Africa’s troubled giant: Reflections on economic recession in Nigeria – (4)
Continued from last week…
This is true because what we are experiencing now is not new to us as effectively, Nigeria has not learnt from history. In the 1980s a similar collapse of oil prices led our economy into a recession. Like I mentioned earlier, Nigeria discovered oil in the 70’s almost at the same time the price of oil was rising, hence the boom. (Dele, Mufu, Victor) in their research work commissioned by the African Association of Public Administration and Management (AAPAM) on “the Nigerian Economy and Economic Responses since 1980’ wrote that between 1973 and 1981, crude oil prices rose significantly from $2 to $14.33 per barrel by 1978. In 1979, its posted price had changed six times to $29.27 by December of same year. It further rose to $37 in 1980 and hit $40 by January 1981. Soon after that, the prices tumbled to $18 by 1983 and $10 by 1985. Similarly, the production capacity was reduced as the nation’s quota fell from 2.3million bpd to about 1.3million bpd.
Because of the increasing flow of cheap money, and the neglect of agriculture which before then was contributing 48.79% to GDP but later fell to 29.75%, the nation’s food import bill rose astronomically from N100m before 1973 to N1.5billion by 1981 (Aribisala, 1983)
Our military administrators did not know what to do with money yet they did not save such that by the time the cut in quota set in accompanied by drop in prices it was evident that we were in a serious situation without any buffers. Then came the balance of payment crisis, mounting debt and debt servicing burden, deepening food shortage crisis, mounting unemployment, galloping inflation and deteriorating standard of living. Nigeria became classified as a low income country. In all of this we did not think to diversify our economy even when it had been obvious that overdependence on oil is like sitting on a keg of gunpowder.
It is a grave indication that we have not got it right with the governance of the economy which at best has been very poor at all levels. It has been riddled with mismanagement and funds channeled away from high need areas such as health, agriculture and education. By 2010 estimates, 70% of the Nigerian population live below the poverty line while our GDP per capita at 2015 stands at $2,548 representing 20% of world average according to statistic from Trading Economics.
Michael Ogbeidi, an Associate Professor in the Department of History and Strategic Studies, of the University of Lagos, Nigeria in a published work for the Journal of Nigerian Studies said, “Indeed, it is a paradox that Nigeria, the world’s eighth largest exporter of crude oil, a country endowed with many resources, still has more than 70 percent of its population living below the poverty line as a result of corruption and economic mismanagement. Pathetically, the logic of the Nigerian political leadership class has been that of self-service as some of the leaders are mired in the pursuit of selfish and personal goals at the expense of broader national interests. Consequently, emphasis has been on personal aggrandisement and self-glorification with the result that corruption has become an euphemism for explaining political leadership in Nigeria in relation to the management of national wealth”.
A lot still needs to be done to lay the foundation for economic recovery, sustainable long-term economic growth and inclusive prosperity. The economy must indeed be diversified. The problems that have arisen have not been handled in the way that it should, either to minimise the problem or eliminate it. The value chain for strengthening higher revenue and export earnings from agriculture to light manufacturing, from oil to petrochemicals and refining, from solid minerals to industrial production, from ICT to other services including education and tourism, needs to be tapped.
RECESSION AND THE WAR AGAINST TERROR
Lamido Sanusi said, “Our economy, at least in part, created terrorism by simply not creating the opportunities for these young people”. An idle mind they say is the devil’s workshop.
Set up in 2002, but gaining prominence 2009, 2011 the Boko Haram sect has been a pain in the sides of the country. They took control of certain parts of North Eastern Nigeria (Borno, Yobe and Adamawa states) and had roots in a few neighbouring countries such as Cameroon and Niger. They grew to be branded a terrorist group by global standards and at one time classified as the most deadly terrorist group after ISIS. Their aim was to establish an Islamic State and eradicate all forms of Western education.
The tale of the mayhem they unleashed in the Northern part of the nation is alarming as it has been reported that over 20,000 people have been killed and of that number 86 are children. 2.3million have been displaced from their homes while of that number 250,000 have fled the nation to other countries. In 2014, the world woke up to the shocking news of an attack at a school in Chibok, Borno State where they kidnapped 300 school girls drawing the concern and ire of the international community.
