Walking into economic straits with open eyes

The Organisation of Petroleum Exporting Countries (OPEC) comprising Saudi Arabia, United Arab Emirates, Iran, Iraq, Kuwait, Venezuela, Algeria, Libya and Nigeria and the others, rose from a meeting on Wednesday, called principally to discuss how to halt the freefall of oil price in the international market. Against all expectations the meeting resolved not to impose […]

The Organisation of Petroleum Exporting Countries (OPEC) comprising Saudi Arabia, United Arab Emirates, Iran, Iraq, Kuwait, Venezuela, Algeria, Libya and Nigeria and the others, rose from a meeting on Wednesday, called principally to discuss how to halt the freefall of oil price in the international market. Against all expectations the meeting resolved not to impose a mandatory cutback in production as a way of reducing the oil glut that gave rise to the fall in price.
Except Saudi Arabia, Kuwait, UAE and other far-sighted countries that wisely integrated their economies into those of the industrialised ones through buying into the commanding heights of those economies, or judiciously used the oil wealth to transform their own economies, the shortfall is already having its negative impact on other less enterprising countries. Russia, an oil producing country outside OPEC, lobbied hard for OPEC to institute a cutback, but to no avail. Reeling under sanctions imposed by the US and Europe for its annexation of Crimea and the invasion and suborning of insurrection in Eastern Ukraine where ethnic Russian militias have been fighting government forces, Russia invited a raft of sanctions on its head that denied it much needed hardware to replace ageing ones in its oil industry and other strategic sectors of its economy.
Thus, fall in price of oil would deny it the cash to acquire these equipment from other sources outside the US and Western Europe. Venezuela, Iran and Iraq may also be in for a rough ride as they all envisage a period of shortage of funds to finance routine government business.
In Nigeria, government officials have been quick to decry the debilitating impact the shortfall of revenue would have on effectively running the country, darkly hinting at drastic measures to weather the economic straits that have ensued. As usual the first among these measures to come up was subsidy on fuel which would be removed and others not yet spelt out. Meanwhile, the Naira has been plummeting in value even before the oil price began to fall, indeed as oil price shoot straight for the abyss, so also has the Naira.
At an official rate of about 155 naira to the dollar a few weeks ago, it has continued its downward trend ever since and presently hover around 185 to 190 to the dollar.
You do not have to be a Joseph Stiglitz or Paul Krugman—all Nobel laureates in Economics to know that this dire economic trend has plunged Nigeria into a bad situation capable of affecting social and economic activities adversely. It surely would drive import dependent manufacturers to distraction and make them reel under the effect of high cost of imported inputs in the short term and if the fall of Naira value continues, it would necessitate a reduction in workforce to cut cost and still if there is no respite, a shut down completely would ensue, throwing scores of people back into the labour market that is already full to the brim.
Across the country, state governments have started to delay payment of salaries, making labour restive and itching to take to the streets to demand prompt payments of salaries and other entitlements. The difficulty experienced by the states in paying salaries, as and when due, is a direct result of drastic reduction in allocations from the federal government. Yet, in a sense the latest economic difficulties cannot be totally unexpected. The other day, a minister came out to say as long as Nigeria remained a mono-product economy it would continue to suffer the effect of price instability in the oil sector. Certainly, but is the government not responsible for limiting the impact of such situation? Every high school student knows that Nigeria’s economy rests solely on revenues from the petroleum sector, as agriculture and the real sector of manufacturing continue to be neglected.
The opportunity to diversify the economy presented itself in the 70s, a time of unprecedented oil wealth. But rather than build a viable manufacturing sector with the windfall oil revenues, the nation embarked on frivolous imports. Nigeria was so awash with petro-naira that it gave rise to the now famous saying that there was so much money it did not know what to do with it. The thinking then was “why go through the aggravation of dirtying your hands by making things when you could simply buy them from the producers”. Some 4 decades later, though measures have been taken to boost both agriculture and manufacturing sectors in successive budgets, they have been, at best, phlegmatic, lacking in steely resolve to concretely make the sectors viable alternatives to the oil sector.
And so, every so often when fluctuations take place in the price of oil, as exists now, Nigeria’s whole economic structure unravels, killing industries and sending many people into the labour market to eke out their livelihood perilously from the edge.
Yet the expectation that this critical issue should concentrate minds both in government and outside it is hardly evident. As the nation inches its way toward elections, if there is one issue that should be paramount in campaigns, it should be the economic straits staring us in the face and its dire social and economic consequences. In the US, 6 years ago when Barack Obama took over as president the economy was prostrate, made so by the ruinous war of George W. Bush in Iraq. Barack Obama won a second term solely because he managed to put the economy on an even keel, reviving closed car factories in Ohio, sanitising and rescuing the banks from bankruptcy, rebuilding decrepit roads and other infrastructure etc, you expect the Democratic Party to merely coast along till 2016 and win hands down in the impending elections.  No, a fortnight ago, Barack Obama’s party lost big time.
Why should a President adjudged to have done well get badly trounced in a midterm election? Well, Barack’s Party was beaten badly because voters said true, the economy may have been revitalised, but they have not yet felt the impact, the benefits have not accrued yet in their pockets. This raises the issue of how much benefit one has derived from policies of a government, which is held to account for its stewardship.
Policies that send scores of people into privation and want invite social chaos like the one in our hands now. The government should think carefully before it starts instituting its regime of austerity and belt-tightening promised. Policies that cause prices of consumer goods to skyrocket, transport fares to shoot into the heavens and generally create an inflationary spiral would definitely further cause disaffection, angst and disillusionment in Nigerians that could turn the nightmare of Boko Haram, even as intractable as it is, into child’s play.
The times call for government to summon up the courage to plug all avenues of financial leakages in the system and then force stolen funds to be returned as a first step toward bringing the economy back to health.