Five Lessons From The Crude Crunch By Simon Kolawole

In 2008 — I mean 2008, not 1908 —oil prices fell from the height of $147/barrel to $36. That was $111 shaved off every barrel of the black gold. It was like the world was going to end. President Umaru Musa Yar’Adau battled tooth and nail to get a realistic benchmark for the 2009 budget. The more he adjusted downwards, the more oil prices went south. There and then, all kinds of promises were made. Political office holders were asked to take pay cuts. Governors promised to develop agriculture. We were told our dependence on oil would soon end as we were all set to diversify our economy. Until, of course, another boom came and normal service resumed.

As soon as oil prices recovered, I knew we had lost the plot yet again when President Goodluck Jonathan, then acting president, announced a new minimum wage of N18,000 at the 2010 May Day rally, a few days before Yar’Adua died and Jonathan became the substantive president. It was purely a political decision, perhaps with eyes on the 2011 presidential election, and it was clear Jonathan had not done the math when he made the pronouncement. Workers were jubilant — who would not celebrate a pay raise? — but the governors were livid. It took years of negotiations and threats before a compromise was reached and all states reluctantly agreed to pay.



In these two paragraphs, I have tried to capture the Nigerian way of doing things. When we are down to nothing, we claim to be sober, we claim to be wiser, and we claim to be determined to do things differently. We make promises and plans, speak beautiful English and fluent gibberish — to suit the mood of the moment. But as soon as there is a semblance of prosperity and a hint of abundance, we relax and relapse into our prodigal paradise. It is human nature, sure, to groan in pain, and to forget the pain when pleasure soothes. It is easier to “diversify” the economy when oil is $10, and then “diversify” wasteful spending when the price jumps to $100.

All my life, I have been hearing about diversification of our economy “from oil” and “develop agriculture”. I started hearing that from primary school, when the then head of state, Lt. Gen. Olusegun Obasanjo, launched Operation Feed the Nation — which Nigerians derided as Operation Fool the Nation. President Shehu Shagari who came after him spoke about “Green Revolution”. The fundamentals of the structural adjustment programme (SAP) of Gen. Ibrahim Babangida were to develop agriculture, substitute imports with local production and become an export-led economy. Three decades after, we are still singing the same song. That is how we are.

So we really have to ask ourselves: are we learning any lessons? Something keeps telling me that we are pretending to be holy now because crude oil price is $30. We are saying the right things again, promising to diversify the economy, vowing to cut down on waste, claiming to be tee-total once more. We are even regretting not having enough savings for the “rainy day”. And why am I thinking that as soon as oil price climbs higher, normal service would resume yet again? Why do I think governors would head back to court to declare the excess crude account (ECA) “unconstitutional”? Why do I think we would jack up wages again and increase the size of government?

Personally, I have learnt a lot from our current agony. I will pick just five lessons for our discussion today. Lesson No 1: we still harbour what I call “commodity mentality”. I have heard top government officials and governors talk about diversifying our economy from oil, which is excellent. But you know the substitute? They say we should diversify into solid minerals and agriculture so that we can export cocoa, sesame seeds, rubber, gypsum and limestone. This proposal is not bad in itself — after all, we can earn a lot more forex by exporting these commodities. Didn’t the regions rely on cocoa, groundnuts, rubber and coal to develop in the 1950s and 60s?



But we keep missing the point. We cannot build our economy on commodity exports. To start with, the commodity market is unstable and unreliable. Right now, there is a global commodity crisis. Commodity prices are in a bad state. It is not just oil price that is afflicting the world. Secondly, and that is the central argument, the real value of primary commodities is derived from turning the raw materials into finished products. Export chocolate, jam and marmalade, not cocoa. Export tyres and shoes, not rubber. The real wealth, evident in value added and job creation, comes from manufacturing not from mining. So Lesson No. 1 is that we still don’t get it!

Lesson No. 2: we still don’t understand why we need refineries badly. Between 2002 and 2006, I wrote relentlessly asking President Olusegun Obasanjo to build refineries. I was told to shut up, that I knew nothing about modern economics, that government has no business with business, that the private sector would build all the refineries. I was accused of proposing “outdated ideology”. I did argue that since the licensees were refusing to build refineries because of deregulation issues, the government should seize the bull by the horns by building, leasing out the management and selling its shares to a core investor when we had achieved sufficiency. Nobody listened to me.

