This blog is not about president Buhari, it’s about resourcing and managing public goods in Nigeria. I’m now used to this disclaimer whenever I comment on salient economic issues in Nigeria, because certain set of people who used to appreciate my write ups under the administrations of Obasanjo, Yar’adua, and Jonathan as enriching intellectual contributions, now view them from an ethnic posturing, given my Igbo background. So, it’s now necessary to append a disclaimer, to clarify that I’m no way a Buhari fan, but my criticisms are nowhere due to my ethnicity. For me, Buhari is part of the problem, not the solution. Military regimes, Buhari’s inclusive raped Nigeria of hope and stability.
Let me start as a lay person would on this topic. The idea of Dutch disease 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 inflows lead to currency appreciation, making the other products less price competitive on the export market.
Elsewhere there have been calls to diversify the Nigerian economy to overcome such effects. I submit that the Nigerian economy was long diversified. What it hasn’t done consistently is institutionalising prudent management of resources, and adopting an enterprising state model, which is a no brainer for a one-sector economy like Nigeria. A one-sector economy is one that earns the bulk of its revenue funding from one sector. It doesn’t mean it’s not diversified, it just means that the other sectors are not competitive enough. You would need to invest heavily in these other sectors to move away from a one-sector economy.
The term Dutch disease was first coined in by the Economist group, publishers of the economist magazine in 1977 to explain the decline of the manufacturing sector in the Netherlands, after the discovery of the 1959 large Groningen natural gas reserve, which resulted in the nation’s other exports becoming more expensive and less competitive in the international market.
From a development perspective, Dutch disease is the apparent causal relationship between the increase in the economic development of a specific sector and a decline in other sectors of the economy. The putative mechanism is that as revenues increase in the growing sector, the given nation’s currency appreciates compared to currencies of other nations; manifest in the exchange rate.
This was the case with Nigeria, during the 1970s oil boom. Even the naira was stronger than the dollar. As oil brought an unimaginable size of rent, Murtala Mohammed and those that followed him began a spending spree, creating ginormous projects, and borrowing billions of dollars to finanace them, projecting more oil revenues to pay back quickly. Such a grand scale of borrowing proved dismal for a one-sector economy.
So as the world oil prices nosedived in the 80s, solution would have been a sound economic and monetary policy to address the fall through, rather Nigeria was unlucky, as the army jumped on the bandwagon of leadership with coups and counter coups diverting attention from the real issues.
For example, under Babangida, domestic inflation became so high that even basic food stuffs were unaffordable; but he invested in building an elite city Abuja, which was at the time very unnecessary. At the point that Nigeria owed debts in all corners of the world, and was advised by both the World Bank and IMF to cut their excesses.
The thing is whether it was structural adjustment programme, green revolution or war against indiscipline. The army were not trained to manage economy. They lacked the competency to make a cumulative sustainable progress both in political governance and economic management. They may achieve instantaneous wins, like any ‘woof woof, will bark, but economic management is neither reactive nor an instantaneous project.
I do in many ways sympathise with President Buhari, as he remembers the good old days of Nigeria, and he dreams of rematching it, and ‘make the dollar equals one Naira’ forgetting it’s no more ‘uhuru’.
Dutch disease is not only in reference to natural resource discovery; it can also refer to “any development that results in a large inflow of foreign currency, e.g. diaspora remittances, surge in natural resource prices, foreign assistance, and/or foreign direct investment. These are all counterproductive to growing strong domestic base, if no smart policy isn’t pursued.
Closing up Nigeria’s economic potholes should have started in the 70s. It’s not impossible today, but to do that in the 21st century, you would need astute and selfless technocrats to manage state resource, not career politicians, who are bent to steal everything penny they see in the treasury, or the army for that matter. You also need to plan and keep ‘bettering’ as you go along.
It’s important to note that Nigeria’s economy did not start free falling today. If the last 15 or 16 years of civilian rule have been tumultuous, current fiscal ‘wrestlemaniac’ isn’t the way forward. In fact, it is dangerous. Nigeria should let market work for itself.
Nigeria’s government does not have the prerogative of ‘holding the knife and yam at the same time’. While Nigeria has got the yam, it does not own the knife to slice it, unfortunately. The international market has numerous players, even with stronger influence and interest. Nigeria can only rely on two possibilities for growth. One is prudent resource management and the other is enterprise state model.
The framework for prudent resource management is about savings and investment given current resource realities. Best practice would be the Norwegian model, where specific percentage of oil revenue are invested in other sectors, e.g. fish farming and renewables. So that Norway is not only the highest fish exporting country in the world, but it has transformed itself as leader in the renewables sector.
The so called ‘trash to cash’ model has transformed waste energy as a high value commodity through incineration technology. The UK alone paid millions for thousands of tonnes of household waste to be sent to Norway, while Norway incinerate and convert them to instant reusable energy, which they sell to earn more money. Smart, isn’t it? This is what is referred to as prudence resource management.
Prudent resource management is far from the fire brigade approach in Nigeria, where it’s all about resource sharing, and consumption, not savings and investment. It’s no brainer that development has always been modelled behind resources accumulation, savings, and investment, and best practices abound across the globe.
The other possibility for Nigeria is what I’ve referred to as enterprise state model. This is necessary in tackling the infrastructure and public services challenge facing Nigeria. An enterprising state model entails exploiting the opportunities available to government to address social problems, while maximising the income potential. Many countries in the world own high value enterprises, but why can’t government of Nigeria or the state governments for example use some part of the revenue allocation they receive monthly to build industries, factories, recreation businesses, etc?
What is wrong with federal or state governments owning a cement factory, or farms across the country, generating extra income to run the affairs of state? With the level of resource controlled by federal government in Nigeria, it can really exploit new income streams by running businesses in parallel with private sector, particularly at the current state of things. Perhaps these businesses can go into private buy outs in the long run, when there are no more restrictive factors.
The people and government in Nigeria must recognise that present realities are not only disturbing, they are dangerous. The over reliance on oil for dollar needs is unsustainable. It might just mean that the free fall has arrived, if we continue with this lip service.