Learning lessons from the crude crunch

In 2008, oil prices fell from $147/barrel to $36. That was $111 shaved off every barrel of the black gold. It was as if the world was going to end. President Umaru Musa Yar’Adua battled to get a realistic benchmark for the 2009 budget. The more he adjusted downwards, the more oil prices went south. There and then, all kinds of promises were made. Political office holders were asked to take pay cuts. Governors promised to develop agriculture. We were told our dependence on oil would soon end. Until, of course, another boom came and normal service resumed.
As soon as oil prices recovered, I knew we had lost the plot yet again when President Goodluck Jonathan, then acting president, announced a new minimum wage of N18, 000 at the 2010 May Day rally, a few days before Yar’Adua died and Jonathan became the substantive president. It was purely a political decision.
I have tried to capture the Nigerian way of doing things. When we are down to nothing, we claim to be sober and wiser. However, as soon as there is a semblance of prosperity and a hint of abundance, we relax and relapse into our prodigal paradise.
All my life, I have been hearing about diversification of our economy “from oil” to agriculture”. I started hearing that, when the then head of state, Lt. Gen. Olusegun Obasanjo, launched Operation Feed the Nation. Three decades after, we are still singing the same song.
So we really have to ask ourselves: are we learning any lessons? Something keeps telling me that we are pretending to be holy now because crude oil price is $30. We are even regretting not having enough savings for the “rainy day”. Moreover, why am I thinking that as soon as oil price climbs higher, normal service would resume yet again?
Personally, I have learnt a lot from our current agony. I will pick just five lessons for our discussion. Lesson No 1: we still harbour what I call “commodity mentality”. I have heard top government officials and governors talk about diversifying our economy from oil. They say we should diversify into solid minerals and agriculture so that we can export cocoa, sesame seeds, rubber, gypsum and limestone.
However, we keep missing the point. We cannot build our economy on commodity exports. The commodity market is unstable and unreliable. Export chocolate, jam and marmalade, not cocoa. Export tyres and shoes, not rubber. The real wealth, evident in value added and job creation, comes from manufacturing not from mining.
Lesson No. 2: we still do not understand why we need refineries badly. Between 2002 and 2006, I wrote relentlessly asking President Olusegun Obasanjo to build refineries. I was told to shut up, that government has no business with business, that the private sector would build all the refineries. I did argue that since the licensees were refusing to build refineries, the government should seize the bull by the horns by building, leasing out the management and selling its shares to a core investor. Nobody listened.
Today, our forex situation proves that I was not out of my mind 12 years ago. In these difficult times, the CBN is selling over 40% of its forex to marketers for fuel import. If we had built refineries then, at least this 40% would be off the demand list. In fact, we could be earning extra forex from fuel export. Meanwhile,do we know how much we have wasted in the last 15 years paying demurrage on imported fuel?
Lesson No. 3: we do not even have to concentrate too much on export for now. Rather, our short- and medium-term ambition should be import-substitution to reduce the pressure on forex. Let us improve the standards of Nigerian airlines on international routes so that they can compete. Their ticket proceeds will remain largely in Nigeria. They will not need to apply to CBN for $3 billion to “remit” ticket sales to their “home” countries.
Lesson No. 4: we must become very strict with savings. Savings must become a law. We must never finance wage increases and purchase of cars from oil savings. We can make it a law that the savings be spent on roads, education and health, as Botswana does with its diamond wealth.
Lesson No. 5: Unfortunately, we do not learn any lessons. Some states are still planning to build airports when their roads are not motorable and schools are in a mess. Communities are still drinking water from streams and contracting cholera. Yet, airports are still featuring on the priority list. Some governors are still appointing dozens of aides. That sums up our discussion today: the more things seem to change, the more they remain the same.