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Nigeria in the looming global recession (2)


“History does not repeat itself; man does”. Barbara Tuchmann; the world’s leading historian on 13th and 14th centuries in Europe.

In the first part of this series, the price of Brent Crude, which is closer to the Nigerian light crude, was quoted at $95.56 per barrel on June 20, 2012. On June 28, 2012, it came down to $93 and that was on account of the strike in Norway, the world’s eighth largest producer.

In between, it actually dipped closer to $90 in one day – all on account of the intractable economic and financial crisis in several European countries – including three of the largest four, namely, Portugal, Spain and Italy. Spain had been forced to borrow at exorbitant rates in order to keep its economy from collapsing totally and dragging down the Eurozone with it.

That implies dragging down Nigeria’s crude oil exports as well.

When the Spanish Prime Minister, Mariano Rajoy, warned that Spain cannot afford high [lending] lending rates for long, he made clear that he was not speaking for Spain alone but for other nations in Europe as well.

According to him, “It is happening in Spain; it is happening in Italy; and it is happening in other countries”.

Meanwhile European leaders demonstrating what, Russian President called “action deficit”, are as far away from finding any, talk less of a lasting, solution to the gravest economic crises the Western world has faced since the end of World War II. It is crisis which will affect us in more ways than many in government imagine. Our over-reliance on crude oil and our refusal to make the hard choices that would lead to diversification will eventually lead to our economic ruin – if care is not taken. Unfortunately, it is not being taken.

Crude oil, which had been the catalyst propelling our country to unforeseen prosperity is, at the same time, the potential harbinger of our economic ruin.

For almost fifteen years after crude oil was discovered in Oloibiri, oil played a minor role in the economic activities of the country. We had a truly balanced economy – with each of the three (later four) regions contributing a significant percentage of the government’s revenue.

No single region could hold the entire nation to ransom; as we have now. We also had true fiscal federalism – which encouraged the federating units to compete in developing the abundant resources we now proclaim but fail to exploit.

Nigeria’s economic fate, as well as those of other nations of the world changed abruptly, as they are about to change again, in 1973. This time, starting from 2012, it might be a change for the worse. The boom, which started in 1973 and ended in 1982; resumed briefly again in 1992, and had continued from 1997 till last year is coming to an end. The doom which followed the first boom, in the mid-1980s till 1997 is about to repeat itself because Nigerian leaders, at all levels, were slow to read the handwriting on the wall and to take appropriate measures to prevent turning an economic  crisis into a catastrophe.

Reading, in the newspapers, the number of Commissioners and Special Advisers which the least profligate of our governors had appointed, it is clear that our desdcent into distress would be deeper and longer. Nobody, except one, thinks of a Nigeria without substantial crude oil revenue – NONE.

Global trade experienced a revolution, on account of an event which occurred on October 6, 1973. It was the eve of the Yom Kippur, the holiest of Jewish holidays, during which Jews were restrained from bearing arms. Egypt took advantage of this and attacked Israel and initially made headway; but soon the holidays were over and Israel handed the Egyptians their third defeat since World War II. Humiliated once again, the Arab nations turned to their remaining strength – they imposed on oil embargo on the West. Before it was over, the price of crude, which had remained at the $3 per barrel dictated by the West shot up to $12 per barrel. The Organisation of Petroleum Exporting Countries, OPEC, was formed and suddenly the producers, not the consumers, of crude oil were dictating the price.

The effect on the Nigerian economy was almost instantaneous – crude oil, by the end of 1973, had become the nation’s largest revenue earner; a position it retains till today. Money and madness are close allies; but when the bonanza is so large as to exceed fairy tales proportions, it certainly induces lunacy.

Nigeria went on a spending binge about which many of the public office holders, at the time, and still alive, would certainly not want to be reminded for the wasted opportunities involved in public policy at the time.

For instance, many public servants nearing retirement, who rushed out to buy new cars, refrigerators and television sets, after the Federal military government under Gowon declared the Udoji Awards, paying workers nine months arrears of salary and increasing take home pay by 300% were not able to maintain those items. Invariably, it was the first and the last. Meanwhile, the hyperinflation which the awards triggered lasted for more than twenty years.

Meanwhile, the price of crude jumped on an upward moving escalator such that government, it seemed, could not spend the money fast enough. It would have been better if they had spent most of it on education, infrastructure, power and health. Instead, it went on vainglorious projects; on unsustainable salary increases; on maintenance of office holders and lastly, it disappeared through corruption.

The Udoji awards induced a mania for imports to the extent that many ships loaded for Nigeria sank with their cargo, after waiting for weeks to berth, and the government paid for the undelivered goods and the boat – sometimes more than the entire lot was worth. The attitude was, “why bother, there is more money on the way?”

Even then some lonely voices were warning that the price of crude could not rise forever, they were ignored by government officials and the “technocrats” of the Organised Private Sector, OPS, who, collectively, did more to ruin Nigeria than any group of fellow Nigerians.

It was not until the price of crude, which had gone up as high as $28 per barrel by 1981 started a relentless decline to less than $15 per barrel, under President Shagari and later, went under $10 per barrel during President Ibrahim Babangida’s administration that Nigerians learned the age old lesson – nothing lasts forever. By the time IBB announced the Structural Adjustment Programme, SAP, the “party was over” for Nigeria. Several years of hardship would follow.

Then we had a brief respite from 1997 till 2007. Then despite rising crude prices, corruption and wasteful spending took over. Since 1997, crude prices had been going steadily up as global demand, thanks to China, India and Brazil, as well as Europe, whose economies were booming raising demand for crude worldwide. We also benefitted from wars in the Middle East which kept prices up. By last year and early this year, crude prices went as high as $142 per barrel.

Yet, the high prices were not enough to stave off impending doom – even if Europe had no problems. For twelve years, in a row, we have successfully practiced the presidential system of government, which is very expensive and made more so by several provisions in our own constitution. Even at $200 per barrel, the Nigeria economy would have collapsed under the political weight of the presidential system. It was only a matter of time. With our trading partners – including Brazil now – in trouble; the monster is already at the gate.

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