Many unanswered questions

Following the decline in oil prices – from the peak of US $112 per barrel in the summer of 2014 to about US $50 per barrel – what have we learnt about the Nigerian economy?

First, that the economic growth of the decade between 2005 and 2015, averaging over 6 per cent per annum, was fuelled by oil price increases. Realising that the economy’s exports needed to be diversified, significant efforts were made to expand the agricultural sector’s exports during the period, but the evidence is that not enough was done to provide a basis for a sustained growth if oil prices fall.

Second, and surprisingly, the growth we experienced in the decade before the fall in oil prices was not volatile. It was high, compared to Nigeria’s growth trajectory and steady. I believe this is because of the reforms, especially budgetary and fiscal reforms that were carried out during the period.

Third, and following from above, it thus means that for a decade, Nigeria was able to record consistent increases in per capita income because the growth rate was above the rate of population. In 2005, Nigeria’s per capita income was US $2044 and grew to reach US $2302 in 2014. However, as a demonstration that the growth was fuelled by oil price increases, and more importantly because of the pass through of oil revenues in the economy, the decline in the last two years has made the average Nigerian significantly poorer in just a matter of two years. As I calculated last week, it showed that our per capita income today, given the growth rate, exchange rate and population growth is just above US $1300.

But my key point this week, and this is the fourth point, is that the underlying structure of governance did not change during the period compared to decades before it, and that is the reason that the increases in fuel prices have not provided the basis for a sustained growth. Indeed, while the single most important factor for the decline in productivity and real income in the last two years is the fall in oil prices, the underlying reason is because the governance structure has not changed since the 1970s. By inference, the oil sector drives Nigeria’s productivity, and following which, Nigeria’s productivity gains or losses as the case may be, are driven by external factors and not some kind of innovations or improvement in the manner in which things are done. The conclusion then is that we, very likely, will not be able to change the structure of our economy and exports without changing the structure of governance.

Just as in many developing economies, our oil provides the clearest connection between mineral resources, politics and economics. Over the years, the problem has never been that it is wrong to have mineral resources, as not all mineral resource rich countries are poor and volatile. The problem must be with our politics. If we are to provide the basis for a sustained economic growth in the long term, therefore, it requires that the states of the federation also have the capacity to think. And thinking comes with tangible responsibilities. That is not the case at the moment.

This is the crux of the matter and why we are underdeveloped and in recession. It is also the reason why we have no plan, even by the present government, for genuine diversification of exports – I mean serious intent to expand non-oil exports – the President must approve everything. Countries that have expanded and diversified exports, and have made progress on innovation do not rely on one single authority for that purpose. I hate how many dreams and aspirations and even ideas are killed because everyone is looking in one direction.

If there were multiple productive centres, there will be as many centres of innovation, and as many centres of investment and growth. As I argued last week, growth for the remainder part of the year – that is the third and fourth quarter – will be very weak and below the rate of population growth. By implication, Nigerians are poorer than they were in 2015. What is even more worrying is that the medium to long-term growth prospects is not much better.

In conclusion, we can safely assume that there will be some semblance of growth by the end of this year. We can also assume that there will be some 3 – 4 per cent growth trajectory between 2017 and 2019. However, and this is the unanswered question: with this growth rate, which is perhaps the best we can hope for if oil price remain at this rate, what will happen to long term growth and the long term objective of reduction in poverty? This requires that we think critically and conclude that the most binding constraint to Nigeria’s growth and prosperity is the expansion of exports. And that brings us to the question: what exports, and what strategy? And I mean strategy, and not wishes. I thank you.

Ogho Okiti