Oil is a blessing to most nations. But the blessing that flows from oil is mismanaged in Nigeria. Since oil was discovered in Oloibiri in 1956, Nigeria has suffered from an economic phenomenon called “Dutch disease.” By implication, Nigeria has been economically sick for almost six decades. “Dutch disease” from Financial Times lexicon “is the negative impact on an economy of anything that gives rise to a sharp inflow of foreign currency, such as the discovery of large oil reserves. The currency inflow leads to currency appreciation, making the country’s other products less price competitive in the market.” This led high level of cheap imports and deindustrialization as industries relocated in the 1960s.
Nigeria is suffering from the “Dutch disease.” This is the tragedy in Nigeria. That is why Nigeria with abundant natural resources performs worse than countries less endowed. Unfortunately, Nigeria derives its revenue mainly from the sale of crude oil and gas. However, it was reflected in this column some time ago that the sale of crude oil in the international market is not determined solely by Nigeria. Income from oil is an unplanned and externally generated bonanza depending on external factors.
The cause of economic instability in oil-rich Nigeria is not only because of corruption. It is because the economy cannot respond to pressures of demand from almost 200 million people in spite of abundant natural resources. That is why technology policy scholars say that wealth from oil is limited.
Since the beginning of the year 2016, Nigeria’s economy has been unstable. The economy is apparently unable to support Nigeria’s almost 200 million people, most of whom are poor. Some state governments are unable to pay salaries of workers, unemployment is rising, and many school leavers are unable to secure jobs. Capacity utilization of local manufacturers is low, and manufacturers relocate to neighboring countries for survival. This makes urgent economic surgery imperative.
Political and current affairs analysts have recommended series of reforms. Today, Nigeria – the largest economy in Africa – is rated a poor nation. A government rep says that “Nigeria is broke.”It is unbelievable. How can Nigeria with abundant natural wealth be broke? “What is wrong with the man of color, “a friend asked? The problem is not with the man of color. After all Netherlands, an oil-rich nation had economic problems in the 1970s similar to Nigeria’s. The problem I told him, “is with nations whose governments lack the understanding on how to manage abundant natural resources and wealth.”
In Nigeria, abundant crude oil and natural gas provides wealth for a small group of people but leaves the majority of citizens poor. This is because these resources often slow down other sectors of the economy. I thought the federal government of Nigeria should have completely deregulated the price of petrol on 11 May 2016 in order to end the fuel subsidy scam. But the federal government says it is “guided deregulation.” So, the pump price of petrol which was N86.5/litre is now fixed at N145/litre. By implication, the price of petrol is increased by about 67 percent.
The philosophy behind the federal government’s “guided deregulation” of the price of PMS as reported will mark the end of a costly fuel subsidy regime; enable federal and state governments to pay salaries of workers, and most importantly provides jobs for the unemployed. Another reason government gave include militants’ incessant attacks on oil installations in the Niger Delta. I hope militants know that the choice to bomb oil installations has negative consequences on their environment.
The “guided deregulation” according to experts will enable private investors to compete in the oil and gas industries. Good news! But will it create wealth for Nigerians? No! Oil only provides wealth for distribution. In Nigeria, efforts have always been on how to distribute wealth. It is because of wealth distribution that the 1999 Constitution expressly permits all states of the federation to go to the federal government monthly to collect their own share of the oil windfall. If states do not get enough, then they will apply for “bailout” as workers adopt “coping strategy” for survival.
It is the distribution of wealth that has led to corruption, agitation for true federalism, resource control and the recent clamour for political reforms. In our nation’s peculiar circumstance these are important, but they will never create wealth. It is because crude oil does not create wealth that is why Nigeria is not ranked as one of the top 10 most prosperous nations in Africa in 2015 according to a study. Botswana, a landlocked nation, was declared the most prosperous country in Africa.
Oil and other natural resources do not create jobs. These resources often do not strengthen economic diversification efforts in most countries as experienced in Nigeria. That increase in pump price will create 600,000 jobs may be true, but it is not sufficient to create wealth. Nigeria’s economy needs the right economic treatment to cure the “Dutch disease.” The federal government knows what to do. The Government needs the political will to take the right decisions.
Currently, oil is available. But oil may not be relevant in the future. If Nigeria does not leave oil, oil may leave Nigeria. It is industrialization that creates wealth, not oil. That is why I align myself with the analyst who says that “we must industrialize or perish.” I hope the vehicle of industrialization has not left Nigeria behind as the world is in the fourth industrial revolution.
If policy makers do not articulate policies that will sustain industrialization in Nigeria, the nation will not be able to cope with millions of unemployed youths. There is likely to be another increase in fuel price in the nearest future, and states will not be able to pay salaries of workers. Deregulation or “guided deregulation,” of petrol price, Nigeria should steer the course of industrialization now and endlessly, before it is too late!
MA Johnson
