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The untold secret of Nigeria’s economic rise

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By Chamberlain S. Peterside
IN the euphoria of recently concluded general elections, there are more winners than losers. The courage by President Jonathan to concede defeat early is quite salutary and saved Nigeria from several dooms-day predictions by pundits.

The winners at the end of the day are not only the electorate that voted for Buhari, but also the generality of the populace who would ultimately benefit from an economic surge and perceived social justice that can be engendered in this new era.

It is obvious that General Buhari is a man that never gives up, until he gets what he wants. This is reflected in his persistent contest of presidential elections for the fourth time now, until he succeeded in edging out his opponent. Some of us would want to see this same doggedness expressed also in his pursuit of radical economic reform never seen before in Nigeria. If his antecedent is anything to judge by, then there is reason to hope that he would try many unconventional approaches and take tough decisions in trying to pull Nigeria from the doldrums and its perennial under-performer status in the global economic sphere.

Skewed public finance architecture: My experience as Finance Commissioner here in Rivers State and attending the ritual monthly Federal Account Allocation Committee (FAAC) meetings where revenue is shared has opened my eyes to Nigeria’s fiscal framework.

But most times my front-row observations leave me bewildered and pondering how anyone expects Nigeria to perform better, given its current public finance architecture and economic structure.

It will only take some anointing or relentless prayers to achieve anything better. Unfortunately, economic progress demands smart policies and timely actions and not prayers.

For starters, let’s ask ourselves the following salient questions – How can a modern economy be so reliant on a singular export commodity like crude oil, that accounts for 80 per cent of budget revenue? How can you achieve job creation for teeming youths and alleviate poverty with such dismal electricity supply and wobbly infrastructure? How in the world do you hope to continuously provide enough affordable commodities for a huge consumerist society without local manufacturing base? How can you have the financial capacity to invest in and expand infrastructure if you spend over 75 per cent of your budget on recurrent expenditures? This and many other common sense questions should keep President Buhari and his team awake over the next four years.

Failing infrastructure

I personally prefer to take an unorthodox view to our problems and seek new solutions. Even with a near-comatose manufacturing sector and failing infrastructure, Nigeria has managed to log in 5 – 7 per cent GDP growth rate over the last decade. No thanks to our direct effort, but via rebasing, the country now boasts of the largest economy on the continent; moving from the 39th to the 29th position amongst the largest economies in the world. Five years away from 2020, there’s still a fair chance that Nigeria may at least become a leading top-20 economy by the turn of this decade.

Mr President Buhari – tear down this wall: Just to borrow a famous phrase from President Ronald Reagan when he visited West Berlin at the heat of the cold war in the late 1980s, where he said – Mr Gorbatchev, “tear down this wall” To our President-elect I want to say – “tear down this oil veil.”

To make serious progress I would call on President-elect Buhari on assumption of office to tear-down this disjointed and dysfunctional oil based economy, then rebuild it from the bottom-up. How, you may ask? The feats and efforts that brought Nigeria this far from the 1960s to 1980s would hardly take it to the next level. It is quite characteristic that backward, third-world economies are typically mono-product, import-oriented, agrarian and undiversified. However that is not the case for emerging economies of the 21st century, such as the BRICS countries (Brazil, Russian, Indian, China and South Africa) where you have a well-diversified, export-oriented, robust domestic manufacturing base. A cursory look at Singapore, India, China, Malaysia and even South Africa can explain that better.

National emergency

The bedrock of Nigeria’s economy, the oil/gas sector is so opaque and overdue for radical revamping, no question about that. But overhaul in what direction is another issue. To my mind beyond enacting the PIB (Petroleum Industry Bill) to dismantle the NNPC and delineate the regulatory and commercial functions of that behemoth in the industry, Nigeria should consider beginning to curtail crude oil exports over the next 2 – 4 years, down to 30 – 50% of production as a matter of national emergency and deliberate policy.

