Saturday, May 14, 2011

Repositioning Nigeria's Position

As I look through the media recently I pick a wave of interesting facts. What actually stirred my quest was the outcry against the war in Iraq shown in an IVAR video on facebook. As I dig deeper I realized that most war have direct or indirect economic implications and quite interestingly Nigeria is at the core of all the issues raised. Why I eventually decided to write this piece is to throw more light on the critical need for us to move our attention off crude oil and reposition ourselves as a country, to what our fore fathers handed down to us during our independence, a culture of hard work and creativity.

‘Depression 2.0’: March towards 2050, The Period of abundant oil opportunity or Misery
More than ever before the myth that crude oil production is increasingly diminishing is now hitting the world like never before. The industrial doomsday scenario put forward by peak oil theorists isn't just for far flung voices on the Internet anymore. A term shell itself (the second largest company in the world) call ‘Depression 2.0’. Not that crude oil reserves all over the world is running out, in fact the world has enough to sustain energy, productivity and growth globally, the critical issue lies fundamentally in the fact that it is becoming very expensive for firms to afford its mining and processing which on their own attract tremendous oil usage. Apart from the critical link oil has with many of the recent war that truncated global peace, the adverse effect of oil to the economy and society is obvious. The growing volatility of oil prices together with the externality it creates such as global warming, human right violation, pollution, blocking of alternative energy sources and in our own Nigeria context, corruption should make us think of alternative economic engines that crude oil. As the demand for oil buts up against actual production and remaining reserves, the climbing price of oil will cause the gross domestic product of all nations to decline.

Crude oil or Palm oil: A dire need to diversify our economy

The figure above is from one of my recent presentation on Nigeria’s Creative Economy. It’s obvious that while crude oil production fell between 2006-2008, the value and share of creative goods exported (and produced) by Nigeria increased. It was interesting to note that income per capita also increased as returns from oil dwindled. This is a practical exhibit to prove that earnings from our local production capacities has the ability to propel growth that envisaged in previous years. Yes, we have crude oil, God blessed us with it. But going by the recent trends, it is becoming increasingly obvious that an economy that solely depends on crude oil production is as volatile as the prices of the crude oil itself. While Libya’s issue has caused Nigeria, UAE and Kuwait to jack up our daily production quota, we may benefit from the oil boom. However, this may prove contrary to the countercyclical domestic demand policy that proved useful for Nigeria during the time of depression in 2008/2009. What helped us then, when prices of oil fell was the fact that our agricultural sector and other domestic creative capacities especially within the West-African sub-region helped cushion the effect. We should not lose focus of these benefits in the face of the recent sudden rise sudden hike in OPEC crude oil prices to distract us from the need to pay attention on diversifying the economy. From my research on agriculture, palm oil, one of our main produce in the 60s and 70s has the capacity to produce jobs quite dynamically to eradicate poverty than crude oil would do. The non-oil Sector is the way forward after the elections. Most developed countries are willing to seek cheaper source of raw material input for their industries, the more reason why China is becoming very popular.

Let me try to keep this short from here as I conclude. Nigeria’s GDP was remarkable in 2010 at $207 billion or $2,400 per capita on a purchasing power parity basis, with real growth of 6.8 percent. The International Monetary Fund's World Economic Outlook predicts GDP will increase 7 percent in 2011. What this means to a lay man is that the total value of goods and services produced in Nigeria in 2010 was higher than that of 2009 and this trend is projected to increase in 2011. In fact by 2012, it is expected that Nigeria’s GDP would exceed South Africa (which is currently Africa’s leeding economy). Achieving vision 20/2020 seem sceptical and more pessimistic is to assume that we can’t achieve it, but it’s clear that the economic records of 2010 hinges upon internal domestic activities and policies that strengthened local production capacity. Many of the foreign reserves (down by 23% from 2009) are been depleted to fund infrastructural projects, which is reasonable in my personal opinion as long as those infrastructural project will continue to yield increasing domestic factor productivity and attract FDI into Nigeria. Consolidating democracy as seen in the recent April election, building on the banking and financial sector reform so as to make credit available for local entrepreneral engagements as seen in the ‘AMCON to NPL buy-offs’, building on gains from telecommunication and linking them directly with the financial systems and implementing plans for the energy reform will go a long way in 2011 and vision 20/2020 in general. In fact, the Nigerian Stock Exchange All Share index closed on April 18 at 25,429, up 1.6 percent. It is up 2.7 percent since the end of 2010.

As I go on to carry out further research on Nigerian non-oil sector and its implication for sustainable economic growth and development, some other seemingly important issue is burning in my mind. We needs to address this urgently and it has to do directly with how the Nigerian parents are bringing up their young ones. We need to consider if the idea that ‘my children must not suffer what I suffered’ is actually a good idea for our society. Maybe it’s a slogan that has allowed corruption to thrive and the resultant drop in quality and work ethics in Nigeria, especially among the youths.

Seun Oyeniran