Oil prices oscillated within the $90-110 band in 2012 posing no apparent danger to Nigeria’s budget oil price benchmark of $72 per barrel. Longer term trends – US shale gas and “fracking” technology which dramatically improves North American oil supply; the increase in African countries with significant oil finds; easing off of geo-political tensions in the Middle-East and North African (MENA) region (at least for a season!); and the cessation of new investment in Nigerian upstream sector – all mean that Nigeria’s dependence on oil and gas resources for 85 percent of national revenue may yet come home to roost, sooner or a little later!
Global economic recovery by all accounts is sluggish – the world, according to the IMF, grew by 3.3 percent in 2012, well below pre-2007-9 levels. The structure of divergence in GDP growth rates between the developed and developing/emerging economies in which the rich nations struggle to find growth while the poor, less-poor and emerging rich grow around 5-6 percent (with outliers China reaching 8 percent!) persisted into 2012 and promises to subsist even beyond. Europe remains the global economic laggards – their resort to austerity appears to have backfired, but perhaps longer-term rewards lie ahead, while America which has deferred fiscal and budget reforms may yet pay a price in the medium term. The IMF projects global growth of 3.6 percent in 2013.
In this context, Nigeria has passed a N4.9 trillion budget predicated on oil prices at $79 per barrel against the Finance Ministry’s preference of a slightly lower $75. The argument is over signals since the difference is only $4! The National Assembly by raising the benchmark sends a message that it does not yet appreciate the significance of the medium- to long-term oil industry trends stated above. The country compounds the error by writing a Petroleum Industry Bill (PIB) which is unattractive to investors – opting quite irrationally to keep the oil in the ground rather than generating investments, jobs and resources to bridge our infrastructure deficit! Oil investors will choose to spend their money elsewhere!
Meanwhile, our GDP growth slowed to 6+ percent in 2012 against 7+ percent in the three previous years. It is rational to ascribe the slowdown to insecurity, financial sector conditions including high interest rates (and private sector access to credit, especially at SME levels), economic disruptions in Q1 2012 due to oil price disturbances and declines in oil sector GDP growth. Our star growth sector remains telecommunications which continues to grow over 30 percent, with mid-growth sectors consisting of hotels and restaurants, building and construction, real estate, wholesale and retail and solid minerals growing between 10 and 12 percent. The weak growth sectors include agriculture and manufacturing, while the worst performers are financial sector and oil and gas. The pre-amnesty output declines were caused by militants while current output problems relate to policy and the absence of fiscal and other industry regimes acceptable to the oil majors. The financial sector continues its slide as a generator of growth (and jobs!) since 2009!
In terms of our economic structure, we retain the dysfunctional characteristic of having four sectors generating 80 percent of GDP – agriculture, wholesale and retail trade, crude oil and gas and telecommunications! The structure and attributes of these four sectors explain our poverty and unemployment. They don’t generate jobs in large numbers and they have severely limited linkages with the domestic economy. And domestic value-added is minimal! My position remains that given this economic structure, GDP growth even at 15-20 percent may not significantly improve the welfare of the average person. I am surprised I have not heard any of our policymakers express worries over the 1 percent drop in our GDP growth rate! What are the causes and is this a new trend? If we don’t discuss the drop, how can we be sure we understand the drivers of our economic growth? Perhaps our 6-7 percent GDP growth is less the outcome of policy than the economy’s natural rate of growth. I am also totally convinced that Nigeria’s policymakers ought never to mention GDP as evidence of the improvement in human conditions within the country! They may refer to it when talking to external audiences, but internal discussions on economic development must now focus almost exclusively on poverty, jobs, human development and social indices.
And then politics! Events in the first two months of 2013 already confirm that the 2013-2015 election season has commenced. The key questions are whether President Jonathan will secure the re-nomination of his PDP, and if so whether he will win the presidency in 2015. The underlying sub-theme will, of course, be the issue of Northern presidency. The only possible game-changer on the horizon is the fortunes and prospects of the emerging opposition coalition, the All Progressives Congress. Whatever the scenarios, Jonathan faces an uphill task in staying on as president beyond 2015!
The problem of insecurity persists! As politicians scheme and posture for 2015; as Jonathan deploys the instruments of power in order to retain his position; as elite groups jostle for power and position within the corrupt system, Boko Haram continues to kill thousands of its usual victims – Northern Christians, Southerners, security personnel and occasionally even hostile Islamic clerics and traditional rulers while the country looks on helplessly. So-called “Fulani herdsmen” also slay victims virtually everywhere in the country while we all pretend not to notice so we won’t have to do something about it! Wherever there’s no Boko Haram, kidnappers, armed robbers and sundry gunmen fill the space!