At a forum organised to examine the nation’s macroeconomic outlook and how fiscal and monetary policies impact the citizens, analysts renewed the call to diversify the economy. Olaseni Durojaiye writes
The current economic challenges that confront the country appeared to be giving ascendancy to the thinking that it is high time the nation began to think beyond oil as its economic mainstay and diversify even as the discourse about the role of oil in the diversification of the economy continues. The thinking, not altogether new, appeared to be buoyed by factors, which include the increasing searches for alternatives to fossil oil and the unpredictability in the oil industry both locally and internationally.
The debate to look beyond oil, which questions Nigeria’s continued dependency on oil is further fuelled by the signals from around the world that oil may cease to be as profitable as it currently is in the near future as more and more countries develop alternatives to oil.
Before now, the threat to the continued profitability of oil was seen in the discovery shale oil in North America, but a new threat appears to be the resolve by some countries to run economies that will require less fossil oil to run. Among the countries are Norway and Japan who have set timelines for dumping fossil oil to run automobiles. Analysts opined that the import of that is that the country needs to begin to look beyond oil for its survival.
Nigeria’s economic recession has largely been traced to the southward movement of oil prices in the international market (as oil contributed about 95 per cent of the nation’s foreign exchange earnings) and the failure of successive governments to fully diversify the economy.
According to available data the economy slipped into recession in 2016. The economic roller coaster, which started in 2014, became severe in 2016. Nearly all expectations and the much-awaited impact of government policy measures did not come through. As a result, Nigeria’s gross domestic product (GDP) contracted by 1.5 per cent last year, a far cry from the three per cent growth rate, which was recorded in 2015. Different sectors of the economy faced severe capacity shocks on the backdrop of higher input costs and foreign exchange shortage.
Data obtained from the Nigerian Economic Summit Group (NESG) indicated that, “in the third quarter of 2016, agricultural sector was held up to a growth of 4.54 per cent from the usual six per cent, industrial sector fell sharply into the negative territory of 12.21 per cent, and services sector – which makes up more than half of economic activities – progressively became weaker with a growth of -1.17 per cent.” It was therefore, not a surprise that the economy, which experienced decelerating growth in 2015 eventually plunged into recession in 2016.
Again, on the fiscal front, budgeted expenditure grew by 33 per cent (year-on-year)from N4.5 trillion in 2015, yet total revenue collected from January to September 2016, declined by 20 per cent when compared to 2015 figure in the same period. The worsened revenue profile coupled with delay in the passage of the 2016 budget and unclear policy direction constrained the federal government from implementing the budget and, thus stimulating the economy. Consequently, all major rating agencies downgraded the nation’s credit outlook.
Beyond Oil Revenue
In a keynote address at forum to review the nation’s macroeconomic outlook organised by The Liberal Forum (TFL) Nigerian Economics Students Association in Lagos, an economist and Chief Executive Officer of RTC Consulting Mr. Opeyemi Agbaje, argued that the country needed proceeds from crude oil to get out of the over dependence on oil and the current recession.
Agbaje, who is also an economic policy analyst, in a paper titled: “Who Finance Don Epp? Foreign Exchange, Interest Rates, Inflation etc. and Nigerians’ Welfare”, stated that Nigerian economy and financial system and indeed the democracy and political systems were not working for the majority of the people.
According to him, “Research based on Nigerian Bureau of Statistics (NBS) data shows that poverty rose from just 27.2per cent in 1980 to 46.3 per cent by 1985, just five years later; 60 per cent by 1995 and has progressively risen to 69 per cent in 2010, 71.5 per cent in 2011 and by 2014, 72 per cent!,” he stated.
Head, Oil and Gas Unit, Ecobank Group, Dolapo Oni, shared the same view. While noting that oil contributes the largest chunk of Nigeria’s foreign exchange earnings the country will have to resort to receipts from crude oil for FX to fund the country’s import needs, infrastructure upgrade and capital projects that is needed to diversify the economy.
“At the moment if oil is 95per cent of the nation’s exports and the largest earner of dollars which we need to import raw materials for manufacturing and other sectors, it then means, if we want to improve our transportation sector we have to bring in trains, bring in larger and better buses because they move more people and still use almost the same amount of fuel as the smaller buses. So it is true that we need oil money especially because it is still the largest earner of FX for us,” he stated.
Stating that Nigeria’s economy is diverse, Oni noted that as at 2016, the oil sector contributes seven per cent to the country’s GDP, while the services and agriculture sectors contributed about 50 per cent and 20 per cent respectively. He argued that if a sector that contributed seven per cent to the GDP accounts for about 95 per cent of the nation’s FX earnings, “that means the rest of the GDP is not as productive and competitive internationally to generate income.
That is where the issue of diversification comes in; how much can we diversify to make the rest of the GDP productive for export so that we can generate FX from more than just oil.”
Incidentally, the increase in price of crude oil in the international market and local production has led to an increase in the nation’s foreign reserve. This in turn has emboldened the Central Bank of Nigeria (CBN) to fund the FX market, allowing the naira to strengthen against major international currencies, particularly the dollar. This tends to favour on Agbaje’s position, but another analyst, Dr. Vincent Nwani disagreed.
In disagreeing, Nwani, who is a senior economist with the Lagos Chamber of Commerce and Industry (LCCI), argued that monetary and fiscal policy makers need to think out of the box and consummate special transactions that would bypass oil proceeds.
Nwani disagreed with the school of thought that Nigeria needs oil to get out of oil and canvassed the need for both monetary and fiscal policy makers to think out of the box. He argued the country did not necessarily need oil proceeds for its import and insisted that government could do so by creating special transaction. He insisted that with the rising global trend, oil will become less lucrative in the near future.
“I’m not quite comfortable with the assertion that we need oil to get out of oil. With the situation that we’ve found ourselves now I think we have to drop that notion because a time will come when Niger Delta Avengers will not allow us to produce and there will be no one to pick it up from us,” he stated.
“If you watch the trend everywhere in the world people are daily de-emphasising the need for fossil fuel. Norway has announced that in about five years from now, no car will drive on fossil fuel in the country. In Japan, they have started manufacturing hybrid cars so that in 10 years’ time no single fossil fuel car will drive in the country.
Besides, several countries across the globe, including Japan are now generating so much power through solar energy.
“We need to begin to think outside of the box. There’re things that we can do to diversify the economy that we do not need to export crude oil before we import raw materials that we need for our manufacturing sector or import wagons for our rail systems. All we need to do is create