Nigeria needs specialisation, not diversification

The Nigerian political space is alive with praises for a diversified economy, more so now that the economy is officially in a recession. Many reasons have been adduced for the contraction of the economy, from the scourge of the avengers to low oil prices to lack of savings buffer, and in a sense, those were contributory factors. In my opinion, however, the greatest, singular factor responsible for the current economic situation was inertia on the part of the current administration.

The nature of the contraction in activity lends credence to this view, given that only 18 out of the 46 sectors are in recession, and 10 of those sectors only suffered their second consecutive quarterly contraction in Q2 of 2016. This suggests that  the current administration had a reasonable window to ensure the wider economy did not nosedive into a recession, and reflate the sectors that were already contracting at the inception of the administration. Indecision around deregulating the pump price of fuel, delay in appointing, and the questionable quality of many of the appointed cabinet members, and the continued mismanagement of the flexible FX regime have combined to deal the economy some crushing blows. Hopefully, inaction and failed policies will not characterise the remaining years of this administration.

While some argue that the Nigerian economy needs to diversify away from crude oil, others posit that indeed, the economy is already well and truly diversified, but both sides, however, agree that the revenue sources of the government, particularly, the foreign exchange component need more diversification. The argument for diversification of the economy has already fallen flat on its face since the rebased GDP, with oil presently accounting for just about 10% of output. What is, however, missing is the specialisation that should come with our areas of comparative advantage.

I still get confused when I hear clamour for diversification away from an industry that is not yet mature, and for which we can build comparative advantage over time, creating value and wealth along the way. One of such areas that readily comes to mind for which Nigeria has, or can develop a comparative advantage is the oil and gas industry, but we seem to continuously adopt policies whose goal is to avoid the gains of specialisation. Specialisation based on a clear understanding of where and how firms in Nigeria can compete profitably and sustainably in a global marketplace is long overdue. We need to understand that to be successful as a nation, we have to compete in selling our goods and services internationally (not raw materials or trading only other countries’ goods and services), and in attracting the investments and necessary skills for the job.

While the evolution of the structure of the economy is the result of countless decisions made by both the private and public players, the government sets the tone by providing productive incentives, enacting the right laws and investing primarily in public infrastructure that will ultimately translate into competitive pricing of goods and services produced in Nigeria. To this end, the Nigerian government must be strategic and purposeful in encouraging and facilitating sustainable growth, employment, wealth creation and good quality of life through focus on our areas of comparative advantage, in collaboration with the private sector.

No country has ever attained a decent level of development by gifting raw materials and borrowing to buy back the finished products, and Nigeria’s case will not be an exception.  Failure to embrace specialisation and domestic value creation is an admission that sustainable growth and development will forever elude Nigeria.

Olugbenga A. Olufeagba