As Nigeria continues to suffer the adverse effects of the dwindling revenue from crude oil and gas sector, which today accounts for about 95 percent of its revenue after the neglect of other major sectors over the years, OLUGBENGA SALAMI examines the government’s new efforts to diversify the nation’s economy.
For many years, since the discovery of oil in Nigeria, various administrations have been relying on the product, which they much attention at the expense of other natural resources. Agriculture that used to be the main stay of the nation’s economy before the discovery was relegated to the background, and usually failed to regain its lost glory even with several programmes initiated by some of the past leaders.
The agricultural programmes included the “Operation Feed the Nation” by the General Olusegun Obasanjo in late 70s, and “Green Revolution” by Alhaji Shehu Shagari in early 80s before former President Goodluck Jonathan introduced the Agriculture Transformation Agenda, ATA which made a lot of impact in the sector.
However, there is no denying the fact that Nigeria is now paying for the long neglect of other sectors, especially agriculture, manufacturing and other productive sectors. The country is presently suffering the adverse effects of the dwindling revenue from crude oil and gas sector, which today accounts for about 95 percent of its revenue.
It is also a fact that crude oil has contributed substantially to Nigerian revenue since its discovery in 1956 and more especially, since 1970 when its price was on the upward trend. But for a country to attain growth and development, its economy has to be diversified. Diversification does not occur in a vacuum. Mono-economy needs to give way to the productive development of various sectors of the economy.
Following the supply and demand limitation of major importers from the country, which brought about the fall in the price of oil by more than 40 per cent since June 2014 when it was $115 a barrel, which now is below $70, after five years of stability, it is a well-known fact that Nigeria’s continuous large earnings or revenue from this sector will be impossible. As a matter of fact, there is an urgent need for the Nigerian government to begin looking into diversification of various sectors of the economy so as to attain solid economic growth.
The fallen price of crude at the world market has orchestrated the devaluation of the Naira and increased inflation.
The manufacturing and other productive sectors are worst hit because, as the country is highly import dependent, they find it extremely difficult to bring in raw materials, especially now that the central bank has closed its auction market window. The dollar is expensive to procure at the interbank window and the black market.
More worrisome was the need for government to review its 2015 fiscal policy by slashing the benchmark of oil, in the 2015 budget from $120 to $75, and now to $53. The implication of the budget review may not manifest now.
Given reasons why Nigeria must move faster towards the diversification away from oil as the mainstay of the country’s economy, former President Jonathan said the increasing utilisation of shale gas and other alternative sources of energy by the United States and other advanced oil importing nations of the world was a matter of concern for Nigeria.
“That is why we have to increase the pace of diversifying our economy and move our country away from dependence on the oil and gas industry. We must work towards greater industrialization; add more value to our agricultural products; develop our solid minerals potentials and other sectors of our economy before the time comes when crude oil may no longer be dominant as a global source of energy”, he said.
However, it was cheery news to ears of many Nigerians when President Muhammadu Buhari, after his election early in the year said that he would shift attention from oil to agricultural and mining sectors to create jobs. He said he would address the problem of unemployment as it was one of the biggest challenges facing the nation.
“The biggest message is to try and persuade the people, that, it is not possible to change the state of affairs now. It took 16 years and those 16 years, most of you know it better than myself, Nigeria earned revenue more than what it earned from 1914 till then.
“In the economy, we have to quickly turn to agriculture and mining because that is where you can do the quickest work and earn results. In other areas, you need to study them and dust all the books and studies and get people, experienced people, committed people, and technocrats to come and help the government.
“They need to help the government to identify priorities so that with what is available to us, we can quickly make our people realise their hope for the government they have chosen,’’ he said.
Buhari said that for his administration to enjoy relative peace, security, job creation and put infrastructural facilities in place, the power sector must be given serious attention.
The perennial crash of crude oil prices and the exposure of the Nigerian economy to financial crisis have pushed stakeholders and policy makers’ attention to non oil revenue generation.
