Without any doubt, the prevailing crash in the price of crude oil in the international oil market is taking a huge toll on oil dependent economies like Nigeria. This is indeed not the best of times for oil producing countries across the globe, especially those who depend on this commodity to run their economies. As you read through these lines, the affected nations, many of them members of the oil cartel, Organisation of Oil Producing Countries (OPEC) are beginning to adjust their respective systems in other to weather through this economic storm. Expectedly, the negative effects of this development differ from country to country. While those who have since diversified their economies won’t get to suffer too serious consequences as a result of this development, those operating mono-economies like Nigeria run helter skelter for help.
Unfortunately, owing to reasons that can only be explained by successive Nigerian leaders at the centre, Nigeria falls into the infamous club of oil producing nations relying on just single resource-crude oil for at least 90 percent of foreign exchange earnings. For us, it is quite sad that successive administrations in the country have really done little in terms of shifting attention from oil to other natural resources. A near perfect focus on oil has indeed diverted attention from several other untapped natural resources buried in our soil. It is only recently that agriculture, long neglected began to attract some focus probably in realization of the great damage that unemployment is causing in the economy.
We are faced with a situation economists refer to as ‘resource curse’. Resource curse is the paradox of plenty in which nations with an abundance of natural resources, specifically point-source non-renewable resources like minerals and fuels tend to have less economic growth and worse development outcomes than countries with fewer natural resources. This happens because of a decline in the competitiveness of other economic sectors (caused by appreciation of the real exchange rate as resource revenues enter an economy, a phenomenon known as Dutch disease), volatility of revenues from the natural resource sector due to exposure to global commodity market swings, government mismanagement of resources, or weak, ineffectual, unstable or corrupt institutions (possibly due to the easily diverted actual or anticipated revenue stream from extractive activities). Research has proven that the consequences of suffering from this malaise called ‘resource curse’ can be very dire as sufferers are susceptible to be shaken by any sudden or drastic turn in economic tide as in the present situation with Nigeria.
Already, many state governments are finding it difficult to meet their obligations in terms of salaries and provision of amenities to the people. Akwa Ibom, Lagos and Niger states are some of those which governors have lamented the effects of dwindling revenues on their operations. A cross-section of states lamented that the shortfall in the allocations and non-disbursement of full allocations as at when due, had reduced the financial capacity of their governments, thus making it impossible for them to execute some vital projects.
While the managers of our economy are daily making efforts to introduce measures that will salvage the situation in our hands, some economists are of the view that the system should cease the opportunity provided by this ugly development to diversify her economy. They argued that the surest way to get the country’s economy firmly rooted and be able to withstand future economic hassles is for it to shift attention from oil to other sectors. Ideally, with the volume of natural endowments, Nigeria shouldn’t be shivering or catching cold each time news about fluctuating oil prices filters in.
Mr. Ayo Teriba who is Chief Executive Officer, Economic Associates, advised the federal government to raise the value-added tax (VAT) rate as one of the measures to cushion the effect of the falling oil prices on the economy.
“That is the first thing that should be on the table,” he insisted.
He argued that there is discordant fiscal contraction/austerity in the face of ongoing domestic economic expansion. “Nigeria fails to produce ‘savings’ from years of oil-price benchmarking. Nigeria’s non-oil GDP is bigger than each of South Africa’s and Egypt’s GDP. Why should they each have more tax revenue than Nigeria?” he queried.
Teriba warned that ongoing volatilities in global commodity prices and global equity prices threaten to destabilise domestic economic and financial activity in 2015. “Monetary policy responds only to movements short term liquidity in banks and public sector; says and does nothing about real economic activity and sectoral balance sheets,” he observed.
The economist urged governments implement value-creating structural reforms in rail transportation and in oil refining maintaining “countries that fund donor agencies and provide grants/soft loans/investment to other countries are only able to do so because they have the liver to generate optimal tax revenue at home!
Recently, in faraway China, President Goodluck Jonathan gave reasons why Nigeria must move faster towards the diversification away from oil as the mainstay of the country’s economy. He said that the increasing utilisation of shale gas and other alternative sources of energy by the United States and other advanced oil importing nations of the world was a matter of concern for Nigeria.