Today, our forex situation proves that I was not out of my mind 12 years ago. In these difficult times, the CBN is selling over 40% of its forex to marketers for fuel import. If we had built refineries then, at least this 40% would be off the demand list. That would have reduced the pressure on forex. In fact, we could be earning extra forex from fuel export. But what we have today is that we sell crude oil and then send the income back to buy fuel. Meanwhile — and this is so tragic — do we know how much we have wasted in the last 15 years paying demurrage on imported fuel, to say nothing about subsidy scams perpetrated therein? Billions and billions of dollars.

Lesson No. 3: we don’t even have to concentrate too much on export for now. Rather, our short- and medium-term ambition should be import-substitution to reduce the pressure on forex. That is, let us concentrate policies and programmes on producing and consuming quality made-in-Nigeria eggs, milk, fish and vegetables, etc, so that we can significantly reduce the pressure on forex and allow the naira have some respite. Let us improve the standards of Nigerian airlines on international routes so that they can compete. Their ticket proceeds will remain largely in Nigeria. They will not need to apply to CBN for $3 billion to “remit” ticket sales to their “home” countries.

Lesson No. 4: we must become very strict with savings. If oil price recovers, we must save. We must amend the constitution to allow for savings. The provision that “all federally collected revenue must be paid into a consolidated federation account and shared by all tiers of government” is anti-development. Savings must become a law. We can define under what conditions we can withdraw from the savings and what the money can be spent on. We must never finance wage increases and purchase of cars from oil savings. We can make it a law that the savings should be spent only on roads, education and health, as Botswana does with its diamond wealth.

Lesson No. 5: Unfortunately, we don’t learn any lessons. Some states are still planning to build airports when their roads are not motorable, and primary healthcare centres are lacking in basic drugs, and schools are in a mess. Communities are still drinking water from streams and contracting cholera. Economic lives are paralysed in communities with no access roads. Yet, airports are still featuring on the priority list. Some governors are still appointing dozens of aides. That sums up our discussion today: the more things seem to change, the more they remain the same. We are ever learning, but never coming to the knowledge of truth. Vicious cycle.

AND FOUR OTHER THINGS…

UNLUCKY BUHARI?

For ages, we have bemoaned our leadership misfortune. Whenever we have plenty of money, we hardly have the leaders to spend it wisely and prudently. It has often been a story of waste and mismanagement, and we can see the results in the poor infrastructure that is slowing down our economic development. That is why I find it quite perplexing that now that we have someone like President Muhammadu Buhari in power — and many of us believe he will spend this money prudently and efficiently — crude oil price is misbehaving. Can someone please explain this to me? Jinx?

KOGI CONUNDRUM

The Kogi situation is no longer looking funny. Yahaya Bello was sworn in as governor on Wednesday without a deputy, the first in the history of our democracy, as James Faleke refused to turn up at the inauguration. Faleke has made it clear that he would not be Bello’s deputy because he ought to step into the shoes left behind by Abubakar Audu in the first place and should have been declared governor-elect. I wish judiciary had sorted this out before inauguration. Waiting for another four to five months for the resolution is not good for Bello and Kogi. Messy.

DEVALUATION DEBATE

I’m getting sceptical about the desperate push for naira devaluation from abroad. Although the naira is in a dire solution and I insist that any decision we take will hurt us to different degrees, it’s curious that enormous pressure is being mounted on Buhari from outside “so that foreign investors can come in”. Do these guys love us that much? Why are they crying more than the bereaved? Buhari has maintained his ground that devaluation is not an option, and even if we don’t agree with him, we really need to see how his stand pans out in 2016. Watching.

WIKE WINS

The most surprising judgment of the Supreme Court so far, in my opinion, is the victory of the Nyesom Wike in the Rivers governorship election petition. Having lost at the tribunal and Court of Appeal, Wike looked like a goner, like he was only counting days before a fresh election would be ordered. But the apex court has ruled otherwise and dashed the hopes of APC’s Dakuku Peterside, as well as former governor, Rotimi Amaechi, who is Wike’s arch enemy. Rivers state is very strategic to the PDP if the ousted ruling party ever hopes to remain in circulation. Elixir.