End of Oil: COVID 19, Welcome To Reality

The Covid-19 pandemic has undoubtedly impacted the global economies, leaving most of the world’s advanced economies and businesses gasping for breath. Nigeria is not any different, Africa’s most populous country and the biggest economy is badly hit, not only by the effect of Covid-19 pandemic but also by the free-falling price of crude oil in the international market.

Globally, oil prices have collapsed to all-time lows with some benchmark futures trading for less than zero. Even though Nigeria’s Bonny light hasn’t fallen into the negative territory yet, but experts say the country is heading for a serious economic logjam. Interestingly, this is not the first time the nation is witnessing such a drop in income as a result of fall in the price of crude oil. Following the oil price collapse between 2014-2016, combined with negative production shocks, the gross domestic product (GDP) growth rate dropped from 7.4% to 2.7% in 2015, just a year after rebasing to emerge as Africa’s largest economy.

Over the years the country has solely depended on revenue from crude oil sales for foreign exchange and as a source of funding for its national budget. Crude oil sales account for about nearly 90% of Nigeria’s foreign exchange earnings and over 60% of national income. For the 2020 national budget, the government had adopted a benchmark of $60 per barrel but was forced to reduce to $30 per barrel just two months into the year due to a price crash in the international market. The implication of this is that almost half the country’s projected income from crude sales had been wiped out by forces outside its control.

To say that Nigeria’s economy is at a very vulnerable state is stating the obvious, but the question is how did we get here? The answer is simple, Nigeria lost ownership and control of its own economy a long time ago. Nigeria is an extremely blessed country that has plundered its wealth due to the lack of visionary leadership, inadequate national planning, bad government policies, and unsustainable citizens’ lifestyle. The nation’s problems started when it stopped creating real wealth, and depended on ephemeral crude “oil money”.

However, since the return to democratic government, the nation has consistently spent about 70%  of its national budget on recurrent expenditures; to pay salaries, maintain the machinery of government, and debt servicing while the remaining goes into funding capital projects which in most cases are either abandoned or mismanaged.

Nigerian citizens on the other, instead of holding the government responsible and demand good governance would rather pray. Nigerians’penchant for miracles has somehow crept into every facet of the society, or how else would anyone describe a people that shut down their manufacturing plants, turned them to event and religious centers, but still pray for “miraculous” economic prosperity. How do you describe a nation that imports virtually anything and everything money can buy, including toothpicks but still complain of weak Naira? Or how else do you qualify a nation that grounded its own refineries and started importing the finished product of the same crude oil that it exports, thereby growing other economies and losing jobs locally? How well can you describe people that consciously destroyed their own public education system and are complaining about the high cost of private education and international studies?

With the current realities of Covid-19 and dwindling oil revenue, the nation now has the opportunity to look inwards and learn the hard way in order to make the necessary changes required for real national development. The people also have to make a lot of sacrifices, as there is no quick fix. The country did not just get here overnight and is not likely to get out of the present situation overnight. The Nigerian state requires real structural and economic surgery such as:

1. It is time to restructure and make states independent.

There is no doubt that the current federal structure is not working, Covid-19 pandemic, and the recent collapse of oil prices have further reinforced the fact that it is not sustainable. The overconcentration of power and management of resources at the center negates the whole principle of federalism, a situation where state governors go cap-in-hand to Aso Rock for everything ridicules the whole idea of a Federal Republic. The United States where we copied the federal system does not operate this way, each state of the United States operates its own economy. For example, California, a state in the U.S. is the 5th largest economy in the world at $2.747 trillion, ahead of United Kingdom. Most of the Nigerian states are not viable, despite the abundance of natural resources across every state, very few states are able to create wealth or generate revenue internally to sustain themselves. Even with the monthly federal allocations, most state governments can’t pay salaries of their employees, talk less of meeting the developmental needs of the electorates.

Now that the chicken has come to roost, every state or local government should and must now look inward and use the resources available at their disposal to create wealth. A state is a corporate entity,  therefore, every governor and local government chairman should be held accountable for the welfare and prosperity of its citizens, while the citizens should also pay their taxes and hold the state and local governments accountable, not the federal government.