While we grapple with the above scene, the effects of this group’s insurgency have been felt significantly on the growth of the economy as there was a drop in foreign direct investment (FDI) into the nation. According to the World Investment Report (WIR) 2013, FDI flows into Nigeria dropped by 21% in just one year from $8.9 billion in 2011 to $7 billion in 2012. This monumental loss was created by the lack of confidence in the minds of foreign investors on the security situation in the nation. At a time some foreign governments advised their citizens to be wary of Nigeria because of the security concerns.
As a direct result, companies especially those operating within the region closed shops, there was massive loss of jobs, mass exodus of people from the area while the transportation and tourism sector was badly affected as no one in his sane mind was ready to place himself or family in harm’s way venturing into the region.
Coupled with the above, the Nigerian government had to pool its dwindling resources in order to quell the insurgency. The result of government’s effort today is that security has gradually returned to the affected areas in the northeast of the nation, normalcy is gradually returning as a lot of those displaced have come back to rebuild which is a testimony of the military’s success in taking control of the situation and eradicating every trace of the sect. Although there exists pockets of violence in the area, they are being effectively contained.
Winning this war on terrorism is a necessity as it is one of the ways of improving the economic position of the nation. Companies will return, jobs will be restored as unemployment reduces, there will be significant increase in FDIs, tourism and the income from same will be boosted and those who had abandoned their farms will return to same thus lifting the revenue from agriculture.
We must however acknowledge that it will take a lot to rebuild and resettle the area and I want to use this medium to say that we owe a debt of gratitude for the assistance of some countries to the success of the fight against terrorism in our land and also use this medium to say that as we rebuild the region and the nation as well their assistance will be highly invaluable. Evidently, poverty in that region needs to be eradicated while the citizenry need proper education. The abundant resources available in that area need also to be harnessed in order to create gainful employment for the youths. If we correct the effects from the misrule of past administrations and provide these basic needs to the people it will go a long way in improving their lot.
WHAT HAVE WE DONE SO FAR?
Presently, our government under the able leadership of President Muhammadu Buhari has taken immediate giant strides in order to recover the economy. Below are some of the major moves which have begun to yield positive results:
This administration has taken urgent steps to save the poultry and other food industries from collapse. A Federal Task Force on food security was set up and mandated to reduce prices of food items in the country. These are not just good on paper but implementable. I also foresee a similar measure being taken to salvage all other sectors in order to alleviate the challenges the people are facing
This administration has also taken quick steps in bridge building efforts by visiting the oil producing restive areas such as Yenagoa, the Bayelsa state capital and Portharcourt, Rivers state to meet with stakeholders. It is expected that this effort will restore confidence in the area of government’s preparedness to bring development to them and hence contribute to a sustained increase in oil production output.
The war on terrorism has been won. As we rebuild the ruins, its positive effect on the economy will begin to reflect although it may take a while to settle in.
By a directive of the FG the CBN reviewed the foreign exchange policy by adjusting exchange rate policy to attract more foreign investments within the last year despite the challenging economic climate. $250milion was injected into the sovereign wealth fund while it released $500million through the interbank market where the 23 banks in the nation bought $371m to be accessed to meet dollar demands for school fees, medicals and personal travel allowance among others. This has immediately impacted on the value of the naira as it gained N75 shortly after. With the increase of crude oil price and the injection of dollars into the economy there is available dollars in the system boosting liquidity. If the special intervention of the CBN is sustained I believe that the naira is in for further strengthening.
The Federal Government of Nigeria recently successfully floated a $500 million Eurobond which was nearly more than eight times oversubscribed. This reflects confidence in the minds of investors on the efforts of the present government and the prospects of the Nigerian economy. This level of confidence is fuelling further moves to take advantage of the scenario to float more bonds. There is plan for another $64 million ‘green’ bond for April. By this the government is committed to sustainable development. The beauty of the green bonds is that it offers the country a means of plugging funds into other specific sectors that can drive her economy especially the non-oil sector with the aim of poverty reduction and enhancing the nation’s capital market (to be continued).
