While the rising crude oil prices may bring short-term relief to Nigeria’s economy, it is not the ‘magic pill’ for the country’s ailments – which include a depressed economy, corrupt and fossilized politics, and general insecurity .
Were
Shakespeare living today, he might find a source of inspiration in the
political and economic drama that is currently going on in Nigeria. Old political
enemies shake hands, former political friends stab each other in the back, kidnappings
and crimes flourish, and talks that
everything is expensive fills the air in the country’s major cities such as Lagos, Benin, Enugu, Onitsha, Owerri, Abujah,
Kaduna, Maiduguri, and so on. In such a fevered atmosphere, the first day of
the month of October promises to be
crucial because on that day Nigeria celebrates their sixty-one years of Independence from their
former colonial master, Great Britain. It ought to be a day of both celebration
and quiet satisfaction. But, in my view as a Nigerian, there is really nothing
to celebrate. Seriously, what is there
to celebrate when most Nigerians could barely afford the basics things of life
including food, shelter, housing, and
transportation? For instance, since February, the bus and taxi fare Nigerians
pay to go to work, school, or take care of the other business have more than doubled. The
price Nigerians pays for food items have also increased astronomically: In general, Nigeria’s inflation is running
at more than 18 percent. At 23 percent, the value of the inflation prices for
food is the highest in two decades, according to the Economist. More
than 50% of Nigerians are either unemployed or work in the informal sector of
the economy. About 80 million of Nigeria’s 200 million people lived on
less than the equivalent of $1.90 per
day before COVID-19. Available published evidence from the World Bank noted
that the pandemic and population growth could see that figure rise to almost
100 million.
With fair justification, it makes a lot of sense to say that
Nigeria’s economic woes is the reason for a vertiginous rise in crime. Without
putting it in so many words, more people were kidnapped in Nigeria in the first
four months of 2021 than all of 2020. Economic hardship and political
radicalism has added to worsening violence around three flashpoints: a
long-standing conflict between farmers and the Fulani tribe’s cattle-herders
across central Nigeria (Middle belt); the jihadists of Boko-Haram in the
north-east; and fighting between the government security agents and the IPOB –
the Igbo separatists in the south-east.
There is no denying that COVID-19 has slammed economies everywhere.
However, Nigeria’s economic woes started before the COVID-19 pandemic. There is
plenty of academic evidence that shows that a country’s gross domestic product
(GDP) is a good metric for measuring the value of all products and services a
country produces in a year. Sadly, Nigeria’s GDP per person has fallen every
year since 2015 – which is the year in which oil prices collapsed in the
commodity market. A growing body of evidence suggests that by the end of year
2021, the real income per person in Nigeria (which is considered the ‘giant of
Africa’ because it is the home for more than 16 percent of the sub-Saharan
Africa’s people) will be at the same level it was in the 1980s. It will be
logical, therefore, to suggest that Nigeria desperately need reforms. However,
it will be very difficult to enact or implement the needed reforms in a country
that exempts from the rule of law those who can
buy or bargain their way around it, such as corrupt politicians, bureaucrats,
and privileged business owners.
Wounded Tiger
It is no secret that while crude oil makes up about 9 percent
of the Nigeria’s GDP (see figure 1), it accounts for more than half of the
government’s revenues since it is the country’s main export product – as much
as 80% of Nigeria’s exports is crude oil. The slump in the crude oil prices since
2014 hit Nigeria very hard, especially its domestic and foreign trade. Simply
put, when crude oil prices fell from over $100 a barrel in 2014 to less than
half of that by July of 2020 squeezed the supply of foreign exchange
desperately needed by the country. Economic logic dictates that the best
approach managing such exchange rate shortages is for the affected country to
allow their exchange rates to fall – a strategy that might also make their
imports more expensive. This approach can be painful in the short term because it
can cause inflation in the affected country. But it is a price worth paying
because it usually helps to boost the country’s exports by making them more competitive
– an effect that, in the long run might help its currency to gradually recover
its lost value. It is worth noting here that Nigeria would be less vulnerable to
swings in the oil price if it could make, grow, or mine more for export.
Figure 1
Unfortunately for Nigerians, the government of President Muhammadu Buhari followed a totally different and ineffective approach: he restricted imports in his effort to prop up the naira, the country’s currency, which he sees as a measure of Nigeria’s strength. As a way of conserving the available dollars, the Central Bank of Nigeria (CBN) has banned those intending to import almost 50 items from buying foreign currency. During the moth of April, wheat and sugar were added to the list. It is worth remembering that President Buhari had earlier closed the Nigeria’s land borders to goods in 2019 to stop smugglers undermining local producers. The bad news is that all his moves have fueled food price inflation: the country’s inflation has remained at near four-year highs with food price growth at more than 20 percent year-on-year.