One sustainable source of foreign exchange generation is export of manufactures, solid minerals, and agricultural output with value addition. The Nigerian Export Import Bank, NEXIM is fast becoming the center of attraction to government and exporters to push the non oil foreign exchange earning drive through trade financing and productive efforts of exportable products from Nigeria.
According to government official documents, in no other sector is the role of NEXIM in driving the foreign exchange revenue drive of the present administration more pronounced than in encouraging the manufacturing, mining and the agric sectors in producing non-oil goods for export.
This way, the government reasons that the volume of external trade is being gradually shifted away from crude oil on which the nation largely depends, to non-oil items that are abundant and widespread in the country, but which have largely suffered neglect due to a multiplicity of factors, chief of which is funding.
The new focus is intended to permeate a wide spectrum of the nation’s everyday life, ranging from housing, industry, energy, entertainment and the whole gamut of every facet of the nation’s social life.
The economic nerve centre of Africa shifted northward when Nigeria took South Africa’s long-held position as the country with the continent’s largest Gross Domestic Product, GDP.
While GDP neither reflects the wealth distribution nor accounts for the size of the population, it is a significant indication of Nigeria’s emerging economic power. If these growing resources are invested intelligently, the country can benefit and exceed the International Money Fund’s estimated GDP growth of seven per cent this year.
Oil is the lifeblood of Nigeria’s US$510 billion economy, which was rebased or recalibrated to reflect a more accurate economic picture in April of this year. Pumping more than 2.5 million barrels of oil a day makes the country the continent’s largest producer. It constitutes 80 per cent of revenue and 95 per cent of export earnings, according to statistics from the Federal Ministry of Finance. This can be a blessing or a curse: it provides a large revenue stream in good times but also puts the country at the mercy of cyclical prices.
A drop in oil prices has the potential of leaving a government with the choice between spending cuts impacting public infrastructure or a damaging deficit.
The good news is that oil can be used to reduce a country’s dependence on oil. By investing energy profits in projects in the downstream oil sector and manufacturing, it is possible to diversify sources of revenue and brake oil’s dominance of the economy.
Even more importantly, investing in strong and successful manufacturing industries stops Nigeria from exporting valuable resources overseas when they can be turned into something more precious at home while providing jobs for Nigerians at the same time – multiplying the benefit to the national economy.
Nigeria’s natural resources are not limited to minerals. By adopting a development model that capitalises on all of Nigeria’s assets vast energy reserves, a large labour force, and a huge local customer base, the country can be self-sufficient and prosperous.
At the recent World Economic Forum–Africa in Abuja, former Minister of Industry, Trade and Investment, Dr. Olusegun Aganga, said that Africa must embrace industry in order to manufacture products with greater value than the raw materials used to produce them. He said no country has ever moved out of poverty without making this important step.
Former President Jonathan said at the WEF that even though manufacturing can create more jobs than the service sector, the Nigerian economy is still dominated by service jobs. He believes that the growth of manufacturing has greater potential to create employment opportunities than the country’s growing GDP.
The Dow Chemical Company recently co-chaired a World Economic Forum Report in collaboration with Deloitte entitled, “The Future of Manufacturing”, to identify crucial factors for success. Critical areas highlighted in the report include human capital and talent development, innovation and technology, as well as public policy to which can foster collaboration between policy-makers and business leaders.
The report says resources must be used to develop a downstream sector where petroleum products can be turned into an even more valuable asset and funneled into the development of a strong, diverse and competitive manufacturing base for Nigeria to continue to grow.
The federal government made a good use of the World Economic Forum–Africa to show the lucrative possibilities of investing in the country, to enhance ties with trading nations, and to find new partners for growth.
And while these will all benefit the country, it is crucial that Nigeria adopts a strategy targeted at all sectors of its vast population that will build a diverse industrial base, increase the value of its natural resources, and protect the national economy from the price fluctuations of a single natural resource.