 2011 to 2.85 percent in 2012. A further drop to 2.21 percent is projected for next year.

She is tackling the recurrent spending that makes Nigeria's government one of the world's most costly, she says. Simply running the administration – before a single road or hospital is built – is swallowing 71 percent of total spending this year.

That is down from 74 percent last year, and in 2013 it will drop to 68 percent, but it still dwarfs an equivalent figure of about 40 percent in the continent's top economy, South Africa.

Domestic borrowing is also down from 852 billion naira ($5.38 billion) in 2011 to 744 billion naira in 2012, even though GDP growth is forecast to slip to 6.5 percent this year from 7.4 percent in 2011.

"Bringing back fiscal prudence and steadying the macro-economy, that's no mean achievement," she told Reuters, wrapped in a bright green-and-pink traditional dress and head scarf.

She says port delays have been cut to one week, from three before she took office, and wants to cut them to 48 hours.

Yet some of this progress has involved returning to problems she already tackled when she was finance minister from 2003 to 2006 under former president Olusegun Obasanjo.

At that time she won acclaim for getting Nigeria's foreign debt forgiven. When she left office, recurrent expenditure was 65 percent of the budget, lower than where it is now.

Nigeria's Excess Crude Account (ECA), where the state saves oil money when prices are high, had $20 billion in 2007 shortly after she left, but raiding had cut it to $4.22 billion by the time she returned. It is now being restored to $7.35 billion.

Nigeria's patronage system, which squanders much of the revenue raised from the 2 million barrels of crude oil the country produces a day, shows no sign of weakening. An attempt to remove the wasteful fuel subsidy in January provoked strikes and protests led by unions backed by the fuel marketers, forcing the government to reinstate it partly.

Okonjo-Iweala has responded to evidence of multibillion-dollar fraud in the fuel subsidy by imposing tougher conditions on payments. Unions, backed by the marketers, are threatening to strike again and leading a campaign for her to resign.

"When you fight corruption, corruption fights you back," wrote columnist Omoade Adelani in Nigeria's Business Day daily. "Those whose means of livelihood are tied to the corrupt sources are threatened by her determination to restore accountability."

Most financial leakage occurs before revenue even gets to the treasury, at the state oil firm or oil ministry level, areas over which Okonjo-Iweala has no oversight.

Nigeria's federal system also means oil money is distributed between states and local councils before what's left over arrives at her ministry.

Other problems strangling Nigeria's prosperity, such as with the power supply and oil refineries, lie outside her remit.

"All these reforms can't just be left to the finance ministry. These are huge institutional changes that need commitment across ministries," said Bismarck Rewane, head of Lagos-based consultancy Financial Derivatives.

The biggest drain on Nigeria's budget, the fuel subsidy, is an explosive issue. Her support for an abortive attempt to remove it earlier this year damaged her credibility and she has since shelved it. "It's above my pay grade," she says.

Sovereign debt researchers like Standard Bank's Samir Gadio think efforts to tame government spending don't go far enough. Fiscal policy is "exceptionally loose. Nigeria should be running a massive fiscal surplus,", given high oil prices, said Gadio.

Neither has Okonjo-Iweala done much to reform the opaque way in which budgets are put together. Nigeria bases its budget on an oil price that is well below market levels and production assumptions that are well above actual output.

Next year's budget assumes oil at $75 a barrel, even though Bonny Light crude is trading now at about $115, and production is at 2.5 million barrels a day.

Oil income above the budget price is supposed to go into the ECA, which can then be used to finance the deficit or cushion against price shocks. The money can also be saved for the future or distributed to institutions, but there is little disclosure about how it is used, and it is often raided even when prices are high.

"Despite her efforts, there's no transparency in the assumptions on which the budget process is built," said Antony Goldman, head of Africa-focused PM Consulting. "Until that is cleared up, there's going to be little confidence that the budget is a real representation of what's earned and spent."

Perhaps her most lasting impact could be championing the sovereign wealth fund. If used properly, it could put oil funds out of the reach of even the most profligate of future rulers.

She overcame opposition from the state governors, who fear it means less money for them. After eight months of talks, they agreed to it in June. As a compromise, it starts with a modest $1 billion, but once it has enough momentum, it could achieve what has long eluded Nigeria: investment for future generations.

"She's playing the long game. The governors were blocking the SWF and without their support, it was never going to take off," said Kayode Akindele, partner at Nigeria-based consultancy 46 Parallels. "But once it's up and going, its going to be very hard for the governors to kill it."

If she can do that, she could take another international job knowing that at least one major reform can't be undone.

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