If leaving the OPEC is what it takes so be it, afterall no emerging market country belongs to OPEC. I say that for the following solid reasons that will require hard statistics to be buttressed further and substantiated;

The value creation in dollar terms or incremental productivity from crude oil refining locally far outweighs the proceeds from crude oil exports at current prices. Consider the by-product derived from refining a barrel of crude oil even at current average price of $50 – $60 per barrel, which can be at least 3 – 5 times more. This same products can help unlock value in the local economy through providing lubrication for domestic manufacturing; diesel, aviation fuel, kerosene for local industries and polyethylene for petrochemical processing and Liquefied Petroleum Gas (LPG) for domestic cooking and commercial use.

*One of the greatest inhibiting factors in the growth of local electricity generation is shortage of gas supply. Yet Nigeria has huge gas reserves, and exports Liquefied Natural Gas (LNG) through the existing Bonny LNG plant, while planning for Brass and Olokola LNG. How economically insensitive can that be? If you consider for a moment the impact on manufacturing and growth of cottage industries, the increase of electric power capacity from the current level of 4000 megawatts to say 10,000 – 20,000 megawatts in the next 4 years you would understand how that can tremendously spur productivity and drive double-digit economic growth.

*To rely on oil exports and proceeds from gas exports at the expense of domestic power supply and local crude refining is fool hardy to say the least for Nigeria and Buhari should consider reversing that trend.

*The multitude of challenges plaguing Nigeria today is a direct consequence of that third-world economic malaise.

*If the prognosis of Nigeria rising to join the ranks of the Next 11 (according to Goldman Sachs Investment Bank) or becoming a MINT member country is to be achieved, the current environment is totally hostile and counter-productive for that. By the way MINT stands for Mexico, Indonesia, Nigeria and Turkey as a new group of powerful global emerging economies.

Market scenario: For the purposes of illustration, consider the following facts. A barrel of crude oil, is an equivalent of about 159 litres. Consisting of 11% Liquified Petroleum Gas (LPG); 13% petrol/gasoline; 50% diesel and the remaining are kerosene, fuel oil, sulphur etc. Consequently based on this configuration, a barrel of crude oil refined locally will produce approximately 30 litres of petrol/gasoline, 90 litres of diesel and other sundry products. In monetary terms, 90 litres of diesel at a unit market price of N150 is about N13,500 or $67 at N200/1 USD, while 30 litres of fuel/gasoline at N110 per litre will give N3,300 or $16. That alone amounts to a total output of $84, not considering the income from other refined products. Now compare this to a current market price of crude at $60 per barrel that results to a loss of $24 per barrel. At a daily production of 2.3 Million barrels, Nigeria losses $55 Million daily or $19.8 Billion annually, assuming production is for 360 days at going price of $60 per barrel.

The last dinosaur standing NNPC: Aggregate this financial loss with the mass closure and the low capacity utilization of existing local factories and intermittent shortage of refined products in the market, plus the subsidy sink-hole, you would understand the enormity of financial calamity being orchestrated by the overly dependence on this singular hydro-carbon sector in Nigeria.

Vested interests

Now don’t ask me about the attitude of vested interests and myopic economic groups in Nigeria towards the proposed radical turn-around (that have carved their respective niches and would not live to see this drastic change happen). To them I say, “if you can’t beat us, join us”. Economic transformation and structural changes are usually fraught with casualties. In such circumstances, companies and entrepreneurs are forced to retool, realign, re-strategize or perish. The progressive match forward in any economy ought to benefit the majority, however, due to potential loss of grip and entrenched rent-seeking mentality, drastic changes hardly succeed, nor even allowed to take-off.

As we have seen with the status quo in NNPC, PHCN and NITEL etc. Thankfully, but gradually that choke-hold is loosening. President Obasanjo succeeded in dismantling/liberalizing the telecommunication sector, President Jonathan made strong strides in unbundling and disposing the electric power assets of NEPA (PHCN). The last dinosaur still standing and probably the strongest of all is NNPC and the oil/gas cartel. President Buhari must attack that challenge frontally to make it his best legacy and at last free the economy of Nigeria from a debilitating paralysis.

  • Peterside is Rivers State Commissioner for Finance

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