The Nigerian economy currently characterized by spiralling inflation, high unemployment rate , stagflation ,receding stock market index ,and recession calls for a new economic development plan and composition of an economic team not only to drive the recovery process but assure the populace that the government have the capacity and articulated economic development plan to lead the nation to another era of sustainable economic growth and prosperity
The expectation of Nigerians when the present government was inaugurated on the 29th May, 2015 was that it will set up an economic management team made up of the usual high heeled businessmen and economists in the mould of what we use to have in the past. President Buhari has told the nation that he is not going to manage the economy with the template of most of his predecessors and has abided with the provisions of the constitution that made the Vice President the head of the economic management team. The team comprised of all the 36 state governors, Minister for Federal Capital Territory and heads of relevant ministries, government agencies and departments is on ground but I doubt if we are getting the required economic direction from the rather nebulous team. The apprehension about the effectiveness of the team is based on the conflicting policies emanating from different arms of government and the slip of the economy into recession by the end of the third quarter of the year which to not quite a few was avoidable. We have not had profound fiscal policies to complement the series of often conflicting monetary policies emanating from the Central Bank in a desperate bid to manage the nation’s dwindling foreign exchange earnings following close to 70 percent drop in our petrodollar earnings due to drastic fall in crude oil prices and production disruption consequent upon renewed militancy in the Niger Delta. Other than the considerable traction in tax collection and setting up of efficiency unit by the Federal Ministry of Finance there is no discernible fiscal policy to address the gradual shrinkage of the economy since collapse of the oil market in 2014 and most especially since we had the historic regime change of 2015.We have not put in place the necessary structural reforms to scale down from a $100 per barrel crude oil price driven economy to the present sub $50 per barrel regime .As at date there are no changes in our Tariff structure to reflect the imperatives of boosting domestic trade, consumption of made in Nigerian goods and smart import substitution and export stimulation strategies to conserve our evaporating foreign reserves.
It is very difficult to fault the President’s position on failure to set up a concise economic team of 3 to7 people to constitute the think tank to the economic management team provided for the constitution in line with what we have been having since our return to democracy in 1999. The overbearing influence of most of the members of the last economic management team in governance was very glaring. The members competed with each other in filling key finance appointments with their surrogates as if they were zoned to them to promote their personal businesses. None of the members warned the nation that the oil boom of 2010 to 2014 was unusual .We never had the counsel to use the prolonged windfall to invest in strategic infrastructure like the trans geopolitical zone rail line ,oil and gas ,and power infrastructure to accelerate our development ,integrate our nation and close the yearning gap between the rich and the poor. There is no doubt that there were moral hazards in the composition of most of the team members who were largely business moguls and oligarchies. They own and manage businesses in the commanding sectors of the economy. While their businesses were growing in leaps and bounds, the country is yet to record significant breakthrough in developing its core infrastructure and creation of necessary buffers to cope with the kind of inevitable cyclical economic volatility we are currently going through now.
The statistics on our economy in the past one year showed that we might have been operating at our lowest element as a nation as the oil price at a time went below $30 per barrel. The worst might be over as crude oil price may settle at between $45-55per barrel in the medium term. No other time is therefore right for us than now to go back to the drawing board and evolve an economic development plan that would be implemented to take us out of the quagmire and reposition the economy for sustainable growth. The traditional three year Medium term economic policy frame work for annual national budgeting rituals cannot meet our needs in the light of the pervasiveness of our economic crisis .We need a long term development plan from where to derive the future medium term plan for synchronization of our annual budgets .
For several years up till 2014, our economic overview revealed that crude oil had been responsible for over 95 percent of our foreign exchange earnings and 75 percent of our budgetary expenditure. The mono-product nature of our economy was masked by the rebasing of our GDP in 2014 .We deluded ourselves that the economy was well diversified with the $510billion GDP distributed as 22% agriculture ,6.7% manufacturing , 51 % services, 15.9 Oil and Gas ,8.9%Telecoms
In 25 years spanning 1989 to 2014 the average price of Brent crude oil which is equivalent of our Bony light was $55per barrel. We enjoyed an unprecedented boom between 2010 and 2014 as the average price of Crude oil then was $100 per barrel .We neither saved the surplus nor use it to build core infrastructure that would have strengthened our domestic trade through drastic reduction in cost of doing business and minimise our dependence on better quality and cheaper imported goods .We opened our doors to all sort of imports and never made concrete efforts to ensure we produce most of our basic needs like food, furniture ,basic home appliances etc. We import not only tooth picks but tooth paste, tooth brush, soap, clothing etc. We through our taste and preference for foreign goods closed down the few factories we had because of poor effective demand and absence of any well conceptualized and sustainable incentive to produce locally. Our few industries which are largely owned by foreign investors operate under the worst business conditions and only thrived because of inelastic local demand, large population/market and weak regulation. We have onerous conditions of business registrations/approvals, power supply, transportation, customs clearing, employee productivity and labour law etc. The only way to appreciate how we individually and collectively ruined the economy with our exotic taste is to take inventory of what we have in our offices and homes and classify them into imported and home produced items .We will be shocked to find out that over 90 percent of our consumption is directly or indirectly imported.
