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‘Why we can’t look beyond oil now’

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My people dragged me homeward at the weekend where I was part of second edition Ondo South Economic Summit powered by Ondo South Development Forum. I was part of a colloquium on a theme: Beyond Oil: Exploring Infrastructure, Agriculture, Human Capital, ICT, Emerging Energy and Security for Sustainable Economic Development of Ondo South’. I spoke to the fiscal federalism construct of the symposium. And I told our people who have been disconnected from the electricity national grid for almost a decade why we may not be able to look beyond oil now despite our fine rhetoric on the subject. The area is part of the littoral relationship with the Niger Delta. The Ilaje and Ese –Odo Local Government Councils are oil-producing as they host OPL 241, which makes Ondo state to be part of the NDDC. The two local governments are part of the old Okitipupa Division, which the military politicians split into four Local Governments namely, Okitipupa, Irele, Ilaje and Ese-Odo. I told my people that the curse of oil has made it to be unfortunately linked to the ‘national greed’ that has held down the nation, which depends solely on oil. This is how I told them that unless the current structure of Nigeria is dismantled to allow us (in Ondo) think properly on what to do with the rich bitumen deposit in Agbabu area in the South Senatorial Zone, specifically in Ikaleland, we will not be able to escape the curse of (crude) oil we can’t even refine at the moment.

I told them that Nigeria is the largest economy in Africa and 22nd globally. It is projected by PwC, for instance, that the economy could rise through the world rankings to top 10 in 2050 with a projected GDP of US$6.4 trillion, surpassing Germany, the United Kingdom, France and Saudi Arabia. To achieve this however, diversification from the economic over dependence on crude oil is required. Nigeria’s intrinsic potential lies beyond oil. Harnessing this potential has become an imperative given the expectations of lower for longer oil prices. Based on recent trends, PwC report reviews the impact of low oil prices on key economic indicators and the real sector through an industry survey.

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In addition, the published report addresses the question of priority sectors that Nigeria should target for diversification efforts. The analysis identifies Agriculture, Petroleum (Petrochemical and Refining), Retail, and ICT as priority sectors with the most dominant transmission links to the overall economy.These sectors in the medium-to-long term are key to boosting other sectors like manufacturing. Forward linkages to agro-processing and other services such as logistics as well as backward integration to input supply sectors could improve farm incomes, increase employment and improve domestic food security. Potentially, Nigeria’s global agriculture exports could takeoff at a rate similar to Brazil’s, with US$59 billion in export revenues by 2030.

Similarly, value added to Oil and Gas output needs to urgently improve by implementing diversification within the sector. This requires investments across the downstream sector to develop petrochemicals, fertilisers, methanol and refining, industries relevant in both industrial and consumer products, which Nigeria currently imports.

We examined data that ‘consumer spending’ is the largest driver of the economy, accounting for about 70% of GDP and we expect that this will be the boost for the retail sector growth even as population continues to expand. Thus, as incomes rise along with rapid urbanisation, it is projected that household consumption expenditure could reach US$1.1 trillion by 2030, from US $317 billion in 2014, which implies a growth of 9% through 2030. With teledensity at 107.871, a large population of young urban people and massive scope to improve internet broadband penetration, Nigeria is likely to see accelerated growth of its digital economy.

We also noted that more important, the opportunity to leverage technology to generate improved social and economic outcomes across other sectors has been created. However, it has been noted that the transition to a non-oil economy will not be an easy task. Based on a 2016 PwC interview of foreign companies across Nigeria, four concerns stand out as challenges with the business environment: corruption, inadequate infrastructure, low skill levels, and macroeconomic uncertainty.

