Africa’s troubled giant: Reflections on economic recession in Nigeria

Babalola also maintains that there was the belief that we would always be assured of a never ending source of income from Oil revenue which led to large percentage of government revenue being channeled towards the maintenance of political structures.

There was massive exodus of people from the rural areas migrating into the cities seeking a slice of the oil cake abandoning the opportunities provided by agriculture that contributed over 60% of the nation’s resources. Our budding workforce became stooges and willing tools in the hands of politicians, being wielded at any time for the purpose of carrying out their corrupt and fraudulent activities and in maintaining their hold on power.

These young, vibrant graduates who have been frustrated by the flawed system created by these same politicians saw this as their quick means to wealth. A lot others abandoned school altogether to become a menace to society.

In all of this, while the oil craze with corruption and mismanagement gained ascendancy, other viable sectors and resource areas including the prospect for raising a quality human capital resource base declined. We instead by design churned out lazy people who one way or the other felt that the management of the future of the nation did not depend on skills, talents or qualifications but on the “Godfatherism” factor, whether they had what it takes or not. Thus we built a system where the inferiors make the policies that bind us all and we groan silently.

The new oil regime turned our economy on its head. The foundation for corruption and mismanagement was laid from the very day oil came on the scene. This discovery coinciding with the increase in price of oil at the time of discovery meant instant wealth and over time it became the major revenue earner. The immediate past CBN Governor, Lamido Sanusi noted that the once obscure Nigeria soon gained world recognition on account of this new found wealth from commodity export.

While I agree that the unfortunate drop in oil prices and the loss of production due to vandalism played a significant role in setting us up with a date with recession, the current economic difficulties could have been avoided if appropriate measures were taken to create a buffer by previous governments notwithstanding the rot in the system.

We must come to terms with the fact that while we intend to lay the buck on the external yet out-of-our-control-oil-price factor, much more of it lies squarely on what we failed to do; especially previous handlers of the economy who did not take the right proactive steps to prepare for a shock in the event that it arose considering that they had already known and were well aware that the oil sector contributed less than a tenth of GDP.
A former Head of State in the midst of this wealth discovery announced to the world that “Money is not our problem, but how to spend it”.

How true those words ring aloud today and haunt us. This was the foundation for the gross mismanagement of resources because it created this sense of infallibility; an on-top-of the-world mindset like nothing could ever go wrong.
A system was created such that States were not encouraged to develop their natural resources with a view to being self reliant. Like already mentioned above, resources were utilized majorly to promote political structures. There is this overdependence on the center for the monthly float of every State.

Today all the States of the federation with the exception of Lagos cannot confidently and conveniently rely on their Internally Generated Revenue. With the drop in revenue at the centre, what is being shared amongst the 36 States of the federation is greatly impaired. Recently, the Federal Government engaged in the bail-out of State Governments and much of this bailout fund is expected to be plugged into taking care of recurrent expenditure, mostly salaries of a bloated workforce cut across the nation.

Previous governments and greedy politicians at both the State and Federal levels squandered whatever savings there were which could have been useful in plugging in the vacuum created by the revenue shortfall. So, instead of saving for the rainy day, the government was busy depleting its oil revenue base and increasing its domestic debt to finance a consumption-led growth.

As an avid watcher of events in the country I recall clearly that at a certain period 2005 precisely, the nation got debt reliefs from external bodies such as the Paris Club which wrote off over $18billion in debts. This was a landmark achievement and it was expected that this could have given the country the needed breather for a proper planning of the economy in the light of the development. However, it was not to be. According to Sanusi, “what this did was that it freed up government balance sheets and in that decade of Africa rising, the countries went back on a borrowing binge…… we were able to borrow because the balance sheets could accommodate more debts”.

This time around, the government at the time decided to engage in internal borrowing. A borrowing which was not channeled to building roads, improving power, developing refineries, or enhancing infrastructure but these borrowed funds financed higher recurrent expenditures thus sustaining a consumption rather than an investment boom. Put differently, we were borrowing to fund our appetite.

As Sanusi revealed, public sector wage bill went up from N443 billion in 2005 to N1.7 trillion in 2012 especially as minimum wage was increased to N18,000. Money was borrowed to finance this spending in order to attract favorable outcome in the 2011 elections were around the corner. The government now spends about a third of the nation’s revenue to service same. If you consider this fact it becomes difficult to determine what part of the total resources can be channeled to fund infrastructure and other capital spending needed for long-term sustainable economic growth.

The result is that critical infrastructure, especially power severely suffered. At a time the cost of doing business in Nigeria was so high as industries suffered the brunt of our ailing power production that a lot of them exited to neighboring countries where they were welcome with open arms and juicy deals which included low electric tariffs that were encouraging. In effect power became an albatross to the nation’s manufacturing industry.

