On diversifying Nigeria’s economy
Nigeria is believed to have contracted both diseases and MAN has recommended unflagging economic diversification for curing them.
The association subsequently addressed to the Federal Government an economic and industrial memorandum calling for the creation of enabling conditions for the manufacturing sector to raise its contributions to GDP from 10 per cent in 2014 to the average of 46 per cent recorded by emerging economies within the shortest possible time.
It is important to identify the real cause of Nigeria’s chronic economic under-performance. But the first question to ask is: is resource curse the trouble? Would the economy have been better off without the resources available in the country? If yes, how would the recommended diversification proceed in order to achieve economic prosperity. It suffices to simply dismiss resource curse as a self-contradictory term or concept that would not find a place in the economic lexicon of countries that have patriotic leaderships.
Secondly, is Nigeria nursing a chronic affliction of Dutch disease owing to the exports of crude oil and natural gas? Heavy dependence of the economy on crude oil commenced in 1974 when oil proceeds on paper began to account for over 50 per cent of the yearly national budgets.
Over the past 40 years had oil exports induced the Dutch disease, the domestic currency would have appreciated significantly against the currencies of trading partners thereby rendering other exports particularly manufactures uncompetitive leading to a fall in the volumes exported.
But that was not what happened. As a matter of fact, the real sector of the economy generally declined despite the fact that the value of the naira dropped by more than 99 per cent from its peak value of N0.5464/$1 in 1980.
While some are wont to campaign for a weak domestic currency for the sake of a vibrant export sector, the persistent weakening of the naira in the last 35 years neither stemmed the decline of the manufacturing nor increased exports of agricultural produce.
On the contrary, imports of final products and intermediate goods into Nigeria from countries with much stronger currencies intensified throughout the period.
Thus the oil and gas proceeds per se have been neither a curse nor carriers of Dutch disease. The country’s economic ills have been linked to mismanagement of the oil proceeds by way of CBN-financed excessive fiscal deficits that are substituted for oil export receipts against economic best practice and the annual Appropriation Act. The fiscal and monetary authorities appear to signify their guilt through deafening silence on the illegal and unintended deficits over the past 14 years.
The resultant deficit financing of more than 50 per cent of the annual budgets forms the taproot of the tree of macroeconomic instability whose main branches include excess liquidity, heavy non-investable national domestic debt, high inflation, high lending rates and the ever-sliding domestic currency.
The pruning process over the years focused on chopping off some small branches only for new twisting twigs to emerge in repetitive cycles, which may be likened to changing and inconsistent economic policies.
To further the analogy based on the media report, after all is said and done, MAN through its memo would rather leave firmly standing to decorate the economic space the government-planted evil tree bearing well-set main branches from which grow small branches and twigs that the government would prune from time to time to the people’s unending economic discomfiture.
In light of the poor state of the economy for 35 years running, that evil tree will continue to poison and blight the manufacturing sector.
So, towards making Nigeria one of the world’s 10 great nations after being stunted by fiscal deficits for 40 years and in the interest of the manufacturing sector, the MAN should just make explicit demand for the government’s evil tree to be cut down altogether.
In other words, MAN should insist that an end is put to the substitution of apex bank deficit financing for oil receipts and also ensure that public sector oil proceeds are converted to beneficial naira revenue using the managed float system.
Whereupon the conducive economic production conditions sought in the manufacturers’ memo would quickly evolve.
Also the crippling infrastructure deficit in its various manifestations would become profitable investment opportunities for the private sector to undertake alone or in partnership with the public sector.
Funding? Some 80 per cent of Nigeria’s financial sector lending capacity running to over N70 trillion currently lies idle.
Part of that humongous self-financing capacity can be put to use if MAN, instead of awaiting government say-so, develops for government consideration sector-specific loan tenor schedules that reflect project gestation and optimal loan liquidation time frames.
As far as Nigeria is concerned, foreign direct investment (FDI) funding should not be allowed to dictate the pace of economic diversification. But spontaneous FDI should be a welcome supplement.
However, there are some self-imposed impediments to the diversification of the economy that should be jettisoned.
The Nigeria Industrial Revolution Plan to which MAN subscribes, has neocolonially erected a hurdle requiring local manufacturers to be globally competitive.
Accordingly, the organised private sector has remained acquiescent while NAFDAC and the Standards Organisation of Nigeria license foreign-based firms to manufacture goods for Nigerians to import.
The CBN, on its part, makes it easy for all-comers to access foreign exchange cash and cart it physically abroad to pay for all manner of imports or stash away. Why then does MAN complain about large-scale smuggling in its memo?
Again, two years ago, SON jubilantly disclosed that 80 per cent of manufactured goods in the market place ranging in quality from standard to sub-standard, were imported. For instance domestic tyre consumption is met entirely from abroad.
Those are the constituents of demand which as MAN bemoaned in its memo, the manufacturing sector misses while unutilised installed manufacturing capacity that, once upon a time, rose to over 70 per cent now hovers around 50 per cent and mass unemployment stalks the land.
The above deliberate bleeding of the economy should stop. Nigeria should consume what she produces to the maximum before importing any necessary balance. Interested foreign-based manufacturers should relocate here to produce for the domestic market.
Generally, provisions of the Nigerian Content Act of the petroleum industry should be adapted to serve as the operating guide to the manufacturing and all other sectors of the economy to make Nigeria work and work efficiently.