He said, “That is why we have to increase the pace of diversifying our economy and move our country away from dependence on the oil and gas industry,” the president said. “We must work towards greater industrialization; add more value to our agricultural products; develop our solid minerals potentials and other sectors of our economy before the time comes when crude oil may no longer be dominant as a global source of energy.”
“As a people, we must build our country. I can assure you that we are working steadily to do so. Our vision and roadmap are very clear,” President Jonathan told members of the Nigerian community.
Beyond the need for complete diversification of the nation’s economy, there is also this dire need for government across different levels to imbibe the habit of fiscal discipline. The system currently suffers what many have described as financial hemorrhage. Officials of government are daily bleeding the nation to coma through mindless looting of the treasury. It is either top government officials are conniving with contractors to inflate or hijack contract sums or civil servants are diverting funds meant for public use into private businesses. The leakages in the system are just too much. Government should indeed come up with workable measures on how best to check this issue of financial recklessness.
Despite plummeting oil prises and announcement of belt tightening measures by Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, senior government officials continue to live a life of luxury and extravagance at public expense.
President Goodluck Jonathan and his officials, state governors and heads of the principal officers of the National Assembly have retained unnecessarily large convoys and travel teams including travelling in private jets and first class.
Chairman of Petroleum and Natural Gas Senior Staff Association of Nigeria, (PENGASSAN) Francis Johnson, lamented in a recent release that instead of imposing unnecessary austerity measures on Nigerians, the government at all levels should prune the numbers of their political aides. “The governors, ministers and federal and state legislators should also be made to reduce their aides to a sizeable number that our economy can bear and whatever is gotten from this exercise should be used in supporting and bolstering the economy.”
A 2012 National Assembly report noted that between 2009 and 2012, N12 trillion, which is equivalent to three years federal budget was generated by government agencies and ministries but much of it was wasted.
Lead Director of the Centre for Social Justice, Eze Onyekpere also asked President Jonathan to practice what he preaches by first dispensing with at least eight of the 10 Sport Utility Vehicles in his convoy immediately, while the National Assembly should drastically cut their N150 billion annual budgetary allocation.
“The frivolous expenditures on meals and refreshments to public officials should be stopped immediately. All subsidy thieves should be prosecuted. So far there is no demonstrable commitment to fight corruption, because none of the subsidy thieves have been sent to jail,” Mr. Onyekpere said. “The NNPC (Nigerian National Petroleum Corporation) that has become sludge fund for government should be reorganized, and the PIB (Petroleum Industry Bill) must be passed to make the industry function effectively.”
Also, in this time of falling price of oil, government must as a matter of urgency cut down seriously on her recurrent expenditure. The idea of making huge budgetary allocation for programmes that appear duplicitous in nature should be discouraged. More importantly, government needs to also prioritise her spending. Not all programmes, no matter how beautiful, must be executed by government. Attention should be given to the ones deemed necessary and urgent. Activities like international conferences, seminars and workshops that gulps huge money all require a downward review so as to safe the country the pains of spending more instead of saving. Unless necessary, government should not consent to hosting or co-hosting international engagements that require huge financial implication.
On the part of the masses, Nigerians across all levels must have to re-adjust in all areas of their endeavours. This is certainly not the period to engage in unnecessary spendings. Monies expended should be on things considered very necessary. Things like food, water, clothing and other necessities of life. Even at that, monies budgeted for the above should be in moderation.
Apart from helping individuals to become more financially disciplined, this austerity period will also help Nigerians to inculcate the habit of saving more and spending less. To every negative circumstance, there are some positive lessons to learn from them. Assuredly, this is just for a while. All things being equal Nigeria is sure to come out this current situation better and stronger.
Analysts have also expressed the hope that the Federal government will really match its words with immediate and concrete action in terms of diversifying the nation’s economy. Though the present government under President Goodluck Jonathan has indeed done commendably well in this regards, but Nigerians expect him to do more, especially in the areas of agriculture and tourism.