The paradox of running a non-oil economy in an oil dependent nation

Recently the Minister of Finance, Kemi Adeosun wrote an article where she asserted that our economy was a non-oil economy. She opined that unlike Saudi Arabia, Kuwait and Qatar which had larger daily oil output and much smaller populations than Nigeria, we cannot be claiming or thinking that we have an oil economy. Additionally, she felt that these countries that should be called true oil economies, depended almost entirely on oil to fund their public sector expenses, hence they have low tax to GDP ratios of less than 10% unlike the OECD average of 34.6% or unlike the ‘oil plus’ economies of Mexico and Egypt that have tax-GDP ratios of 20% and 16% respectively. Nigeria’s Tax-GDP ratio is said to be only 6%.
Nigeria in the last 40 years has depended on oil revenue for much of its National income. At a point it was almost contributing up to 90% of National income and even today with all the diversification and non oil income, oil & Gas gives Nigeria up to 70% of its income. More so, it has remained the dominant source of foreign exchange for both the Public and Private sectors of the economy, reaching about 93%. How then do we say it is not an oil economy?
The economic performance of the country has depended on the performance of the price of oil in the market. When prices rise, our economy booms and when prices crash our economy crashes. For 5 consecutive quarters from Q1, 2016 to Q1,2017, our economy went into recession for the main reason that prices of oil crashed reaching 28 dollars per barrel in January 2016. We are coming out of the recession now largely because price of oil is recovering reaching over 60 dollars and bringing more foreign exchange.
How are we not an oil economy when we index our yearly budget both on the quantity of barrels of oil we produce daily and the average price per barrel anticipated in the market? The 2018 budget proposals submitted to the National Assembly by the President last week was essentially predicated on the quantity and price of oil- 2.3 mbd and $45/barrel. Should the Niger Delta Avengers (NDA) carry out their recent threat to return to militancy and disrupt the oil flow, then our income will be compromised, the economic recovery will be imperilled and both unemployment and poverty will worsen. Is this not because, we are on oil economy?
If our daily oil production does not go beyond 2 million barrels per day unlike Kuwait that produces 2.7 million barrels per day, is that justification to deny that we are an oil economy?
Why are we producing only 2 million barrels per day? Whose fault? Is it because of lack of reserves or lack of investment to develop new fields or grow production or is it because of OPEC restrictions? Why is Saudi Arabia producing 10million barrels while we are producing only 2 million? When we take an objective review of the situation, it becomes obvious that we are essentially responsible for our predicament.
First is that our policy environment is unstable and not as attractive as those of Saudi Arabia, Kuwait and Angola. How long have we dilly-dallied with the Petroleum Industry bill? The uncertainty with this important legislation has been a major reason for the drop in investment by the International Oil Companies (IOCs). It is not the fault of the gracious Almighty God who has placed so much crude oil and gas in our earth crust. When we renege on agreements with the Niger Delta people or refuse to allow a more equitable fiscal regime that rewards them better for the burden they bear on behalf of the Nation, and their young men become deviant, who are we to blame? Does that stop us from being an oil economy?
My point is that nothing is solved by denying reality. We are purely an oil dependent economy and we are running an oil economy. Is that necessarily bad? I do not think so. Oil has done so much good for the people of Saudi Arabia, Kuwait and Qatar. And the reason is not that they produce more barrels of oil than Nigeria does, nor because they have fewer people in their countries. The problem which we must admit and which Kemi was parrying is that we have been most irresponsible in managing our oil resources. In every segment of the industry, Nigeria and its leaders have continuously made a mess of this wonderful gift of God to the people of Nigeria. Much of the robbery, waste and corruption in the Nigerian political system has been fuelled and funded by the oil money. How come we are still spending about half of our foreign earnings from crude oil in importing refined petroleum products nearly 60 years after oil was discovered in Nigeria? Why have we refused to fully deregulate the downstream and stop subsidies? Our economic managers are the problem and not oil.
I agree with Kemi that we can and should do more to increase our tax revenue. The current effort to widen the net to bring in tax evaders or tax avoiders is the right way to go. Also making it easier for people and companies to pay taxes is good. But we must be careful when we talk of ratios- OECD and others. When we compare with other countries, we must take note of the 68% poverty level in Nigeria and the 35% unemployment/underemployment ratio. We must remember that most companies in Nigeria provide their own infrastructure- roads, water and electricity. All provide their own security including paying for police services, and are ‘compelled’ to undertake social responsibility in their operating communities because of the grinding poverty and general government neglect.
My caution is that we do not turn this new tax drive into a witch hunt or make it worsen the ease of doing business. I hear factories and offices are now being indiscriminately shut! And doing brisk business with tax officials is the latest game in town.
The real economic challenge to the government is how to make the non-oil sector to be productive and to yield foreign exchange. If we can make agriculture, manufacturing, tourism and other services to attract foreign exchange as oil does then our economic challenges will be fully resolved. If Oil which contributes today only 10% to GDP can provide 90% of our Foreign exchange inflow, then our real challenge is how to make the other sectors that contribute 90% of our GDP to contribute much more than 10% of our foreign exchange needs. I believe that is what the ‘oil economies’ that Kemi refers to have done better than us. They have used the oil economy to develop other sources of earning forex while we seem to have simply consumed ours in importation. Ask Qatar how much a foreign exchange Qatar airline brings to the Nation? For us, the reality is that we are running a so called “non- oil economy” in an oil and import-dependent Nation. Resolving this paradox is the most critical challenge facing our Nation. Indeed the day we stop basing our budget on oil, will be the day we stop being an oil economy. Raising Tax-GDP ratio may help but will not be sufficient. The Restructuring of our political economy to enthrone more efficiency and accountability is imperative.

Mazi Sam Ohuabunwa OFR