It is very unfortunate that Nigeria is experiencing a preventable and critical economic debacle. This is mainly due to the gross misallocation of resources, corruption, and government failure. There is no justification for the country’s economic misadventure, considering the enormous human and natural resources Nigeria is blessed with.
The nation’s economic problems originated from the discovery of oil in commercial quantities, which led to the neglect of the agricultural sector. Prior to the discovery of oil, agriculture was the mainstay of the economy: groundnut pyramids in the North, cocoa in the West, and rubber and palm oil in the East. These sectors contributed over 80 percent of the country’s gross domestic product (GDP). In recent years, bandit attacks on farmers, particularly in the northern part of the country, have also taken their toll on agricultural production. After discovering oil in commercial quantities, both the agricultural sector and later the manufacturing sector were neglected, turning the country into a mono-based economy, relying primarily on the export of crude oil. As a result, the country’s revenues became susceptible to global oil market volatility, which had severe consequences for the Nigerian economy, with the negative impacts far outweighing the positive ones. The oil boom eventually turned into doom for the country.
“As a result, the country’s revenues became susceptible to global oil market volatility, which had severe consequences for the Nigerian economy, with the negative impacts far outweighing the positive ones. The oil boom eventually turned into doom for the country.”
Nigeria enjoys windfalls when the global price of crude rises above the economy’s budget benchmark and suffers budget failures when the price of crude falls below the estimated benchmark. Even during times of windfall, the benefits have had little or no meaningful positive impact on Nigeria and Nigerians, as the supposed gains were either squandered or mismanaged. Each time the price of crude falls below the benchmark, Nigeria struggles with fiscal discipline.
Alongside the neglect of the agricultural sector, there has also been a decline in the manufacturing sector. Some of the causes of this decline include infrastructural decay, obsolete technology, the influx of goods from well-established foreign companies that enjoy economies of scale and have turned Nigeria into a dumping ground, high interest rates, and the continuous fall in the value of the naira, which leads to skyrocketing prices for imported raw materials and increases the country’s debt profile. The neglect of agriculture has also had a negative impact on manufacturing, as finished products from the agricultural sector constitute major raw materials needed in manufacturing.
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Examining the causes of Nigeria’s economic crisis would be incomplete without mentioning the demand and supply shock caused by the global COVID-19 pandemic, from which Nigeria was not exempt.
Having briefly outlined some of the causes of Nigeria’s hapless economic condition, it is essential that we start thinking outside the box and implement efficient and effective policies to rescue the economy from its current doldrums.
Below are some ways to revamp Nigeria’s economy:
Local refining of petroleum products
Nigeria, Venezuela, Iraq, Algeria, and Angola are some of the OPEC member countries that import refined petroleum products for local consumption due to limited refining capacity and high domestic demand. Successive regimes in Nigeria have spent billions of naira trying to fix the country’s four refineries since the late 1980s when the country began importing refined petroleum products to address the persistent scarcity. This is usually accompanied by higher prices. Various regimes have given different reasons to justify increases in the prices of petroleum products: appropriate pricing, discouraging smuggling across national borders, and subsidy removal, among others. The most controversial of these reasons is subsidy removal.
The major problem with Nigeria’s petroleum sector is the inability to refine oil for local consumption due to the country’s moribund refineries. Despite billions of naira spent on turn-around maintenance efforts, successive regimes have lacked the political will to fix the refineries. It is evident that the cabals who profit from petroleum importation are the ones making it difficult for the refineries to function. These cabals are so powerful that the government, despite knowing they are sabotaging the economy, has been unable to stop them. These same forces have frustrated Dangote’s giant strides in building a functional and efficient private refinery.
For Nigeria’s economy to recover, the government must take all necessary measures to stop the importation of refined petroleum products. Many private refineries should be encouraged to operate alongside public ones. This will create employment, stem the continuous fall in the value of the naira, reduce crime rates, and increase the country’s GDP.
Moreover, there is an urgent need for the government to revamp the agricultural sector. Nigeria has the potential to feed the entire West African subregion. It is a shame that, despite our vast and fertile land, Nigeria still spends billions on food importation, much of which could be grown domestically. Each regime speaks of diversifying the economy away from oil dependency and boosting agriculture, but their efforts have often been little more than lip service. Various agricultural institutes were established, and policies were implemented, but they have yielded minimal results. Food inflation in the country is currently above 40 percent! It is so severe that many Nigerians go to bed hungry. Insecurity caused by bandits and herdsmen attacks on farmers, as well as the destruction of farms in recent years, has further exacerbated the problem.
Governments at all levels should not only implement result-oriented policies to boost agriculture but also make concerted efforts to monitor these policies 100 percent to ensure they achieve the desired objectives. Loans should be given to genuine farmers at affordable interest rates, and the practice of influential Nigerians hijacking farmers’ loans and diverting them to unrelated projects must be prevented at all costs. Boosting agriculture will lead to increased food production, reduced food prices, job creation, reduced strain on the naira, and lower costs of production in the manufacturing sector. It will also increase exports and improve the balance of payments.
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The government should provide affordable infrastructure, such as electricity and motorable roads, create a conducive economic climate, and adopt industry-friendly fiscal, monetary, and supply-side policies. Import substitution should be encouraged, and exports should be promoted. Imports should be streamlined, focusing only on essentials and raw materials. It is shocking that Nigeria even imports toothpicks!
Additionally, the government should lead by example by patronising locally produced goods. It is unpatriotic for political officeholders to purchase imported vehicles as official cars when locally assembled vehicles are available. They should take inspiration from India’s former Prime Minister Indira Gandhi, whose economic policies played a significant role in India’s development. Small and medium-scale enterprises should receive the necessary support, as they are key to economic recovery, growth, and development.
Similarly, the government should create an enabling environment that will attract foreign direct and portfolio investment. Currently, Nigeria’s economic climate is hostile to investment, as evidenced by the recent closure of many industries. The president does not need to tour the world to attract investors; they will come willingly if the environment is business-friendly. Nigeria has the market—one of the factors investors look for before investing—but if other conditions are unfavourable, they will ignore any calls to invest.
In conclusion, supply-side policies such as deregulation, tax cuts, investment in education and training, funding research and development, trade liberalisation, encouraging entrepreneurship, and investing in technology will increase the country’s productive capacity, lead to economic growth, create employment, and raise living standards.
Rev. Akinbulu Adetunji teaches Advanced Level Economics at Bridge House College, Ikoyi
