The 2015 National Economic Summit have come and gone and the expected key outcomes include specific recommendations on how to create jobs, dismantle the pillars of corruption and build upon the existing pillars of sustainable growth and development. The annual summit which held in October was also expected to develop fiscal and monetary policy reforms to restructure Federal Government revenues and also reforms to improve funding mechanisms and further diversify the economy. These amongst other economic issues were discussed during the 2014 summit.
It could be recalled that the 2013 Economic Summit was able to develop key recommendations and outcomes to reposition the Agricultural sector as a business to diversify the economy but up till today, the nation seems not to have any headway on how to diversify the economy. Recently, President Muhammadu said that the 2016 national budget being prepared by his administration would include fresh policies and measures to encourage the rapid diversification of the economy away from its current over-dependence on the oil and gas. The president reiterated the desire to boost domestic manufacturing. This is expected to attract greater investments to Nigeria’s agricultural and mining sectors and this would be given full effect under the 2016 budget. While speaking with the President of the Movement of the Enterprises of France (MEDEF), Pierre Gattaz and a delegation of French investors, Buhari urged the French trade mission that includes over 50 companies with interest in manufacturing, agriculture, infrastructure development and other areas, to return to Nigeria again next year in order to take full advantage of the new policies.
According to Buhari “Our government came into office at a time when many people had abandoned the country’s manufacturing, agricultural and mining sectors. “We are doing our utmost best to encourage diversification into these sectors which can employ a lot of people and we will welcome your support in this regard”. He also assured the French investors that under his leadership, Nigeria would not fall short of international standards in the protection of foreign investments and the repatriation of returns on such investments. Agreeing that domestic security and the inflow of foreign investment were intrinsically linked, the President told the French investors, whose visit to Nigeria was a follow-up to his recent trip to Paris, that the Federal Government was taking all necessary measures to overcome Nigeria’s security challenges.
Much Talk About Diversification
There is are divergent views concerning benefits that Nigeria has had since the discovery of crude oil at Oloibiri in 1956. While some think it was a blessing, others insist it was rather a curse. Before then, the mainstay of the economy was agriculture. Export proceeds from agricultural produce accounted for the bulk of government revenues. But the increasing significance of oil in the revenue profile of the country became a major driving force as it assumed more responsibilities for infrastructure provisioning, educational and social services expansion and international relations and diplomacy, especially on the African continent.
Furthermore it is believed that, if Nigeria had continued on its economic path before the oil boom, the race to win the future through innovation and a diversified economy would have been a lot easier. Prior to the explosion of the oil industry, Nigeria had a thriving mining and agricultural sector. In the 1950s, the country was a major exporter of coal and tin. Even as late as the 1970s, Nigeria was also a major exporter of agricultural products like palm oil and groundnut, but mining and agricultural industries failed as oil continued flowing. Economic analysts observed that, excessive dependence on oil revenues led to the collapse of the agriculture-based economy. It also exposed the Nigerian economy to volatile market swings, booms and bursts. It also brought with it enormous social consequences, such as wealth without labour, generations of youth accustomed to aspiring to be employed by others, rather than thinking of creating jobs for themselves and others. It also led to the neglect of the internally generated revenue (IGR), especially taxation.
Current realities now are that, the precipitous fall in oil prices from above $100 per barrel to as low as $45 has seriously expose the Nigerian Economy. The external shocks of fallen oil prices culminated with little fiscal savings as the Excess Crude Account was said to have depleted in recent years. As it is now, Oil revenue still accounts for 90 percent of government’s external receipts and 70 percent of total income. Inherent in this is the fact that the economic assets that can generate revenues for the government are untapped or little developed, apart from oil. A number of those assets have potentials to generate a significant amount of foreign exchange but even in naira terms, tax revenue is constricted by the little progress in the formalization of several sectors of the economy.
Disturbing reports recently also suggests that, insurers are apprehensive that the industry will suffer significant drop in premium income this year owing to the slowdown in economic activities occasioned by the slide in crude oil prices and naira depreciation. The growth of economic activities in the country, as measured by the growth rate of the Gross Domestic Product (GDP) slowed down to 2.35 percent in the second quarter from 3.96 per cent in the first quarter. More so , going by reports about the level of inflation, GDP, and unemployment reports of National Bureau of Statistics, (NBS) as well as feelers from the Central Bank of Nigeria, (CBN) and economy analysts, the economy may just be heading towards stagflation. Stagflation is an inflationary period accompanied by rising unemployment and declining economic growth rate. All these factors inherent in an economy of stagflation are already apparent as indicated by the various reports. NBS report shows a steady decline in GDP as in the first quarter of 2015, GDP growth rate declined by 1.98 percentage point to 3.96 percent in real terms, year-on-year, and lower by 2.25 percentage points from the corresponding quarter of 2014. The GDP rate declined further to 2.35 percent in the second quarter.
OIL PRICE IS DOWN AND IT’S TIME TO DIVERSIFY FOR REAL
There is no better time to diversify the economy than now that it is increasing becoming likely that global oil price may not attain the height of boom it attained in recent years. The danger of over dependence on a single source of revenue became obvious last year when the United States of America suspended importation of crude oil from Nigeria due to the impact of the shale revolution. The shale revolution has affected US oil suppliers unevenly, hitting particularly hard on those in Africa such as Nigeria, Algeria, Libya and Angola, which produce high quality crude similar to the one pumped in the new oil fields of North Dakota. In this vein, Oil analysts believe that Africa-US oil trade could completely stop in the next two to three years as other leading exporters, including Angola, Libya and Algeria, suffer the same fate as Nigeria. If that materializes, Africa will have to find new customers for its oil, going head-to-head with Middle East producers in the key Asian market. Although reports say that, the US has since resume importation of Nigerian crude, the inconsistency in the nature of market is a big reason to put mechanisms in place for diversification.
In a bid to diversify the economy, there are various options to explore but the nation needs to look at the areas with better competitive advantage. The Director, China Cultural Centre, Abuja, Charles Onunaiju recently stated that Nigeria could diversify its economy by using what he called the China model which involves growth of local industries and increasing their productivity. Onunaiju explained that the Nigerian economy is hurting because economic experts who served under various governments failed to diversify the economy. He said it was not enough for Nigerians to import finished products from China, but they should also export quality local products to the Asian economic giant to earn foreign exchange and stimulate the nation’s economy. According to him, about 100 products could be exported to China tariff-free and it is an opportunity that should not be missed by Nigerians.
More so, Chairman of National Export Import Bank (NEXIM), Robert Orya suggested that a two-pronged solution is required in finding the shield for the Nigerian economy from external shocks. According to Mr Orya, the Federal Government must take the lead by enacting policies, backed with unwavering implementation, to unlock the structural bottleneck to the economy. This must be accompanied by formalisation of the “informal sectors.
While diversification may mean revival of industries, we can recall that the industries died due to lack of sufficient electricity and over reliance on foreign equipment for support. Thus if these industries are to be revived as a means of achieving economic diversification, they must not be sustained by foreign innovation and technology. The only sensible and durable way to sustain these industries is Nigerian innovation. In fact, local innovation in support of local industries is the new direction of the global economy.