We observed that in the 2016 Ease of Doing Business ranking, Nigeria ranks 169th (2015:170th) out of 189 economies surveyed. Interestingly, Rwanda jumped through the rankings from being 143rd in 2009 to 62nd in 2016. Over that same period, Nigeria’s ranking worsened as it moved from 102nd to 169th. This emphasises that the economic and regulatory environment needs to be more conducive for business. This means simplifying complex regulation and processes, and eliminating the hurdles that stand in the way of a bigger and more productive private sector. The survey in point highlights the exchange rate as one of the top challenges facing industries in recent times. Capital controls, FX rationing, and restrictions on the importation of certain items are measures the CBN has implemented to preserve the foreign reserves and maintain currency stability. Considering the outlook for the oil price is a lower for longer scenario. Data from NCC as at December 2015 Nigeria: Looking beyond Oil: We should think these measures if sustained over a prolonged period are negative for the economy. Limitations to capital flows, the lack of transparency, liquidity and price discovery in the official foreign exchange market could deter competitiveness, limiting FDI and consequently growth. Sustaining the wide premium between the official and black market rates as well as ingenuity to circumvent economic restrictions could further breed corruption and revenue leakages with massive costs to the economy. The argument has gone beyond the need for an adjustment, to a more urgent need to re-liberalise capital flows for a resurgence in foreign investments, which Nigeria needs to buffer its foreign reserves. Significant reforms across the labour market, business environment and fiscal management will be required.

We all agreed that a skilled workforce is critical to improving Nigeria’s and indeed our zone’s productivity and efficiency. Considering that the services sector is projected to be the key driver of the Nigerian economy going forward, measures have to be implemented to improve the value-addition of labour in this sector.

I added this Therefore, a comprehensive approach is needed: sound and quality education provides a solid foundation to develop the relevant skills for the workplace. In addition, a collaboration among all stakeholders to design and implement education and training tailored to market needs is required. Nigeria needs to ensure sustainable fiscal management that is resilient to global oil price cycles. Improving tax collection and administration have become imperative for achieving national growth objectives. Nigeria is a low-taxed economy compared to its peers. In addition, challenges with arbitrary exemptions and enforcement have further constrained tax receipts. The framework for tax exemptions should be reviewed and approvals targeted at growth inducing sectors as the government improves collection.

Efficiency in government spending has to improve; there is room for substantial savings in capital outlays and operating expenditure across the three tiers of government.

‘Nigeria’s present (federal) structure’
But I got my people to note that we cannot achieve much with the present unitary structure of Nigeria that has held us down.

That is why there is a call for true federalism that the powers in Abuja are reluctant to embrace. Only a return to the pre-1966 structure will reset the tone for development. The Unification Decree No. 34 of 1966 diminished us. The idea of depending on Abuja for monthly Federal Account Allocation cannot work. The exclusive legislative list in the only constitution, which prevents us from exploring our bitumen is a curse that must be removed. We need fiscal federalism in this context.

The success of fiscal federalism is conditioned by the two fundamental requisites- financial independence and financial responsibility. It means that the central and state government must be financially independent within their own spheres. Each government should possess separate and independent sources of revenue.

The theory of fiscal federalism assumes that a federal system of government can be efficient and effective at solving problems governments face today, such as just distribution of income, efficient and effective allocation of resources, and economic stability.At its most basic level, fiscal federalism attempts to define the division of governmental functions, and the financial relationship between, different levels of government (usually how federal or central governments fund state and local governments).

‘Let’s Borrow A Leaf From Saudi Arabia’
I noted that the Saudi government, in an effort led by the less than 40 years old crown prince, has recently made some remarkable social changes, including promising women the right to drive and curtailing the powers of the religious police. This is part of restructuring needed to look beyond oil.

We talked about a glittering conference center in Riyadh, in slick videos, which promised a gleaming, $500 billion city of the future, powered by solar energy and run by robots. The crown prince had lauded a “moderate Islam” that embraces the world. And members of the global business elite attended standing-room-only sessions on sustainable energy and the future of urbanisation.

The Saudi message to bankers, businesspeople and high-rolling investors have been clear: The once-insular kingdom is now open for business.
We also noted that Saudi Arabia is throwing an economic coming-out party of sorts, hawking its efforts to liberalise its conservative society and diversify its economy in a sweeping overhaul of the way the wealthy Arab kingdom has long operated…

I encouraged our power elite to look at what we can do to help our people to prosper through agriculture. We need to find revival strategy for the technical schools in Idepe, Okitipupa or a replication of Aiyetoro Technical School in Ilaje. We need to invest robustly in agriculture and basic and secondary education. But I was emphatic that the most significant project, in this regard is to find soul mates in Yorubaland with whom to campaign for restructuring of the federation, which will lead to integration of Western Nigeria through solid road infrastructure. I understand from China that the starting point of reducing poverty is construction of solid road networks across the country or a region. Thus, farmers and others will find routes to good markets for their products. And that agriculture value chain will employ a lot of our people…

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