27 Nov 2014

Some Hard Truths About Nigeria’s Economic Situation - by Greg Odogwu

It all started like a rumour. Some politicians in government claimed it was fomented by the opposition to misinform and unsettle the ordinary citizen. Later, the Minister of Finance and Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, tried to explain it away. She gave an interesting-but really scary-analogy with which to illustrate the situation. 

According to her, Nigeria was like a family without immediate cash to solve its everyday needs, but whose parents had jobs, and therefore had a sure means of raising money at the end of the month. Conclusion: Nigeria was just temporarily broke. But within a matter of days, the alarm could not be contained anymore. The minister rushed back and read out a press release: Our economy is going down, and Nigerians must tighten their belts!


The annoying situation is that a singular global incident is whipping a big country, or a “great country” as our leaders like to delude themselves, like Nigeria silly: steadily falling oil price. Crude oil sale is the primary source of foreign revenue in Nigeria; so, as the commodity’s price drops in the international market, we take direct hits from its impacts. Our Excess Crude Account, which was set up as a natural buffer in case of such a situation, is now so depleted that it cannot have any remedy effect whatsoever. And to worsen the situation, there is no economic boom in the real sector. So, everybody must keep praying that the price of oil bounces back to above the $100 mark so that we can go back to our collective fool’s paradise.

But the hard truth is that we are currently in a bad economic shape because demand for oil is dwindling globally. It is not driven by witchcraft; it is demand and supply. Many nations are secretly planning an exit from their dependence on the so-called black gold. The governments of the world are in fact looking for alternatives to fossil fuel in order to safeguard the environment and leave a healthier earth for future generations.

We must wake up to the reality that the Kyoto Protocol which Nigeria is a signatory, is a document prepared with an intent to put a stop to the use of petroleum in the long run. In its latest assessment of global warming which was published recently, the United Nations through its Intergovernmental Panel on Climate Change warned that the use of fossil fuels must be totally phased out by the end of the century. It urged governments to cut carbon dioxide emissions by up to 70 per cent by 2050 and 100 per cent by 2100, and asked them to be less reliant on mining for fossil fuels such as coal, oil and gas.

Granted, we are still decades away from the deadline, but what if the dwindling oil demand is the opening salvo of the energy revolution the world hopes, and plans, for?

Another hard truth is that we are not even prepared to join the world in a new energy matrix; just as we are not prepared for declining oil revenue. Austerity measures are just a cosmetic approach. The fundamental preparedness should be in our collective attitude. We must stop deceiving ourselves that “God has blessed us with eternal blessings in subterranean places!”

Come to think of it, Madam Okonjo-Iweala’s analogy betrayed our psychological stance. She described Nigeria as a parent “who has a job”. Simply interpreted, our job is oil; therefore, it is assumed that we cannot lose that “job”. What audacity! We are so gloatingly secure in our false sense of security that we never imagine a future without crude oil. It is when we face this truth that we can appreciate that no matter the amount of fasting and prayers we indulge in, sooner or later, the future we fear will catch up with us. Truth is, sooner than later, crude oil will cease to command money and power in the global market.

Two facts show clearly our desperate condition. Firstly, our wealth had no solid base-it was what we could colloquially describe as “paper money”. International experiences show that as countries become richer, the share of the agricultural sector in GDP decreases, and the share of manufacturing and services increases. The transformation usually occurs as a result of technological advances that improve agricultural productivity and shift the factors of production towards manufacturing and services. Ironically, the productive structures in Nigeria have not witnessed any diversification whatsoever since our supposedly providential-but actually inglorious-oil boom. The agricultural sector has but a nominal growth; the manufacturing sector, plagued by lack of power, is in a shambles; and the services sector is just crawling along.

Secondly, the renewable natural resources we have in abundance are not deployed. It seems the government and the people that matter do not care about what matters. Although the Federal Government continues to hype its commitment to developing renewable energy to surmount the erratic electricity supply challenges in the country, Bloomberg recently wrote Nigeria off as a renewable energy non-starter. Having estimated that renewable energy investments in sub-Saharan Africa would reach the $5.9bn mark in 2014 and grow to $7.7bn in 2016, the reputed finance data report entity noted that the investments are predominantly expected from South Africa, Kenya and Ethiopia, leaving Nigeria out of the high-ranking renewable energy investment destinations.

In fact, one does not need an international financial analyst to see and feel our hypocrisy when it comes to renewable energy deployment. During the last Nigeria Alternative Energy Expo, the most respected of such forum in Nigeria which is actually endorsed and supported by the government, the two highest government functionaries in the sector-Ministers of Power – did not deem it necessary to even show face in the meeting hall. Perhaps, they did not want to face the hard questions from seasoned global players in the industry who are perennially frustrated by the murky alternative energy atmosphere in the country.

Yet, while we waste precious time, the world is moving forward in search of replacements for fossil fuel. Just this week, Nigerians were treated to scintillating news about the “Shit Bus” of the United Kingdom. A bus in Britain called the Bio-bus which runs on biomethane gas produced from a combination of human waste and food waste has hit the road. What is more, I just got news alert on my phone about an electric plane invented in China, which is ready to hit the world market. What about news of the sheep urine fuel, invented and deployed by another British bus company? Yes, it is happening every day; people are looking away from petroleum to alternative sources.

Two things we must do very fast are: Stop rent-seeking, and institute a robust legal framework for economic diversification. Advanced manufacturing and service industries greatly depend on the enforcement of contracts between parties, the rule of law, and the transparency of legislation. Together, these factors encourage competition between investors and weaken the rent-seeking that dominates business environments in countries like ours. The challenge for us is to ensure that financial policy can foster growth and economic diversification and those economic reforms can create job opportunities to keep up with the rapid growth of the labour force. The draft Renewable Energy and Energy Efficiency Policy Bill is one of such documents; the National Assembly must ensure its quick passage. Without entrenching these vital measures we are set on a highway to doom; but with them we shall speedily become a nation to envy in no distant time.

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