- Nigeria: A Nation that Thrives on Loots
If there is anything to be taken away from the current economic recession, it is the fact that the Nigerian economy has been thriving on proceeds from loots, embezzlements and all kinds of criminal activities. It is also obvious that the 6-7 percent economic growth rates recorded during the past administrations were bubbles created by oil boom but sold to the Nigerian people as a sustainable economic expansion.
For instance, when oil price was $107 a barrel, a total of $29 billion out of the $55 billion that was generated in 2011 made it into the foreign reserves. Whereas the current administration has been able to save $33 billion with oil prices averaging $45 a barrel in the last 12-month. Even with crude oil hitting a 13-year low of $26 barrel in February 2016.
The question is, why wasn’t recession during the previous administration even though the foreign reserves was mere $29 billion? The answer is simple, the bulk of what wasn’t saved find its way into the economy through lavish spending, undisclosed investments and bribery, which in-turn help serviced the economy with just enough forex and bolstered consumer spending through loot-sustained manufacturing sector.
Similarly, on JP Morgan bond listing and positive ratings, the Nigerian economy was evaluated based on its oil revenue generation and not economic fundamentals. In 2013, when Nigeria was listed on emerging bond market index, the unemployment rate was averaging 9.76 percent, while inflation rate stood at 8.5 percent, the lowest in 5 years and still new job creation was weak, meaning the decision was solely based on oil revenue without a futuristic growth plan. Hence, the reason the country was delisted after global oil prices plunged by 70 percent and the refusal of the current administration to devalue the Naira to accommodate the fall in foreign revenues.
Accordingly, the banking and oil and gas sectors that were built on proceeds from loot and poor governance hit a rock bottom but not without dragging the Nigerian Stock Exchange market with it. That was another market driven by bogus sentiment. However, it was the global oil glut that burst the artificial bubbles and exposed the nation for what it truly is.
While plunged in revenue started the economic recession, it was loot that couldn’t find its way into the economy due to the ongoing war on corruption that worsens the situation as majority of the fund linked to a series of accused facing trials were in U.S. dollars. Experts like Sharafadeen Tella, an economist has blamed the booming parallel market on their activities, the very reason consumer prices are at a record high and consumer spending and new job creation plummeted.
However, despite all these shortcomings the present administration failed to formulate an appropriate policy to stimulate the economy and curtail high unemployment rate. For instance, when IMF and economic experts advised the federal government to devalue the Naira, they refused. Until they realized that the external reserves couldn’t sustain the growing forex demands before introducing Forex Flexibility Policy on June 20, 2016 — three days to Brexit Referendum. A period when global risk and uncertainty were at the highest since 2009 economic recession. Therefore, the policy failed as global investors were skeptical of surged in emerging market risks.
Realizing the danger of low capital importation and forex revenue on the economy, the Central Bank of Nigeria hiked interest rate by 200 basis points from 12 percent to 14 percent not only to curb advancing inflation rate as announced by the apex bank but also to lure foreign investors to the capital market to supplement oil revenue. This further stressed businesses that were already struggling to meet financial obligations and forced a lot out of business following their inability to access cheap loans or repay previous ones.
Finally, while the recent surge in global oil prices is fueling economic recovery, it will be in futility if the nation fails to successfully diversify the economy and transform from import dependent economy to both export and domestic-product consuming economy. One, it is unlikely that global oil prices will see the days of $115 a barrel due to the growing campaign against foil fuel and a series of pacts signed by nations to intensify efforts on renewable energy. Two, a mono-product economy like Nigeria may just be having a second chance at perfecting its policy as global oil demand is waning and might get worse over time. Countries like Saudi Arabia are already developing policies to diversify the economy and reduce the effect of oil on their economic performance.
The truth is the most populous black nation, Nigeria is at a critical juncture in history, an opportunity to build a new nation divulge of corruption but economically viable and in sync with the rest of the world or a total disintegration of the entire nation as failure to build an inclusive government as opposed to the conventional centralized government will further aggravate the aggrieved minority clamoring for change across the country and worsen long-term business outlook of the nation.
