Nigeria’s economy has been very unstable over the past few decades, successive governments has deployed various economic programs to stabilize what is proverbially known today as Africa’s largest economy. The beginning of the new democratic dispensation in the country berthed the vision 20:20, targeting to be among the 20 largest economy in the world in year 2020.
Presently Nigeria is ranked as the 21st largest economy in the world in terms of nominal GDP, and the 20th largest in terms of Purchasing Power Parity. It is the largest economy in Africa. Nigeria derives 95 per cent of export earnings and 70 per cent of government revenue from the oil sector.
The rebasing of the country’s GDP in April 2014 had clearly underscored the decline in the contribution of the oil and gas sector to the GDP in recent times.
The National Bureau of Statistics, in its third quarter report, said the oil and gas sector contributed about 10.45 per cent to the real GDP in the third quarter, lower than the 10.76 per cent contribution in the second quarter of 2014.
Prior to the rebasing, the contribution of crude oil and natural gas to the nominal GDP was 40.86 per cent in 2011, 37.01 per cent in 2012 and 32.43 per cent in 2013.
After the rebasing, the sector’s share of the GDP stood at 17.52 per cent, 15.89 per cent and 14.40 per cent for 2011, 2012 and 2013, respectively.
Nigeria’s economy was on her way to making good it’s great prospects, possibly making it to the top 20 economies in the world in 2020, it seems to be until this happen…..
Global oil price meltdown
To put things in perspective, crude oil has more than halved its market value since reaching a level of $102/barrel in June 2014. The key contributing factor to this has been unwillingness from major oil producing cartel such as the OPEC to curb oil production despite a steep decline in prices.
This is because oil producers want to maintain their market share, and drive out competition from US shale producers which have capital-intensive operations. The impact of this can be seen in budget deficits in major Middle East economies such as Saudi Arabia, because their economies are highly dependent on oil revenues.
Goldman Sachs has predicted Crude oil prices will remain in the $45-$50-a-barrel range till mid-2017, with little to change the global supply and demand situation.
In the midst of crude oil prices going down, Nigeria in 2016 could not meet up with it’s 2.5 million barrels per day as a result of a massive onslaught by Niger Delta Militants on oil installations in the country’s south-south region.
Presently Nigeria’s crude oil production stands at 1.4 million barrels per day due to increased vandalism of crude oil pipelines by vandals. This has led to the present economic challenges which experts including the International Monetary Fund (IMF) predicts that the country is heading towards economic recession.
Buhari’s Economic Recovery Strategy
The present government of President Muhammadu Buhari’s economic recovery policy has in the past few months come into limelight, first in June 2016, the Central bank of Nigeria (CBN) freed up the Naira in a flexible currency regime to allow market forces determine the value of the Naira. This has led to a sharp fall in the exchange rate of the Nigerian Naira to as low as N311/$ as at 30th of July 2016.
The flexible exchange rate is to woo foreign investors back to the nation’s market in order to once again revitalize the plummeting economy.
Other key policies are the full implementation of the treasury single account (TSA), fight against corruption to block leakages, massive job creation through programs such as the N-power program, investing in agriculture and SMEs financing through the Bank of industry (BoI), bank of agriculture (BOA) and other funding sources from commercial banks.
Nigeria studying Iranian model of economic diversification
President Muhammadu Buhari has said on the 24th of July 30, 2016 that the Federal Government would understudy the experience of Iran, which thrives in adversity, to diversify Nigeria’s economy.
The economy of Iran is a mixed and transition economy with a large public sector. Some 60 percent of the economy is centrally planned. It is dominated by oil and gas production, although over 40 industries are directly involved in the Tehran Stock Exchange, one of the best performing exchanges in the world over the past decade. With 10 percent of the world’s proven oil reserves and 15 percent of its gas reserves, Iran is considered an “energy superpower”.
The image of Iran’s economy as oil, carpets, and pistachios was always flawed, but has now become badly dated. The Islamic Republic is in the midst of a non-oil export boom — it has the potential to remain a middle-income country even with no oil exports, and the reserves to finance the transition in the meantime.
For years, Iran’s leaders called for reduced reliance on oil but did little to meet that goal. Western sanctions have seemingly spurred them to action — in his annual Nowruz address on March 21, Supreme Leader Ali Khamenei acknowledged for the first time that restrictions on the country’s oil exports had made a serious impact: “The sanctions have had an effect, which is because of an essential flaw that we are suffering from.
While still important, oil is becoming a smaller part of Iran’s trade. In 2012, the country imported $57 billion in goods and exported $34 billion in non-oil products, meaning that non-oil exports covered 60% of the import bill, compared to 24% in 2002 and 14% in 1992. It produced this shift in part by converting more of its oil into industrial products for export; according to the Iranian Customs Administration, the $29.2 billion in non-oil exports over the first eleven months of fiscal 2012/2013 included $9.0 billion in chemical products (mostly petrochemicals such as urea fertilizer and polyethylene) and $3.2 billion in plastics made from oil.
But other products are also being exported at high rates, including $8.2 billion in minerals, stone, cement, and related products, $5.3 billion in agricultural products, and $800 million in carpets. The country’s largest market is Iraq, which took $5.6 billion in goods over the same period, including much of Iran’s manufactured exports (e.g., more than $300 million in automobiles). The next-largest customers were China ($4.8 billion), the United Arab Emirates ($3.9 billion), Afghanistan ($2.5 billion), India ($2.4 billion), and Turkey ($1.3 billion).
Is Nigeria ready to take after the Iran Example?
The economic direction of Iran in their recovery saw a shift from oil revenue to the non-oil export, massive consumption of local goods and a sharp increase in export trades.
Nigeria is currently on a crusade of “buy Nigeria” and the campaign of boosting non-oil exports, but this goes beyond media hype and paper work. If the federal government is sincere on taking after the Iranian model of economy, it must as a matter of fact de-emphasize the hype on the impact of fall in crude oil prices and go straight to work in building other sectors of the economy such as cocoa production, palm oil production, garri production, manufacturing, ICT, fishery as well as human capital development.
FG should take advantage of the looming economic recession in the country and rebuild the economy, this time focusing on the non-oil sector just as Iran did.
Report by Ezekiel Enejeta
First Published on Financial World.