Wednesday, 29th November 2023

BACKLASH: The Economics Of Lai Mohammed

By Abraham Ogbodo
18 July 2015   |   11:00 pm
WE need a ceasefire to focus on a common threat — the economy that is at the verge of total collapse. It means Alhaji Lai Mohammed, among other operators, has to be called to order. The campaigns stopped long ago and the elections won and lost. There is no more big prize for talking big…

Abraham Ogbodo CopyWE need a ceasefire to focus on a common threat — the economy that is at the verge of total collapse. It means Alhaji Lai Mohammed, among other operators, has to be called to order. The campaigns stopped long ago and the elections won and lost. There is no more big prize for talking big and hollow until, perhaps, another four years. We are now at the point of serious articulation with a view to delivering good governance.

Roles have also reversed with the ascendance of Buhari and the APC. It is important Lai Mohammed understands he now speaks for the ruling party and his tactics have to change. Any form of fraudulent sophistry, as it was in his days as opposition spokesman, would not add up to an advantage in the new context. This was what was on display last Thursday, when Mohammed, the APC’s national publicity secretary, attempted a distinction between a ‘manifesto’ and a ‘roadmap’ of the ruling APC on television and a ridiculous definition of ‘economic stimulation.’

He said the provision of 20,000 megawatts of electricity in four years that the APC had promised is no longer as announced; but a mere roadmap, something like an empty promise to win election, which in the light of the post inauguration realities, cannot, strictly speaking, form part of the party’s manifesto. Even if that is the case, there is a better way of saying ‘I was only joking’ to offset an earlier pronouncement that your listeners had taken rather too seriously. Mohammed thinks being a party spokesman confers on him a limitless poetic licence to reinterpret the English language, anyhow.

Anyway, as I was saying, the imminent collapse of the economy should be of bigger concern than political demagoguery. Last week, there was one scary media report that 15 oil cargoes belonging to Nigeria could not attract buyers in the international oil market. Maybe, this is sounding farfetched, because the description is not in everyday language. Driven down, it means a threat to a colossal sum of about $675 million. I will explain. The average capacity of an oil cargo is 900,000 barrels of crude and 15 of it is 13.5 million barrels of crude, which is like a week output of Nigeria’s crude production of two million barrels per day. At even $50 per barrel, the loss is $45 million per cargo and $675 million for all 15 cargoes.

That much in dollars or about N120 billion is drifting in the high sea at a time that big money is needed to pay workers’ salaries. Yet instead of lamentation, the situation calls for deep reflection. Signs that Nigeria was heading this way had always been obvious, but successive governments persistently chose to ignore and even resist same.

To also trace and place the blame will not be too helpful because what we are talking about is not the over sung official corruption in the last 16 years, especially, but the complete flight of vision in leadership in Nigeria since the end of the civil war. Yet it is only the beginning of the sad story. In the wake of a new drilling technology called fracking to boost production (shale oil), the US, once the biggest consumer of oil is on course to becoming the leading producer of the stuff. In fact, the International Energy Agency (IEA) projects that at the current rate of safe hydraulic fracturing in the US, this dramatic reversal can come as soon as the end of this year.

The US used to be the biggest buyer of Nigeria’s oil and since no nation buys what it has in abundance even under the most ambitious energy conversation programme, Nigeria has been forced to look elsewhere for buyers of its crude oil. There are not too many big buyers around anymore, because every user, including China and India, the two other big energy consumers, is looking inwards like the US. It is the reason the 15 oil cargoes belonging to Nigeria cannot be picked up by any buyer even at a give-away price.

There are other factors compounding the Nigerian situation. Other countries of the Middle East, which also rely on oil for survival, are not exactly in the same boat as Nigeria. They have created buffers that absorb the volatility of the international oil market.

For instance, Saudi Arabia, which is about the only OPEC member with spare production capacity to glut the oil market, if it so desires, can very well do without oil for years with its about $800 billion in savings. Nigeria does not have $50 billion kept anywhere on earth; home and abroad, to sustain projections, which is why the domestic economy rolls unsteadily with the dynamics in the international oil market. The naira sags when oil prices fall and rebounds when they rally.

Things are not going to get better with crude oil any time soon. Almost every country of the world is becoming a producer and actually exporter of crude oil. In that kind of cut-throat operations, only operators that can appropriate all the advantages in the energy value chain stand a chance of survival. Nigeria is roundly exposed to the vagaries of the oil trade. The country is, perhaps, the only producer of the stuff that exports it raw and then turnaround to amass foreign exchange to import the finished products for domestic consumption. At the export end, we are short-changed as we continue to earn fewer dollars per barrel with falling prices and equally short-changed at the import end as we use more naira to get enough dollars to bring in refined products.

It is in the middle of this debilitating quagmire that Mohammed was saying on TV of a stimulated economy under President Buhari. The controversial bailouts for distressed state governments and the swallowing up of states’ debts by the Debt Management Office (DMO) are the indices of stimulation, according to him. This is bunkum, and at worst, a monumental display of financial and macro-economic illiteracy. Where is the multiplier, when a hole is dug to fill another hole? That is stagnation and not stimulation if a definition must be supplied.

Instead of listening to the economics of Lai Mohammed, we should think seriously of the way forward. In the short run, the country’s refining capacity can be increased to migrate it from exporter of crude oil to exporter of petroleum products. There are buyers of the latter and they are not difficult to source; they are everywhere in the world including West Africa. In fact, the entire crude output can be refined and exported less local consumption to make good money. That way, foreign exchange is earned on all fronts without expending any to service domestic consumption. Come to think of it!Crude buyers do not use same in its crude form. Utility lies only in the by-products of crude. We are exporting crude and importing products, because that is one of the shortest ways to create billionaires in Nigeria.

Time has come to shift focus from the upstream to the mid and down-stream sectors of the industry. Nothing stops investment in pipeline infrastructures to take up the entire west coast and far into the continental heartland as markets for Nigeria’s downstream operations. Why, for instance, should petrol be sold in containers in Republic of Benin when Oando, Forte Oil and many others can successfully expand operations to cover it and other countries? In the continental energy architecture, Nigeria can become to Africa, what Russia is to Europe. The long run solution is this same diversification of the economy that we have been singing like national anthem since God’s knows when. This is the time to live it or be doomed. Besides, the direction holds very bright prospects of solving the deeper problem of a dysfunctional federation.

If oil recedes from the foreground, chances are that other latent potentials shall surge to drive the country along the path of greatness. When there is no plenty oil money to dispense in Abuja, component units will be forced to create their respective survival windows even as the centre gets less attractive and competitive. This is the way to stimulate growth and not according to the economics of Alhaji Lai Mohammed.