Leeway out of oil-induced economic crisis
From the Central bank, commercial banks, economic/public affairs analysts to the average man on the street, the verdict on Nigeria’s development woes has now been unanimously agreed in few lines: That overdependence on oil, profligacy and impunity brought the country to the current pitiable state.
Suffice it to say that our biggest hope (oil) has failed us, the discourse now, for many, is about Nigeria without oil or Nigeria beyond oil. This line of thinking, according to experts, must include personal reorientation that is manifested in attitudinal change.
For the Finnish Ambassador to Nigeria, Mrs. Pirjo Suomela-Chowdbury, who spoke on the sidelines of the Nigerian-Finnish Association’s forum, the first step is to adopt more toughness and resilience as behavioural traits, trust and commitment, like her compatriots, because that helped them attain the stage of development they are presently enjoying.
“Granted, Nigerians are tough and resilient like my people, but maybe a little bit of a different kind of environment. There are hardships, but Nigerians are very creative, dynamic and hardworking. But they must learn to trust and love each other. They are the most important and best resource of this country.
“They need direction and leadership. They need education and that is the most important aspect of the Finnish society. They need to be instilled values early on and I see many Nigerians now who are working hard to promote good qualities,” she said.
For the umpteenth time, the President of the Lagos Chamber of Commerce and Industry, Mrs. Nike Akande, said there is no better time to embark on the real diversification of the economy than now.
According to her, with the persistent fall in the price of crude oil, where the country’s hope of revenue stream has remained over the years to the neglect of our true potential, we must go back and revive our manufacturing capabilities, agriculture, tap deep into solid minerals and export of non-oil products.
“An enabling environment has to be created for these sectors to thrive. We need to provide infrastructure and good transportation network. The policy environment must be investment friendly and regulatory institutions must also be very supportive of the private sector.
“Another critical step to be taken in the face of the declining oil price is to improve on tax administration to enhance revenue generation. This is not to increase the tax burden, but getting many individuals and corporate bodies that are not paying taxes.
“The importation of petroleum products is exerting a lot of pressure on the foreign reserves and exchange rate. Government should therefore, encourage the establishment of new refineries by the private sector. Like Dangote, other investors should be encouraged to come on board.
“I am confident that with the right mix of policies, quality institutions, and political will, this country will be sustained without oil. The enterprising population is there to make things happen, we only need enabling environment,” she said.
Though this round of crude oil price crisis is not the first, it is more clear that the country is on a long bumpy ride, yet not irredeemable, depending on how the leadership navigates the terrain. Of course, it has not been the same totally. First, the 2005 round lasted for only eight months and the price volatility was not as devastating as it is currently.
An expert and Guest Speaker at tye forum, Mazi Sam Ohuabunwa, had noted that before the discovery of oil in commercial quantities in Oloibiri in Present day Bayelsa State in1958, Nigeria was prospering and competing effectively with many of the nations of the world.
He noted that Nigeria had an ordered development from the days of the amalgamation of the Southern and Northern protectorates till the outbreak of the Nigeria political crisis in 1966, culminating to the civil war.
“Following the Middle East crisis especially the third Arab- Israeli war in 1967(the six-day war) and particularly the 4th Arab-Israeli War in October, 1973(the Yum Kippur War), Nigeria went high on Petrodollar. It was at this time that it was alleged that General Yakubu Gowon who was Military Head of State at that time declared that Money was no longer our problem, but how to spend it.
“This was when Nigeria worked away from agriculture and its nascent industrial development to become an importing country resulting in the clogging of our ports with the cement, wheat and flour, the sugar and automobile ‘armada’ and so on,” he said.
Noting that the first burst of the oil boom in the late 70s and early 80s shocked Nigeria and led General Olusegun Obasanjo to introduce the austerity measures and the tightening of belt, which was loosened as soon as the oil prices rebounded, with former President Shehu Shagari supervising the “bazaar” that gave a justification to truncate democratic governance for the second time in 1983, he pointed out that from then, began the thoughts about diversification.
That diversification campaign continued with little action on the ground until the 2008-2009 global financial and economic crisis pulled down oil prices from $140 to 40 dollars in a matter of weeks.
“Were it not for the high foreign reserves of about $53 billion and large swath of excess crude oil savings,” the economy would have gone into a spin, perhaps like it currently spinning.
“Again, we recovered quickly enough as oil prices rebounded, unlike most of the world, some of which are yet to fully recover, like Greece and other European countries…. and returned to regular business,” until June 2014, when the price of crude oil began to plummet from a peak of $112 to below $30 per barrel two weeks ago.
The country could not fund the 2015 budget sufficiently and many states of the federation became virtually insolvent, owing many months of salaries, with many currently in dire straits despite the N713.7 billion bailout.
Just within one year of the fall in oil prices, our country is in economic crisis, and with no hope in sight for oil price rebound, the 2016 budget is facing a similar fate, but only differentiated by huge debt plan.
Today, revelations emerging from the scratched surface of corruption inquest, has justified the unanimous verdict of all stakeholders that profligacy and impunity are bigger than the overdependence on oil.
“It is really ironic that the Federal Government expects to earn only N820 billion from oil in 2016. That is only 13.5 per cent of the entire budget. Oil that provided 80 per cent of national budget a few years back and about 93 per cent of our foreign exchange earnings will provide an insignificant 13.5 per cent in 2016. How are the mighty fallen! And yet we have not seen the full picture of how 2016 will play out.
“Presently, the United States has overtaken both Saudi Arabia and Russia to become the World’s largest producer of crude oil. It now produces 12.5 million barrels a day. Saudi Arabia produces 11.6 million daily while Russia produces 10.8 million. America is converting their import terminals to export terminals and this is the country that just few months ago depended on Nigeria for nearly 10 per cent of its oil needs,” he said.
Already, many commentators had projected that oil may go down to $20 per barrel and the World Bank seems to have towed the path as it has reversed its own forecast to $14.
“So, to all intents and purposes, oil is finished as Nigeria’s most dominant source of income and I pray that our governments will accept this view and stir Nigeria to life without oil,” he added.
Speaking on the way out, Ohuabunwa urged government to turn to the private sector to lead the journey out of dependence on oil as the major source of our national income.
“Several years ago, the private sector lead Finland from a Farm/Forest Economy to a diversified modern industrial economy, that is export oriented and where industry contributes 26.5 per cent of the Finnish GDP.
“All around the World from Japan to Singapore, we have seen countries without any natural endowments transform into highly industrialised and diversified economy.
I am not asking government to take the easy, but unsustainable option of raising tax levels. Already, businesses are down and many are either closing shops, or downsizing.
“The oil and financial sectors that have created the best paying jobs in Nigeria over the last nearly 30 years are in distress and raising taxes at this time may be counterproductive as unemployment will worsen.
“The power privatisation must go deeper and further. Even whatever is left of the oil business must go right into the private sector. NNPC and its subsidiaries should be fully privatised. This will bring efficiency and minimise corruption,” he said.
Of course, the decisions are tough ones, but that is the way to go, because without the easy oil money in the hands of government, looting of national treasury will be a lot more difficult.
While we call on government to take the bold steps to improve the environment, the time has come for the local investors to find models in fellow investors and become bullish in investing in manufacturing and mechanized farming.
We must engage in some processing and value addition, to enhance value from our agricultural products and minimize commodity price instability. Despite the slump in global crude oil demand, there is still high and profitable demand for Liquified Natural Gas (LNG).