Oil price slump: How can Nigeria guard against economic vulnerability?

Nigeria’s economy will remain vulnerable as long as we depend on the oil sector for most of the income required to implement our annual budgets.The Nigerian economy is increasingly becoming diversified as presented in the statistics when rebasing was carried out. However, the oil sector continues to dominate, not in terms of employment generation, but revenues accruing to the national purse.More than 80 per cent of the revenue comes from the oil sector. Thus, any drastic fall in the international price of oil will impact negatively on federally-collected revenues and consequently affect budget implementation and national plan execution negatively. I believe efforts to promote agriculture must be intensified through technological advances which will speed up production.The industrial sector must also be genuinely assisted to expand and improve on capacity utilisation. These, among others, will guard our country against economic vulnerability.

To guard against economic vulnerability, we currently operate a mono-economy, an economy that is totally dependent on oil revenues. We have not developed other sources of revenue. The revenues made from oil and gas cover the majority of what is shared among the three tiers of government.It used to be over 90 per cent of the country’s revenue stream. I learnt it has currently been reduced to between 75 and 85 per cent because of efforts being made by government agencies like the Federal Inland Revenue Service, Nigeria Customs Service and the Nigeria Immigration Service, among others. A majority of other institutions that generate a reasonable amount of revenue such as the Department of Petroleum Resources (DPR) are oil and gas related; that means that they add to the revenue stream from the oil sector.And that is what all the tiers of government depend on for their operations. Where oil revenues are not forthcoming, the Federation Accounts Allocation Committee and the Revenue Mobilization and Allocation Committee have little or nothing to work with; the states have nothing to work with and the economy faces the risk of collapse. I believe the states are so lazy and their governors are not able to think outside the box because most of them, got into office without a clear understanding of what their responsibilities are. Only one or two states are able to survive without federation allocation.The solution to this problem is fiscal federalism, each state has to make their revenue and stop running to the government to make that for them. We must seek practical ways of attracting genuine investors to invest in the development of other mineral resources. The nation must start to think outside the box and deploy a substantial part of our current revenue in productive sectors that will yield more – thank God for excess crude oil account.The fact is that the downturn in oil prices should always be anticipated and we should prepare for it. The price of oil in the international market has always been volatile and it will become even more so because alternative sources of energy are being developed across the world.

The economy will be badly affected if the price of oil should drop severely like it happened about two or three years ago. This is why we need to develop other sources of revenue, independent of oil.The Gross Domestic Product (GDP) of the country will also be adversely affected because we import more of refined products than we export.I think this administration is trying to diversify the economy by looking into agriculture, tourism and other sectors. The Federal Government has been investing in the agricultural sector and this is reducing our import bill on rice, wheat and other imported food items.This is a step in the right direction and should be sustained to shore up our non-oil revenue base. We must also work towards adding value to our agricultural produce before export; this is a better way of attracting additional revenue which will insulate our economy from oil price volatility.

I am very optimistic about the future of oil and gas in Nigeria and I will tell you why.Number one reason is that we have a dynamic human resource of highly skilled energy professionals and that’s very good. The second reason is that we have oil and gas resources in abundance, the largest in Africa. The only thing that has been missing, in my opinion, which may make our economy feel such shocks, is our policy direction. For many years, Nigeria has looked at oil as a source of revenue instead of seeing it as a source of power. But the good news is that the dawn of a new era is here; it is because of the Petroleum Industry Governance Bill (PIGB) that the National Assembly has finally passed after its delay since the year 2000. The bill is now in the process of being assented to by the President. With this bill, there is hope for the sector and the economy, regardless of price volatility in the industry.Now, literarily that bill has lifted a cloud of uncertainty over the oil and gas industry, because for 20 years, we’ve been telling them to reform the industry. The delay in the passage of the PIB frustrated many potential investors from coming to Nigeria because they don’t know what the modus operandi will be on any new investment but that is about to change.However, there is no perfect law and that is why there is always room for amendment. The PIGB may not be a perfect law, but it is a good enough law to reverse the declining trend in the sector and guide operators on how to manage whatever surprise that may arise from oil price volatility.

I feel the only way we can guard our economy from exposure is to diversify. We are not the only oil producing country in the world, there are several others.The difference is others have understood that oil revenues are only an addition to other sources. We still operate a mono-oil dependent economy and this affects every other thing we do in this country.We need to industrialise the economy and we cannot do this unless we make it difficult for imported goods to enter this country, or make the cost of imported goods very high by devaluing the naira.  We should place high tariffs on imported goods to encourage local production.This is not rocket science and we cannot continue to deceive ourselves, we must do the needful to get ahead.We cannot continue to do the same things the same way and expect a different result; it will serve our economy better if we start now to take the necessary steps to address these issues.We cannot continue to run away from this truth.

Nigeria can guard against it by making sure our rising debt is reduced totally. Not only should the debts be moderated but also that revenue generation should improve to address a weak debt servicing ratio to GDP and tax-to-GDP ratio. This means we have to monitor the rate at which we are getting help from other countries. I know we are in a debt crisis which is destroying the revenue generation of our country; when you compare your revenue to your GDP, it’s low. Generating more revenue does not mean we should focus only on increasing production in the Niger Delta or praying for oil prices to rise, we have to generate long-term revenue. How do you generate that? We have to enforce compliance, which is all about increasing the tax base and making sure that those who are paying are paying the correct amount and not just paying a small amount to escape. I feel we have to increase our taxes and also the government should make sure that money issue to each state should be spent on what is necessary. Possibly government expenses should be lesser. I have lived in Nigeria for long to know that once anything happens to oil, we are panicking, why? Because oil at some point counted for 80% of our revenue and most of our foreign exchange comes from there so we can’t shy away from tax revenue.” It is true that Nigeria is blessed with crude oil (petroleum) but the question is, how correct are the volumes that are exported out of the country? For instance, a head in one oil servicing company in the country may export about one thousand barrels of crude oil from the country and go back and give a report to the government that he exported five hundred barrels. What happens to the remaining five hundred? The money goes into his personal account; corruption in the higher order. All these should be curbed by the government.