2. Close the knowledge gap, aggressively develop human capacities.

The real wealth of a nation is its human capital. Today’s world is competitive and driven by knowledge and innovation. To compete in this emerging new world, nations are building knowledge war chests. Interestingly, about 70% of Nigeria’s population is made up of youths. Two out of three are jobless, underemployed, unskilled, improperly educated, or unemployable. Here lies the real opportunities or better still, the time bomb. Those who are out of jobs have already taken up arms against the state in forms of Boko Haram, Niger-Delta militants, kidnappers, cultists, and robbers.

For Nigeria to stay relevant and globally competitive there is a need to urgently close the knowledge gap, and build a skilled youthful workforce. The education sector needs serious attention and intervention by both the government and corporate Nigeria. There is a need to create linkages between higher institutions and the industries by producing graduates that the job market requires while commercialising research work and funding innovative ideas. The much talked about Silicon Valley is an example of how the synergy between the ivory towers and corporate bodies can lead to the economic revolution.

3. Rapidly develop the agricultural sector.

Just like in other critical sectors, Nigeria’s agricultural sector is underdeveloped. Currently, the sector contributes about 22.12% to nominal GDP in 2019 and in 2018, it grew at a rate of 2.12% in real terms. According to studies carried out by NIRSAL, the Agriculture sector has the potential to grow to a rate of 8.37% in real terms. Blessed with all the capitals such as:

  • 84 million hectares of arable land with less than 50% in use.
  • Predictable rainfall pattern with billions cubic meters of surface and underground water.
  • Huge supply of labour with over 90 million population aged 15-65 years.
  • Huge consumer with industrial and export markets with unsatisfied demand.

It is obvious that the Agricultural sector remains one of Nigeria’s greatest hopes for economic growth and development, so the government needs to stop paying lip service to economic diversification and act now.

4. Grow local brands that can compete globally.

When America talks Facebook, Twitter, Instagram, Ford, GM, Apple, Google, Oracle, JP Mogan, CNN talk. Same with China. One of the biggest challenges with Nigerian businesses is the failure to evolve into brands that will not only make money but become part of our identity as a nation. A few years ago, some companies were celebrated for manufacturing or assembling personal computers locally, a decade after, one would have thought that by now we would have at least a Nigerian brand competing for the market share locally, if not globally. Nigerian companies need to move from just doing business to growing brands, we need to build local brands that are recognisable both locally and internationally, brands that can earn us respect and foreign exchange. But despite all the challenges the likes of Dangote, Innoson, ChannelsTV, EbonyLife, and many others have shown us that the Nigerian brand is possible.

5. Create local alternatives for foreign products

To truly create wealth and stabilise our currency we need to meet our own local consumption demands like food, education, clothing, health, and other basic needs. The young Nigerian artistes have shown us that this is truly possible. Today, Nigerians dance to their own music, watch their own movies, and the rest of the world now pay attention to Nigerian entertainment. Even though a lot of work needs to be done to commercialise the entertainment sector to translate the growth to national wealth and to also replicate the same across other industries such as cottage, food, etc.

Covid-19 pandemic has exposed the weakness in the global supply chain, it is foolhardy for any nation to completely outsource its manufacturing. Nigerians daily pay millions to foreign manufacturers and service providers, it is time for us to find or develop local alternatives to these services in the face of the rising cost of foreign exchange. We need to embrace and encourage local content, Buy-Nigeria. However, Buy-Nigeria must not be misconstrued for Buy-Inferior, if we want Nigerians to buy Nigerian made products, quality must not be compromised.

In conclusion, this situation, though very tough, it provides the opportunity for us as a nation to innovate and create our own future. It is time to take our destinies in our hands and reduce our over-dependency on government because the government does not create wealth, entrepreneurs do. The government only needs to build critical Infrastructures, most especially power for entrepreneurship to thrive.

God bless Nigeria!

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