While it will be interesting to see how we will borrow and spend our way out of recession as eloquently stated by government officials, we need to have an economic team who must work out the mechanism to rebuild the economy .We have to articulate a comprehensive development plan on what we need to do to return our economy back to growth trajectory .We have a growing population of 180 million people to cloth, house, feed and provide shelter for, and whose young ones have to be educated. We have a massive land area situated in the tropics and measuring over 1million hectares that have to be covered by transport system, power grid, oil and gas pipelines and other basic infrastructure. We are under the yoke of World Trade Organization (WTO) that’s promoting globalization and free trade .That makes us a huge dumping ground for imported goods because of difficulties of doing business and producing our basic needs. Our industries are few in number. They are are feeble and rudimentary relying on imported raw materials and cannot produce to scale because of inadequate demand and high operating cost. Our dream to produce basic core daily use products like paper, steel and glass were shunted because of the foregoing hence, Bacita and Iwopin paper mills, Ajaokuta steel plant and Oluwa glass became moribound. Our nation is ranked in the bottom of the world’s ease of doing business table .The oil that defined our lousy and outlandish consumption pattern had witnessed a boom that may never be replicated again. According to a report by Sun Microsystems and Cambridge Energy Research Associates in 2000,quoted by James T Hatckett in his seminal article titled The Unquenchable Thirst for Oil and published in the book titled ‘Investing Under Fire’ , Nigeria might by 2035 end up being a net importer of petroleum products if the population continues to grow at the rate of 2.4percent per annum which it had been since the 70s and we are able to modernize and turn around the economy in this century .The analyst projected that if our consumption gets to the level of Mexico the internal energy consumption per house hold should be 10 barrels of oil per person per day against our current level of 1.52 barrels of oil per person. That should put our annual consumption then at 8million barrels per day against about 750,000 barrels we ought to be refining for local consumption today if we have the local refining capacity. That is about 30per cent of our 2.5 million barrel per day OPEC production quota.
All nations irrespective of their market structure must plan for the future. In the 80s the President of an African oil producing nation while on a state visit to the United States of America tactlessly could not assure journalist interviewing him that oil would not be used as a political weapon. Thirty (30) years after USA through strategic planning despite being the epitome of free market became a net exporter of oil. After the world war Germany relied on America for its chicken and in return America imports its light trucks. Through planning Germany developed its chicken industry and stopped importing chicken from America. America had to introduce chicken tax on light trucks importation from Germany in retaliation. Our situation is peculiar because we are a mono-product economy and the world will continue to need less of our oil because of discovery of alternative sources of energy and continuous discovery of new oil fields in almost all the continents. Out of 55 African countries, as much as 50 are either oil producing or oil prospecting .The current economic situation of foreign exchange scarcity, devaluation, unemployment, stagflation is therefore a foretaste of what would happen when we cease to be exporter of crude oil .We must seize this moment to put in place a long term development plan that will wean our economy of petrodollar as source of foreign exchange earnings within the next 20 years. The World Bank at the onset of crude oil price meltdown in 2014 asserted that Nigeria out of all the oil exporting countries have the best chance to survive the crisis because of our natural endowment, vast population, land area and entrepreneurial people .
The only gap has been the quality and integrity of our leaders that has since independence made us a poor nation through mismanagement, greed and graft, despite the tremendous resources bestowed on us by nature. The present administration will do the nation a lot of good if it can speedily constitute a multidisciplinary economic team to put together the nation’s economic blue print or development plan for the next 10 to 20 years and prepare us for the era in which crude oil will cease to be our major source of foreign exchange earnings . In tackling the present economic challenges on a day to day basis, we need a 5 or 7 man economic team to advise the government and the economic management team headed by the Vice President as we tackle the reality of a shrinking economy driven by a sub $50 crude oil price regime .The nation needs to be assured that the government is getting the best counsel as it strives to rebuild the economy.
Bolade Agbola is an investment banker and an Executive Director with Cashcraft Asset Management Limited