The country has experienced an unprecedented number of closures of factories and production plants due to lack of required infrastructure, lack of investments and bad trade policies. According to analysts at Proshare, they quote that Ghana lists Nigeria as their 9th highest source of FDI. In effect our public administrators played fiddle while the city burnt. There was capital flight that should have been retained within our economy.

One question that has remained unanswered in my mind has been – what was the motivating factor for our past administrations when they sought office and when they lobbied for appointments? Was there a sincere desire to serve in nation building? Or was it a premeditated and calculated strategy to amass quick wealth by abusing power?

The nation stagnated because its governments were captured by the elites that undermined market forces and used public services to provide employment patronage for their cronies. Since independence, ruling elites also did not find it in their interest to develop state institutions or public infrastructure. National resources generated large resource rents for ruling elites, thus making the rationalization of institutions unnecessary (Fosu, 2004).

It can therefore be deduced that the crux of our problems is purely self-inflicted, driven by CORRUPTION AND MISMANAGEMENT OF OUR RESOURCES. A capital intensive system was created such that, the oil sector gave rise to a setting where we relaxed to rent seeking activities. The massive interests that it generated from within and without saw people agitating for the allocation of oil blocks at frightening resolves.

As someone recently noted, “there has been a serious shift from real production activities to rent seeking activities by the Nigerian entrepreneurs as the lure of easy revenue becomes irresistible even so as with the price of oil appreciating which means more income”. It comes with the economic consequence of dwindling number of production activities creating an avenue for massive corruption and the mismanagement of resources in Nigeria.

It draws tears from my eyes when I consider that while the government of that period complained of scarce resources and used it as reason for the underdevelopment of the nation, a few of them representing an infinitesimal part of the entire population lined up their pockets shamelessly and without conscience and regard for the plight of the larger populace. Such was it that these people were openly celebrated while what they stole could have gone to serve as a shock absorber for the entire nation in times like this.

It is heart wrenching to hear the kind of reasons why the nation’s hard earned resources were discovered with some politicians. They ranged from monies given for spiritual purposes, consultations, individuals engaged to protect oil pipelines, procurement of arms, gifts for party delegates, some claimed the millions or billions found on them were personal funds or rather gifts from friends yet were hidden away in soak away pits or personal safes as the previous NNPC boss would have us believe after over $9million and 750,000GBP cash were discovered at his home, to mention a few.

Our resources were laundered to faraway countries and these countries colluded with these Nigerians to rape their economy. A prominent Nigerian politician recently released was sometime jailed in the UK for massive looting of funds. A report by the United Nations office on Drugs and Crime (UNDC) has it that by some estimates close to $400 billion was stolen between 1960 and 1999. A former Military Head of State alone is estimated to have stolen the equivalent of 2 – 3 per cent of the country’s GDP for every year that he was President. And these were periods when social and infrastructural developments were low
Is oil therefore a curse? I will say No.

As El Rufai puts it, “the discovery of crude oil was supposedly a blessing of nature expected to accelerate the development and growth of the Nigerian economy. Our oil revenues provided avenues to invest in the future through massive infrastructure build-out, educating our people, ensuring their health and well-being, and equality of opportunity for all. That was the dream and promise of Oloibiri (where oil was first discovered in Nigeria) through the lens of our founding fathers. We are a victim of deficiencies in human capital.

It will be of benefit to have some knowledge of what corruption is. Ojaide (2000), defines Corruption as “any systematic vice in an individual, society or a nation which reflects favouritism, nepotism, tribalism, sectionalism, undue enrichment or amassing of wealth, abuse of office, power, position and derivation of undue gains and benefits. Corruption also includes bribery, smuggling, and fraud, illegal payments, money laundering, drug trafficking. falsification of documents and records, window dressing, false declaration, tax evasion of any kind to the detriment of another person, community, society or nation”. It is the use of legislated powers by government officials for illegitimate private gain.

Distortions and inefficiency are direct products of corruption and the perpetrators do everything possible to close their tracks. What this leaves behind is all sort of distortions in investment plans and executions. Corruption within the economic system of Nigeria especially as it relates to wealth being generated from the oil sector is the major reason for Nigeria´s lack of economic progress since oil was being extracted starting from late 1950s in commercial quantity. (Xavier and Arvind)

In the same UNDC report, it was stated that, “Nigeria is Africa’s biggest oil exporter, but its natural resources make it particularly vulnerable to corruption. Huge revenues from oil or gas reserves mean low taxes, but also low accountability and a lack of transparency, as well as limited public services.” It means therefore that corruption drives investments away and for as long as this structure exists we will have a reoccurrence of self influenced recessions and probably relapse into a depression.