President Buhari’s economic and exchange rate policies have
also hobbled manufacturing firms by making it hard for them to obtain inputs.
In most cases, a manufacturer is
considered lucky if they get, say, 20 percent of the forex they requested at a
particular point in time. It is thus not surprising why many Nigeria’s manufacturers, especially those of
them that import machinery (including computers) and chemicals (as well as
medical equipment), uses the volatile black market, where dollars cost almost
30 percent more than the official rate. It is indeed obvious that Nigeria’s
economy is in shambles. And, despite all the unorthodox controls put in by President
Buhari’s government, the CBN was forced to devalue the naira twice last year.
Ask any Nigeria’s business owner about the forex situation and the reply is the
same: they are getting neither a stable currency nor access to dollars.
President
Buhari’s government appears to be slowly changing its tune, having learned the
hard way that their economic model, which is hard to fathom, is wrong in
principle and has failed in practice. According to Bismark Rewane, a member of
President Buhari’s council of economic advisers, the government is starting to
pay more attention to exporters. As a prove, he pointed to the country’s partial
reopening of the land borders for goods in December, 2020, as well as to the country’s
signing of the African Continental Free Trade Agreement in 2019. If the
experience of the past few years teaches us anything, it is that sustained
growth in exports required more than just opening the border. In plain terms,
many Nigerian firms are uncompetitive because they are being crushed by red
tape and government failures.
The Bad, and the Ugly
It is worth pointing out that Nigeria runs a government that
is allergic to the economic doctrine of adherence to free markets, limited
state and open meritocratic society. Electricity blackouts are maddeningly
frequent in the country. The country’s roads are death traps and its ports are
always clogged up. To move a container about 30 kilometers from Lagos’ Premiere
port to the city can cost as much as the naira equivalent of $4500 – which is
almost the cost of shipping the same container 12,000 kilometers from China.
When it comes to the World Bank’s ease-of-doing-business index, Nigeria ranks
131st out of 190 countries. The country’s court system, which are
supposed to prosecute crimes and enforce contracts are a sham, and jobs rely
more on connections and kickbacks than merit. The country’s corrupt civil servants
are also part of the problem: they often see jobs as hereditary sinecures,
their ministries’ budget and the average Nigerian needing any form of
government service as revenue streams to be milked, and any attempt to monitor the
quality of the services they seldom provide as an intrusion on their work. There
is no doubt that some of the country’s industries, particularly the information
technology (IT) sector, are growing. The truth is that the growth being
experienced in these sectors are independent of the government’s actions.
So what lessons should be drawn from the Nigeria’s
experience? The obvious one is that, to survive in Nigeria, one has to be an
eternal optimist. Second, stalled reform is typical of Nigeria’s troubles. For more
than three decades cash from the sale of crude oil has been used to subsidize
things like fuel and electricity. The easy revenue from the sale of crude oil have
also allowed the federal and state governments to get away with both corruption and abysmal tax collection.
As we celebrate our sixty-one years of independence, I have
no doubt in my mind that many Nigerians have had enough. Almost 70 percent of the
Nigerians I spoke to want to emigrate to either Europe or America. The truth is
that running away will never solved our problems. As we celebrate our Independence
today, I believe that this is the time we begin demanding accountability from
our local, state and federal governments. Given that no democracy thrives on
apathy, the moment we start to do this as Nigerians, our lives and fortunes will
begin to change in a positive way.
Notes
The Economist. (2021, May 15). Hard Times: Nigeria’s
Economy is Stuck in a Rut. Retrieved from Middle East & Africa:
https://www.economist.com/middle-east-and-africa/2021/05/13/nigerias-economy-is-stuck-in-a-rut
Greg, I. P. (2013). The
Litlle Book of Economics: How the Economy Works in the Real World. Hoboken,
NJ: John Wiley & Sons, Inc.
Momodu, D. (2021, September
11). The Mistakes Nigerians Must Not Repeat in 2023. Retrieved from
Thisday Live: https://www.thisdaylive.com/index.php/2021/09/11/the-mistakes-nigerians-must-not-repeat-in-2023/
Soto, A. (2021, June 15).
Surging inflation in Nigeria fuels crime wave, says World Bank. Aljazeera.
Retrieved October 1, 2021, from https://www.aljazeera.com/economy/2021/6/15/surging-inflation-in-nigeria-is-fueling-crime-wave-world-bank
Statista. (2021). Contribution
of oil sector to GDP in Nigeria from the 4th quarter of 2018 to the 1st quarter
of 2021. Retrieved from
https://www.statista.com/statistics/1165865/contribution-of-oil-sector-to-gdp-in-nigeria/
Macrotrends. (2021). Crude
Oil Prices - 70 Year Historical Chart. Retrieved from
https://www.macrotrends.net/1369/crude-oil-price-history-chart
