Is Government Really Sincere in Diversifying the Economy?

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Diversification of the economy from oil to non-oil is an age-old cliché in Nigeria. Despite the efforts federal government claims to be committing, the economy continues to be largely dependent on oil revenue, which is unsustainable. Kunle Aderinokun wonders if the government is actually sincere in running the economy with non-oil revenue

Nigeria is naturally endowed with oil resources to the extent that it ranks amongst the biggest producers of the crude in the world.  Ordinarily, with its position in the comity of oil exporting nations, no one expect the country to have any issue generating revenue from the black gold to sustain the economy. In fact, for a very long time, oil revenue has been the mainstay of the economy and the situation is still the same. However, the vagaries in the prices of crude oil at the international market and the attendant control by the Oil Production Exporting Countries (OPEC), the global oil cartel, which regulates oil production, make it necessary to diversify the revenue base of the economy away from oil.

Given the topsy-turvy nature of oil revenue, experts have proffered that the non-oil sector should be reformed, better funded and be made more viable to generate more revenue to run the economy without depending heavily on earnings from oil.

Over the years, the federal government, through many administrations, has made economic diversification more of an issue of discussion or more of a catchphrase than making a genuine effort to actualise it. This is because the government has found the temptation to jettison such efforts to enjoy the temporary succor provided by windfall accruable from oil, irresistible.

While the previous administration made serious effort to institute reforms in the agriculture supported by interventions by the Central Bank of Nigeria (CBN), which paid off, the momentum could not be matched by the current administration. The little effort made by the President Muhammadu Buhari-led administration in the agriculture, which was beginning to show promise, as seen in the sector contributing significantly to the growth of the GDP, has been overshadowed by the incessant clashes between the herdsmen and farmers across the country. Other non-oil export products have not received enough grace from the government to push up their contribution to non-oil revenue and economic growth in general.

With the activities in the lead-up  to the 2019 elections, which has made government relegate the economy to the background and especially, with continued rising prices of oil at the international market, the government’s efforts to diversify the economy, has waned. This is notwithstanding crisis –ridden agriculture sector, which deserves immediate attention and priority.

Besides, the manufacturing sector, which is a subsector in the real sector of the economy, through which the revenue base could be diversified, has been performing sub-optimally. The sector has perennially craved attention from the federal government. In fact, the manufacturers have allegedly blamed their inactivity on faulty government policies.  

Only recently, the Manufacturers Association of Nigeria (MAN) posited that despite recent economy growth, the challenges were not yet over as the sector was still on the brink of recession. The association called on the government to take urgent steps to address the challenges facing the sector, to enable it make impact to the macroeconomic development of the country.

Realising that the federal government was not up and doing in its so-called moves to reform and diversify the economy, especially now that the oil prices are rising, the International Monetary Fund made a wake-up call on the Nigerian authorities. Specifically, IMF warned Nigeria and other oil exporting nations in dire need of structural reforms not to be tempted to delay the exercise due to the current higher oil prices.

The Counsellor and Director of the Research Department, IMF, Maurice Obstfeld, who gave the warning last Tuesday at the unveiling of the IMF’s World Economic Outlook (WEO), at the annual meetings of the IMF-World Bank in Bali, Indonesia, emphasised  the need for Nigeria to enhance its non-oil revenue mobilisation.

Oil prices have been on the upswing in the past few weeks as more evidence emerged that crude exports from Iran, OPEC’s third-largest producer, are declining in the run-up to the re-imposition of United States sanctions and as a hurricane moved across the Gulf of Mexico.  Precisely, Brent crude closed at $84.17 a barrel last Tuesday.

But Obstfeld advised that  strengthening of fiscal positions was necessary to reduce debt vulnerabilities in Nigeria and other countries.

 “Fuel exporters should guard against the temptation to let higher oil prices delay reforms. Despite their recent recovery, oil prices are projected to remain below the 2013 peak. Boosting non-oil revenues and continuing fiscal consolidation plans remain key goals for oil exporters.

“The focus should be on growth-friendly fiscal adjustment, with a shift in spending toward productive and social outlays accompanied by frontloaded domestic revenue mobilisation, through for example, broadening the tax base and strengthening revenue administration.

“Moreover, enhancing financial resilience through proactive banking supervision, ensuring adequate provisioning for losses by banks, and improving resolution frameworks to keep expensive public bailouts at bay can help foster a financial system supportive of growth,” he said.

Could it be said that the Nigerian government is paying lip-service to the diversification of the economy ?

Director General, West African Institute of Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, lamented that it was  worrisome  that when oil prices maintained the upward streak, Nigeria forgot about economic planning.

Ekpo, who pointed out  that this has been a recurrent decimal in the economy, advised the government to be focused and ensure judicious implementation of reforms of the economy.

“When the oil prices are up, we forget what we’re planning. So, it is worrisome. I believe we should stay on course; whether oil prices are going up or not, we should keep our reforms going, in terms of change in the structure of the economy. This is not the first time. We’ve seen that scenario a number of times, because when the oil prices go up, we have more reserves, we go back to what we’re doing earlier that wasn’t good enough. We should stick to our reforms, change the  structure of the economy and diversify the economy.”

The professor of economics, who stated that, “For the first and second quarters, non-oil revenue increased,”, however, told the relevant authorities “to pay attention to it, so that it keeps increasing.”

“Developing the agriculture sector and other value added  sectors is the way to go—for us to export, otherwise, there is going to be a problem. Nobody depends on this oil to build an economy, because the revenue is exogenous—it’s outside your control, you can’t depend on that to build your economy.

“The best for us is to stick to our reforms, diversify the economy and just see the oil as a windfall; don’t see it as what you would use to plan your economy, because we all know it is not renewable. So, in that sense, the IMF was right,” he said,

“What I don’t agree with them is the forecast—they lower the forecast for growth. That has a problem, because if we stay focused on diversifying the economy and the non-oil sector is growing, the economic growth may be more than what they predicated. The forecast we did in our office is about 2.2 per cent for 2018,” Ekpo, however, argued.

In his own analysis, Director, Union Capital Ltd, Egie Akpata, who stated that, the Nigerian economy was well diversified, however, confirmed that, “Federal government revenues are not diversified and heavily reliant on the oil industry.”

“Even though exports earnings are listed as mainly from oil, we cannot ignore increasing size of Diaspora remittances which are a source of foreign exchange for the country.”

According to him, the federal government always seems to miss the opportunity to diversify their income base due to the huge amount of work and reforms needed to get tax revenues up.

“Yes, there are several individuals and companies that are not paying their fair share of taxes. However, the reality is that a significant portion of the economy is in the informal sector which would always be very difficult to tax. The kind of incentives, programmes, infrastructure and government support needed to formalise majority of the economy and get the participants paying tax could take years to achieve.

“Given our four year election cycle, any administration might not focus on doing all this hard work only for another government to reap the benefits,” he added.

Akpata decried the rapid rate at which the government has been borrowing both locally and internationally. According to him, it  means that actual new revenues to fund the budget have not had to be raised. “Rather than do the heavy lifting needed to significantly grow government revenues and drive exports, money was simply borrowed to fund the deficit. Eventually, those debts would have to be serviced or repaid. It is looking increasingly unlikely that there will be a material improvement in FGN finances in the near term for these new debts not to eventually become a problem, “ he posited.