THE NIGERIAN ECONOMY: WHERE ARE WE NOW?

By Matthew Eloyi

As Nigeria’s economic fortunes seem to be waning below expectations, it may not be out of place to question the country’s economic pathway.

For several years, the catchphrase of ‘economic diversification’ has been strolling about in Nigerian government’s lexicon but despite several reforms, restructuring programmes and international loans, millions of Nigerians still live in abject poverty plus an unabated monolithic dependency on oil. The recent coronavirus pandemic complicated by the growing debt profile of the country and falling Gross Domestic Product (GDP) give new urgency to this issue.

Since the discovery of Oil in 1956 at Oloibiri in the Niger Delta, Nigeria has not gotten it right in getting value for the product. Instead, the government has solely relied on selling the crude oil only to import refined petroleum products for domestic use amidst subsidy outrage and uncertainty as to the total number of litres being used for domestic purpose, among other concerns.

According to experts, Nigeria’s economic potential is hindered by many operational issues, including obstacles to investment, inadequate infrastructure, tariff and non-tariff barriers to trade, limited foreign exchange capacity, and lack of confidence in currency valuation. Many are also of the opinion that Nigeria’s economic growth is held back by insufficient electricity generation capacity, which results in a lack of a reliable and affordable power supply.

Economic experts and other stakeholders have also stressed the need for the government to create policies and implementation strategies to tackle the challenges posed by the coronavirus pandemic while providing an enabling environment for investments to thrive. According to them, these would enable Nigeria to quickly come out of recession and improve the standard of living for the citizens.

The current issues causing hyper-inflation

One of the ultimate goals of a modern economic system is to keep prices of goods and services stable at rates that would not be injurious to the economic system. This is one goal that Nigeria has been finding difficult to attain as prices of goods and services keep rising continuously, thereby encouraging hoarding of unspent income, increasing the cost of borrowing and constraining investment spending by businessmen.

It is no longer news that the Nigerian economic environment is currently experiencing inflationary episodes and this has raised questions on the credibility and efficacy of the country’s monetary policy. According to experts, inflation can emanate from several sources including the ability of labour unions to use market power to demand for wage increases in order to correct parts of the profits accruable to entrepreneurs. Inflation is also said to be caused by developments in the product markets because of the existence of monopolistic market structures. It also occurs as a result of some form of internal or external shocks that may be driven by either exchange rate depreciation or an upward surge or spike in the prices of commodities. According to reports and expert opinion, however, the upsurge of COVID-19 pandemic has been the major cause of inflation since 2020 till date.

Despite the obvious continuous increase in prices of goods and services, the National Bureau of Statistics reported that the annual inflation rate fell for the eighth straight month to 15.40% in November 2021, from 15.99% in October. Meanwhile, the yearly core inflation rate, excluding the prices of agricultural produce, rose to 13.85% in November, from 13.24% in the prior month.

COVID-19 and downward spiral of the economy

Since the entrance of coronavirus (COVID-19) into Nigeria on February 27, 2020, the Nigerian economy seemed to have witnessed a lot of commotion. Few days after the importation of the virus from Italy, specifically on March 11, it was declared a global pandemic by the World Health Organisation (WHO). As the virus continued to spread globally and became more alarming, governments at all levels seemed to focus mainly on curtailing the spread within the country by imposing social isolation policies, which include closure of schools and businesses, movement restriction, etc. The shutdown of work and businesses as a way of curtailing the virus seems to have worsened the plight of Nigerians, as many were and are still struggling to afford food and meet other basic needs. According to reports, the palliatives provided by state and federal governments reached only a fraction of the vulnerable.

Most of the major effects of the COVID-19 pandemic on Nigeria have been economic, rather than health related. The earlier phase of the pandemic led Nigeria to its worst recession since the 1980s, with services and industry hit especially hard. This relatively stemmed from lockdown policies constraining people’s ability to go to work. As if that is not enough, the price of oil – which is more than 80 percent of Nigeria’s exports and more than 50 percent of government revenues – dropped more than 60 percent between February and May 2020.

In the later phases of the pandemic, even though economic activities began to recuperate, inflation started stepping in, especially for food items that are vital for consumption. By impeding economic activities, COVID-19 has worsened pre-existing operational distortions that were already causing inflation, even before the pandemic hit.

Monolithic dependency on oil and the imperative for diversification

Africa’s most populous nation, Nigeria, is blessed with numerous natural resources spread across different geographical States in the country. Agriculture and Extractive Minerals were the country’s major source of revenues in the 1950s but this soon changed after the discovery of oil in 1959.

According to research, the origin of oil exploration and exploitation in Nigeria started in 1959, at Oloibiri in present day Bayelsa State where the first oil well was discovered and the subsequent increase in demand of oil in the world market made the country to neglect agriculture, extractive minerals and other viable sectors of the economy, leading to over-reliance on crude oil. Today, oil and its associated products account for about 90% of Nigeria’s export revenue, and funds over 80% of the national budget.

With the ever-growing uncertainty of global crude oil prices and sluggish growth of the Nation’s economy, much opportunity to move away from underdevelopment despite its well established and abundant natural and human resources endowments has been lost due to varying reasons. Consequently, federal government inflow has been on a steady decline resulting from declining global oil prices, expanding population, slower economic activity, and hence leading to lower corporate taxes, declining consumption, lower value added taxes, exchange rates adjustments, lower trade related tariff revenues, as well as reduced portfolio and foreign direct investment accretion.

Diversification of the Nigerian economy remains the only way out of its present economic predicament and the best viable strategic option for the country in light of her many developmental challenges. The need for diversification is nothing new, as there has been a sustained push for several years to further grow and diversify the country’s economy, with the aim of improving the revenue base towards unlocking sustainable development.

Nigeria as a country must develop new ways to grow its economy by encouraging more investment and drawing attention to the non-traditional oil base to the Agricultural and Solid Mineral sectors, increasing its range of products for the international market and engaging new economic and trade Partners distinction to oil. As a matter of urgency, the Federal Government of Nigeria must encourage the diversification of its economy, as it is the only alternative and sustainable means to survive the international economic vagaries with the persistent volatility of global crude oil price with its attendant drop in net oil price over time. It is important that the nation must not accept erroneously the myth that oil provides a never-ending source of revenue as usual.