Nigerian Economy: Driving furiously into sunset

The Nations’s second editorial for that day focused on the stagnation in oil exploration as a result of which Nigeria is now lagging behind Angola in sub-Saharan Africa.

AfricaAngola is also gradually moving to overtake Nigeria in crude production. Several reasons, all familiar to knowledgeable observers, have been adduced for this. Chief among these is unchecked oil theft, divestment by multinational oil companies, vandalism, and insecurity in the Niger Delta.

Expatriates and other highly skilled technical employees of oil companies are still at risk of being kidnapped and held for ransom – more than five years after amnesty with so called dissidents. The failure to pass the PIB 2, after a similar failure to pass PIB 1 in 2011 is also a critical factor.


Thus, oil export, which continues to be the mainstay of the Nigerian economy, is no longer the engine of growth it once was and instead is leading the retreat from stronger GDP growth.
Even then the future of crude oil, as the dominant element in the Nigerian economy, is demonstrably bleak. The United States of America, once the nation’s largest customer, no longer purchases Nigerian oil; and, it is now an exporter – eager to expand its market share globally.

The US is not alone in the search for more oil customers worldwide. Mexico, Angola, and Ghana, as well as Sudan, also aim to increase their crude exports. When they do, the downward pressure on prices will be irresistible. Some oil producing countries in the Arab world, notably Iraq, Libya and Iran are currently producing well below their capacity.

Resolution of the conflicts in those countries will certainly bring more supplies to the global market and prices will plummet.
Quite clearly, the current crude oil price globally is unsustainable in the long run and the volume of our exports is also not guaranteed. In fact, both now depend on continued turmoil in the oil producing Arab countries – since global growth forecasts have been trimmed down by the International Monetary Fund, IMF.

Nothing demonstrates this fact better than the decline in crude oil revenue which had also driven down the Federal Allocated Revenue to the three tiers of government. Consequently, several states are now struggling to pay their staff salaries and close to half of them actually owe their employees up to two months unpaid salaries. With only four months to go in the year, it is almost certain that all governments, in Nigeria, will experience shortfall in revenue estimates.

One Federal Government agency, whose Chairman of the Board spoke to me on condition of anonymity, disclosed that the institute he heads had received only 25% of its capital expenditure budget; and it is not expecting more than 40% for the year. He is not alone.

The Minimum Wage of N18,000, which the NLC secured for public servants have now become a mere paper agreement – while Labor appears helpless in the face of the realities that have rendered the agreement they signed with government in 2011 null and void in practice. With government spending constituting a major proportion of GDP, not even a miracle can produce anything other than slower growth in 2014.

Rebasing the economy, which propelled the Nigerian economy to the top in Africa, also revealed that telecoms, especially the GSM had increased its share of the GDP. But, frequently overlooked is the fact that Nigeria had achieved tele-density of close to 90% faster than, perhaps, any other country in history. At any rate, GSM growth is self-limiting. Once 100% of the population is hooked to it, the growth slows down to, at most, the rate of growth of the population itself.

In the case of Nigeria, population is rising at only about 2.8%. Over time that is the maximum growth the sector can hope to acvieve. So, for the Nigerian economy to continue to grow at 5%, or more, there is a need to look elsewhere. Two major sectors, oil and telecoms are already leading the drive into slow growth.

Agriculture is another sector which will suffer setbacks – as long as the war in the Northeast zone persists. Nobody needs a Ph.D in economics to know that with vast areas of the zone under siege by Boko Haram, no farming is taking place in the worst hit areas.

And as the insurgents demonstrate their increasing capability to occasionally hit some parts of the Northwest as well, the areas which will experience reduced output of agricultural products will widen. In the Middle Belt, Benue in particular, the face off between Fulani herdsmen and farmers point to another zone where food cultivation will be sharply reduced.

As if those were not enough calamities to contend with, Ebola, has now taken centre stage across the ECOWAS region with immeasurable economic consequences. ECOWAS nations constitute Nigeria’s largest export market and the also account for a good chunk of international travel. Since the Ebola epidemic erupted, bothers have been closed and the lengthy queues at airlines counters by passengers ECOWAS-bound have disappeared.

Airlines are counting mounting losses; so are traders. Meanwhile, foreigners from outside ECOWAS, who can afford to postpone their trips to Nigeria, are staying away until it is safe to travel to Nigeria again.

That may not happen until next year. The earnings this year are gone for good. Most of the businesses directly affected are hoping that the situation will be brought under control soon. Otherwise, most of 2015 might also be gone by the time normalcy is restored.
GSM NETWORKS SERVICE

Once upon a time, we honestly believed that the private sector delivers better services than the public sector. But, in less than ten years, Nigeria’s GSM service providers are already forcing us to ask a question Babangida asked when SAP was failing. “Why is it that something that works well elsewhere fails in Nigeria?”

Culled fromwww.vanguardngr.com