The danger in export diversification
Nigeria may be working hard to diversify its economy from the monolithic crude oil export to intensive agricultural and solid minerals export in order to earn the precious foreign exchange and accumulate foreign reserve. Unfortunately, this measure is more damaging to the economy than relying on the crude oil export.
Nigeria at independence participated in external trade with agricultural output constituting the lion share prior to the surge in oil export in 1970s. However, the Nigeria’s trade composition drastically changed with the discovery of oil in 1956 with production commencing in 1958 which in recent times has seen oil exports reach over two million barrels per day. With the emergence of oil export, agriculture was totally neglected. Oil constituted about 90 per cent of the country’s export revenue leading to a reliance on the petro-dollar economy and a craze for importing luxury goods.
Despite the fact that Nigeria was opportune to use the newly discovered oil resources to transform the economy, it continued committing the same mistake made with agricultural raw material export. This time around oil was exported in its crude nature which also attracted low value. This perpetual blunder is responsible for the country’s sluggish capital accumulation which is required to manufacture machinery necessary for mass production of goods and services.
Now the glory days of oil seems to be receding and the general outcry is on how to go back to the so-called glorious days of export of agricultural products now relegated to less than 10 per cent of the export revenue, and to include solid minerals which, hitherto accounted for only about one per cent of the export revenue. Many observers have wrongly linked the country’s economic stagnation to the neglect of agriculture. This gave rise to the misconceived slogan that oil was a curse to the Nigerian economy. Therefore, many believe that the blessing for the country was export diversification.
The questions that arise here are: where shall the new dream of increasing solid mineral and agricultural export take Nigeria to which the crude oil export had failed? Why is the Nigerian economy not developed despite the decades of export revenues? And what corrective measures shall we take to achieve maximum value for our exports, minimum cost for our imports, domestic employment through the export, and capital accumulation for economic prosperity?
The fact is that Nigeria, both before and after independence, has been exporting invaluable but bulky primary products. These exports fetched insignificant foreign exchange compared to finished industrial products.
In addition, the international specialisation that circumstantially made Nigeria to exploit and export its raw materials crippled the domestic industries to the extent that the country had no option than to depend on imports of precious industrial goods. As a result of this, the hard-earned foreign exchange was invariably being eroded.
This dangerous situation further incapacitated the domestic industries and, therefore, denied the teeming youth access to gainful employment. More so the youth were made to rely on the public sector for employment thereby promoting the fiscal imbalance against capital expenditure. This led to dependence on foreign loan irrespective of the consequences of the loan capital, the least of which required the country to devalue its currency and liberalise trade.
Although modern economic policies are based on trade openness, the same proponents of free trade used to take restrictive measures against any foreseeable danger. It is an undeniable fact that no country can live in isolation, but the developed countries, well advanced in technology, have already positioned themselves in industrial and service sectors before calling for competitive trade. The underdeveloped countries including Nigeria are thus relegated to the inferior area of specialisation – raw material export. Nigeria should not misinterpret trade interdependence with trade dependency.
For this reasons, neither the promotion of solid mineral export nor the revival of agricultural export or the increase in oil price in the world market can positively change the economic situation of the country. In fact, what stagnates the country’s economy from the slave trade era to date is simply the unequal exchange relationship that existed at the international level.
From the foregoing, Nigeria needs to improve the value of its exports. For example, we should not export agricultural output such as rubber and cotton, but process these raw materials for our consumption and export the surplus. Likewise, we should not export steel but should produce roofing sheets, machines, nails, and so on. Furthermore, we should stop exporting our crude oil but rather should process it to export refined petrol and its by-products.
The cause of our current economic doldrums is in the export of primary product. This is compounded by our craze to import the processed raw materials in form of finished goods from the developed countries at higher value. This should be corrected by means of domestic production for self sufficiency in consumption and for export of surplus.
By reversing the raw material export in favour of export of finished products, and by curtailing our unnecessary import culture and becoming self-sufficient in at least the basic necessities, Nigeria’s economy would advance. But the campaign for export diversification in favour of another type of unprocessed or semi-processed raw material export such as the solid mineral and agriculture is a recipe for economic disaster.
Professor Sule Magaji is of the Department of Economics, University of Abuja.