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By Chinwendu Obienyi
With about one-tenth of Nigeria’s GDP coming from the oil sector, and more than 90 per cent of its exports and 50 per cent of government revenue comes from it, there are strong indications that the country is virtually walking the tight ropes and must therefore reform or face tougher times that might rock its foundation.
Even as all thirty-six states are mostly reliant on federal oil revenue transfers for their fiscal revenues, most subnational economies are predominantly composed of non-oil activities in agriculture, trade, manufacturing, and services.
For instance, Nigeria recorded a 3.54 per cent growth in the second quarter (Q2) of the year, which was merely 43 basis points (bps) above the previous quarterly data and a slight top-up of the 3.4 per cent yearly growth projected by the International Monetary Fund (IMF).
This is not to say that other countries are having it easy as the likes of China, Europe and other African countries are fighting to stave off recession and this is due to the Russia-Ukraine crisis coupled with the COVID-19 pandemic that hit the world.
But the oil sector has continued to struggle. According to the National Bureau of Statistics (NBS), the sector maintained its contraction for the 9th consecutive quarter in line with the lingering production challenges exacerbated by rising oil theft and vandalism, International Oil Companies (IOCs) divestments, given the challenging business environment and the shift to cleaner energy sources, and the lagging impact of age-long infrastructure decay.
“Accordingly, the oil sector contracted by 11.77 per cent year-on-year (y/y) in Q2 2022 (Q1-22: 26.04 per cent y/y) as crude oil production (including condensates) settled at 1.43mb/d (Q1-22: 1.49mb/d). Whereas, the non-oil sector remained the overall growth engine, maintaining its impressive run even as it slowed compared to the prior quarter”, analysts at Cordros Capital said.
There is no problem with getting money from crude oil, but rather it is what we do with the money generated from it. This is the question on every lips in the country at the moment while making comparisons with other developing and developed countries.
It is expedient to explain that an economy is a wholly owned subsidiary of the environment which means that an economy must submit to its environment. In between an action plan and the outcomes is ‘execution’. Thus, many things can go wrong at the execution stage but when cognizance is taken of environmental peculiarities, chances of success will increase.
This therefore explains that what works in other jurisdictions might not necessarily work in Nigeria. However, it is not bad to seek ways of replicating other economic models.
According to the International Monetary Fund and OECD, the Dutch fiscal framework (matching non-oil revenue with recurrent expenditure) is rather unique and its design and implementation are highly recommendable.
Hence, diversification surely reduces vulnerability and there is a need for Nigeria to diversify its earnings and revenue.
In his paper titled; Policy Options for Economic Diversification: Thinking outside the Crude Oil Box, which he delivered at the 33rd Seminar for Finance Correspondents and Business Editors held simultanously in Lagos and Abuja at the weekend, the Chief Executive Officer, B. Adedipe and Associates, Dr Biodun Adedipe, noted that about 80 per cent of Nigeria’s merchandise export is under threat as fossil fuel is gradually going out of fashion due to the frenzied pursuit of clean and green energy by other countries to address climate change.
Adedipe said that the current FX challenge is because Nigeria has given so much attention to financials and financing rather than dealing with roadside exchange rates which disregards fundamentals that produce prices adding that the demand will continue to rise as the nation’s import dependence is very high.
Listing policy options to consider in diversification, he said, “The pedestal system of governance is costly and convoluted and so some agencies as well as the civil service need to be pruned.
Nigeria also needs to shift its attention to industrial position and must commit to ‘Make in Nigeria’ and ‘Made in Nigeria’ initiatives, there is also a need for us to reform and rationalise education and medicare just like China and India did because these two are critical sectors of the economy”.
Earlier in his keynote address, the Governor, Central Bank of Nigeria (CBN), Godwin Emefiele, urged all stakeholders including the Federal Government to give top priority to Nigeria’s production and industrial sectors in order to enhance economic growth prospects and navigate the challenges around diversification.
Emefiele said, “Nigeria has largely depended on the oil sector for revenue generation over the past four decades and the sustained decline in crude oil production has continued to negatively undermine the performance of the economy. Thus, there is the urgent need for a conscientious effort to diversify to other non-oil sectors.
With our population growing by over 3 percent per annum over the past seven years, against a less than steady growth in output since 2019, expanding the production and industrial capacity of the economy must be given special attention to ensure overall macroeconomic stability”.
