The Managing Director of Economic Associates, Dr. Ayo Teriba has explained that Nigeria was hit hard by the collapse of the crude oil prices owing to the failure of the country’s capital account, which led to absence of infrastructure to encourage diversification.
In his lead presentation at the 2016 Second Business Clinic organised in Lagos at the weekend by the Petroleum Downstream Group of the Lagos Chamber of Commerce and Industry (LCCI), the renowned economist said the only way to resolve the current challenge of collapse of oil prices was to break government’s monopoly in pipelines, power transmission and rail.
Teriba argued that no country can diversify without infrastructure, especially rail system, stressing that moving output by roads would not encourage manufacturing.
According to him, the slump of the oil price should not have hit Nigeria as hard as it has done if the country had invested in infrastructure.
He further stated that Saudi Arabia depends on crude oil more than Nigeria with oil accounting for 55 per cent of their economy.
“Their minister went to the White House to say that they lost $600 billion to the drop in oil price and that they wanted to shift to the non-oil sector. The bottom line of his message is that they wanted Foreign Direct Investment (FDI). Saudi Aramco wants to sell five per cent stake and that will fetch $120 billion. So, they have lost in oil price but FDI will compensate them. Nigeria has more non-oil economy than Saudi, though they have more oil economy than Nigeria and was affected more than Nigeria by the drop in oil price. But if Nigeria takes the same steps Saudi has taken, I think Nigeria is more attractive for investment than Saudi. The main reason it is affecting Nigeria more is her capital account failure. If Nigeria had broken government monopoly in rail, power transmission and pipelines, the country would not have been in serious problem,” Teriba explained.
Teriba argued that the difference between the 2008 global financial crisis and the current crisis is that even as steep as the 2008 drop in crude oil price was, it lasted for only three quarters, while the current crisis has already lasted for two years.
According to him, during the 2008 crisis, Nigeria’s growth held up but under the current crisis, Nigeria had experienced negative growth in Gross Domestic Product (GDP).
“It needn’t be severe on Nigeria like this. We needn’t have felt it,” he added.
“The reason we are hurt is that we did not open the window for investment to come. We were focused on export income from oil. Rail, pipelines, and electricity transmission have remained under government monopoly,” he said.
He further stated that Nigeria had attracted more FDI than India, South Korea and United Arab Emirates as at 1990 but added that these countries have since overtaken Nigeria.
Teriba insisted that borrowing is not the solution to the present crisis but attracting investment.
According to him, the present government inherited most of its economic policies and could capitalise on its positive image at home and abroad to attract investors.