Nigerian government’s continuous lip service on economic diversification is worsening its economic woes, as the oil, which is the mainstay of the country’s economic base, will soon run off in a foreseeable future.
The Federal Government has persistently relied on hydro-carbon resources as a major driver of its annual budgets, which has continuously exposed the economy to several shocks such as the global oil price volatility, adjustments in OPEC quota and vandalism of the oil and gas assets in the oil rich Niger Delta.
Apart from the afore mentioned risks, the recent disclosure by the Department of Petroleum Resources (DPR) that the current reserves depletion rate of Nigeria oil reserves is 1.93 percent, revealing that on the average, Nigeria produced 1,973,995 barrels of oil per day (bpd) as at the end of June 2018, exposes high risk dependency on oil resources.
Also, Nigeria’s 2.5 million barrel daily production target has also been impeded by the recent OPEC’s meeting in Vienna, Austria, as Emmanuel Ibeh Kachikwu, Nigeria’s deputy petroleum minister, has confirmed that Nigeria won’t enjoy any exemption as it did not request for any exemption.
Kachikwu in Vienna at the recent OPEC meeting said, “Collectively, OPEC and their non-OPEC allies agreed to cut their outputs by 1.2 million barrels per day (mbpd), with OPEC countries accounting for 800,000bdp of the cut, while non-OPEC will cut 400,000bpd.”
Against this backdrop, industry watchers have expressed concern that the government has no clear-cut diversification plan, as it continuously hinges its budget on oil revenue resources.
“Am yet to see any clear-cut policy that is deliberately targeted at pushing/lifting people out of poverty and entrenching diversification. “The National Bureau of Statistics latest release has declared 20.9 million people had lost their jobs. The performance of this year’s budget, specifically the capital component, is less than 30%. This is not a good sign for our budget,” Tunji Ogunyemi, a budget historian and senior lecturer at Obafemi Awolowo University, Ile Ife, said.
”Am surprised that we are not factoring in the fact that Nigeria is an OPEC member and this would definitely affect our quota in the international oil markets. Even while we were given exemption by the OPEC country, we could not even do the 2.3 and 2.5 million barrels, we were doing between 1.89 million barrels,” Tunji said.
Suggesting measures for economic diversification, Kruz David, and economic expert said, “When am talking about diversifying this economy, it is all about how do you design, the appropriate tax policy mix that would become a catalyst to spur economic growth and prosperity.
“Today, the number of taxes we are collecting in Nigeria is too many .We must have that design that makes companies to actually flourish, while paying huge taxes to the government. Government in designing the tax policy would factor in those ecstatic sectors that they are meant to diversify the economy such as sports and tourism.
“Government is actually supposed to design policies that would make people come into this sector not government bringing money to build infrastructure for our economic diversification. Can you imagine the United Kingdom without the English premiership, which is generation huge money to government’s coffers and creating wealth. Government must come up with legal framework to diversify the economy.”
According to Kruz, “This budget does not have a template for an economic diversification. We should have a budget that says in the next five years for instance, this is where we want each sectoral development to be in our diversification journey”
Celestine Okeke, lead partner, Micro Small and Medium Enterprise Advocacy Initiatives, expressed concern that the depleting oil assets was already taking its toll on Nigeria’s economy, as most multi-nationals were neck deep in new technologies away from oil.
He said, “Development in Europe and other advanced countries is taking focus away from oil. Shell, Chevron and other multi-nationals are all neck deep into this alternative energy sources. They are pursuing the new economic frontiers, and within the coming years, you may not see that massive investment commitment in them in oil and gas.”
He insisted that the budget does not have a long-term strategy for economic diversification since it has failed to address key issues that would drive the diversification process.
“Are we talking of the building herders route to address concerns of farmers-herders clash. What is the long-term strategy to sustain the anchor borrowers. These are still questions that are still begging for answers.
Meanwhile, the director-general of the Budget Office, Ben Akabueze, however stated that the Federal Government was not unconcerned about the depletion of oil, as there were measures to optimise the hydrocarbon resources for economic diversifications.
According to Akabueze, “In the medium term, we need the revenue from oil to fund the diversification away from oil, and we all know that know is oil is a depleting assets and the jury is already out on how much the fossil fuel is going to rule the world. It is in the interest of Nigeria to optimise what it gets from the hydro-carbon resources, and using the resources to develop infrastructure to drive the ecosystem of other revenue bases.”
He explained that currently the federal government is engaging on renewal of the oil licences which would give rise to signature bonuses, and has also affected our bonuses from oil.
“You could hear Mr. President at the budget presentation talking about his directive on recovering all the outstanding oil royalties and other fees in the industry to raise the revenue base from oil.
The Nigerian government has in the budget proposal for 2019 made key assumptions putting the oil price benchmark of $60 per barrel; oil production estimate of 2.3 million barrels per day, including condensates. Also, the government pegged the exchange rate of N305/$; the real GDP growth of 3.01 percent, while the inflation rate is estimated to be 9.98 percent.
Industry watchers have expressed worry that the proposed budget does not have what it takes to set Nigeria on the proper pedestrian of economic growth. With 20.9 million people currently unemployed according to the latest figure from Nigeria’s Statistic Office, experts want the Federal Government to have a budget that leads the way on economic diversification in order to remove millions of people out of poverty.
“The Medium Term Expenditure framework is not even passed and this issue has kept ridiculing our efforts to have a budget that defines a direction for us. We cannot continue looking for a different result and doing things the same way all over again,” David said.
