By Babajide Komolafe
FIFTY eight years after independence, Nigeria’s economy is still groaning under the weight of over-dependence on crude oil, infrastructural decay, severe import dependence, fostered by occasioned by a unitary federal structure and public sector dominance of critical socioeconomic amenities.
Over-dependence on crude oil: Prior to the oil boom of the 1970s, the Nigeria’s economy flourished with export of agricultural products, tax revenue as main drivers of growth and government revenue. The oil boom triggered the flow of easy money, which displaced income from agric export and tax as major source of income for the country.
As a result, policy focus on agriculture began to decline while little effort was devoted to internally generated revenue. The economy completely depended on oil, which since then has accounted for 97 percent of foreign exchange earnings and over 70 percent of government revenue. By extension, the price of crude oil determines the volume of the nation’s external reserves, the value of the naira.
Nigeria’s economy grows when crude oil price is high, and contracts when crude oil price is falls. For example, the economic recession suffered by the country in 2016 was triggered by sharp fall in the price of crude oil. From a peak of $114.6 per barrel in June 2014, crude oil price fell to as low as $30.66 per barrel in January 2016. As a result, the nation’s GDP contracted steadily from 6.3 percent in 2014 to -1.6 percent in 2016, before growing by 0.8 percent in 2017.
The external reserves also fell from $43.6 billion on December 31, 2013 to $29.13 billion at the end of 2015. In turn, the naira lost more than half of its value as the exchange rate rose from N167 per dollar in June 2014 to N521 per dollar in February 2017, before retreating to stabilise at N360 per dollar.
Prices of goods and services skyrocketed with inflation rising to 18.72 percent in January 2017, from 7.9 percent in November 2014, before declining for 18 months to 11.14 in August this year. During the period, unemployment rose sharply while numbers of Nigerians living below the poverty line increased.
“The Nigerian economy remains at the mercy of the price of crude oil”, observed foremost economist, Ayo Teriba, Chief Executive Officer, Economic Associates. He said in an interview with Vanguard: “Nigeria’s story largely revolved around the fluctuation in the oil price. Our economy is too dependent on the global oil price, and that is not good. We should take measures to insulate the economy from fluctuations in oil price, but we are yet to take the steps necessary to insulate our economy from the vagaries of the oil market”.
After 58 years of independence, despite the rapid growth in population, Nigeria is yet to boast of any world class infrastructure. Power is epileptic, with generation perpetually below 5,000MW. There is no modern fast railway system across the country. Road network is ridden with pothole and accident prone articulated vehicles which make travelling by road a near suicide experience. The major air and sea ports lack what is obtained in most developing countries.
These result in high cost of operations and low capacity utilisation for businesses, which in turn undermine competitiveness of Nigerian goods and services in the global market. At the same time individuals and households suffer high cost of living which makes savings impossible and increase vulnerability to poverty.
The result is that Nigeria today occupies a distant 145th position on the World Bank Ease of Doing Business ranking, while the country is ranked by the United States based Brookings Institution as the world capital of extreme poverty in the world. “At the end of May 2018, our trajectories suggest that Nigeria had about 87 million people in extreme poverty, compared with India’s 73 million. What is more, extreme poverty in Nigeria is growing by six people every minute, while poverty in India continues to fall”, the institution said.
A case in point is the breakdown of the rail and road infrastructure around the Apapa ports, which accounts for 81 percent of the nation’s foreign trade. The accompanying traffic gridlock, has led to environmental deterioration, loss of man hours, with businesses deserting the once vibrant Apapa town.
Fixing the ports in Sapele, Port Harcourt, and Calabar
According to Managing Director/Chief Executive, Financial Derivatives Company, Mr. Bismarck Rewane, the Apapa meltdown is because the nation did not develop roads leading to other ports across the country.
He told Vanguard: “For example, Apapa gridlock. We now have dead weight on all the bridges all the way to Fadeyi. Those bridges will cave in and will kill people very soon. How can a country with 12 ports have all their products being imported through two ports, Tincan and Apapa? Why in one corner of the country? The reason is that the roads from Calabar, Port Harcourt, Koko to the inlands are all bad.
Is it better to start to have those bottlenecks or to fix the road from Koko port all the way to Benin City so that people can use Koko port? Is it not better to fix the ports in Sapele, Port Harcourt, and Calabar and fix the roads so that all of these goods can be evacuated without stress? Our imports today are less than our imports seven years ago when the price of oil was high. However, we didn’t have congestion. So logically it means that the congestion is as a result of a failure in something”.
Import Dependence: Besides exposing Nigeria’s economy to fluctuations in price of crude oil, the oil boom also fuelled Nigeria’s taste for imported goods and services. Hence the country today relies on importation for many basic goods, including food items, clothing, furniture, medical services and educational services. According to the Economic Complexity Index, Nigeria is the 52nd largest importer in the world and commodities like wheat, corn, rice, raw sugarcane, dairy products consume over $22 billion of foreign exchange annually.
Unitary Federal structure and public sector dominance
However, the root of the above challenges to Nigeria’s economic development is the twin factor over centralised or unitary federal structure and public sector foray into and dominance of the economy. This started in the 1960s and was nurtured by successive military administrations, when government in a bid to assume the ‘commanding heights of the economy’ used public funds to establish banks, utilities and manufacturing companies, which became centres of inefficient services and waste as well as corruption, and in the process impeded economic growth.
For example, prior to the advent of mobile telephone, the number of telephone lines in Nigeria was below 500,000 courtesy of the inefficiency of the government owned NITEL. Today, Nigeria has over 100 million telephone lines facilitated by competition among the private sector owned telecommunications company, while the government owned NITEL has ceased to exit.
In spite of the privatisation exercise, critical aspects of the economy are still controlled by the government. These include railway, airport, and the power sector, where government still owns 49 percent of the distribution and generating companies, and totally owns and controls the transmission company.
Also is the revenue allocation formula where the federal government currently takes 52.68 percent of income into the federation account, while the 36 states and 774 local governments take 26.72 per cent and 20.60 per cent.
This concentration of huge national resources in the hands of few government officials makes the country vulnerable to corruption and abuse of office. This structure according to former Vice President Abubakar Atiku, “makes us economically unproductive, uncompetitive, indolent, and politically weak, disunited and unstable.”
According to the Deputy Senate President, Ike Ekwuremadu, Nigeria was not designed for economic growth, adding that unless the country was restructured, its quest to get out of the depressed economy would remain a mirage.