Background: It is undoubtedly a fact that the Nigerian
economy has experienced monumental growth from 1999
to date. A combination of far sighted policies such as the
telecommunications revolution, privatization policies,
banking consolidation, strict monetary policy, relatively
prudent fiscal policy (excluding the last 4 years),
Agricultural reforms, FDI and pensions reforms have been
one of the key drivers of Nigeria’s growth over the last 15
years.

Nigeria was no doubt aided by a booming world economy in the early 2000’s and China’s voracious appetite for raw
materials (such as oil). Over 80% of Nigeria’s foreign
exchange earnings come from the sale of oil despite oil
accounting for less than 15% of Nigeria’s rebased GDP.

Changing factors

Over the last 3-4 years, it has been clear to most economic
followers that dangers were hovering. The U.S over the last
three years has been undergoing a shale oil revolution of
sorts. The fracking method of extracting oil within the U.S
has brought to reality the oft stated U.S need to be energy
independent. That has now been achieved, at least, in the
short to medium term. With this feat, Nigeria has lost its
primary export market.

Last year July, the US imported no oil from Nigeria. Nigeria
has thus lost a major buyer and gained a major competitor
in the oil sector. The U.S will be the largest oil exporter in
the world within the next 2-3 years.
Allied with the loss of the U.S market, Nigeria had been
aware of a number of countries (especially African
countries) that have recently become oil exporting
countries. Ghana, Ethiopia, Kenya, Uganda, Tanzania and
Mozambique. Brazil itself had recently discovered huge oil
deposits.

One thing any discerning economist should have been
aware of over the last 3 years is that there will be a
significant increase in the supply of oil on the world market.
Additionally, since 2008 (caused primarily by the Lehman
induced crisis) the U.S, Europe, Brazil, and Asia (especially
China) have been battling (to differing degrees) economic
slowdown within their respective home economies.
The twin factors of markedly increased supply of oil and the
decline in demand for oil from the economies that had
hitherto been the drivers of demand for oil had made it very
clear to the discerning that the high price of oil was due for
an imminent correction. With that imminent correction
would come increased pressure on Nigeria’s revenue base.
It is Iweala’s job to see the advancing adverse headwinds
and to advice the President of counter measures to be taken before the dangers become a reality.

Fiscal Incompetence

Against the background of the adverse supply and demand
headwinds discernable over the last 3-4 years, Nigeria’s
chief economic oversight official had been making a case
for increased government borrowing and has overseen the
significant increase in government debt. Miss Iweala has
been arguing that Nigeria’s debt to GDP ratio is low when
compared to other countries. No doubt, that view has
influenced her acquiescence with the increased borrowing
Nigeria has embarked upon in recent years. What she failed
to take into account is that the GDP does not yield to the
government actual revenue needed to service such debt.
Oil sales accounts for over 80% of government income
despite accounting for less than 15% of Nigeria’s GDP. The
combination of the fall of oil price, the disappearance of our
major exporting markets (due to the shale oil revolution)
and the competitive disadvantage due to our geographical
location in replacing the U.S market with the Asian market
has meant that Nigeria is suffering from lower revenues
right across the board. India recently opted to buy more of
Nigeria’s oil because of sanctions against Iran. Once that is
lifted, Nigeria stands to lose India as a major export market
because it would be cheaper for it to get supplies from Iran
(which is nearer to it and the consequence of paying less
transportation costs).

With lower revenues, Nigeria is now spending over 20% of
its diminished revenues on servicing its current debt levels.
Nigeria had failed (over the last 3-4 years) to stop the
expansion of the Nigerian budget spending and had been
reducing government revenues by providing questionable
waivers for (x) the importation of bullet proof cars and
(y)cars used for a sporting event in a particular state of the
country (amongst others). These are just some of the
questionable policy oversights overseen by the coordinating minister of the economy. Now that Nigeria is actually in the throes of a major economic downturn, the coordinating minister for the economy has now embarked on a belated measure of adding taxes and reducing government spending.

What the minister has failed to realize is the essential
counter role being undertaken by the CBN over the last 15
years. Despite the ethnically induced selection of the current CBN governor over the head of the more experienced monetary expert (Sarah Alade), the CBN over the last 15 years have stabilized the Nigeria economy in times when the FG had been running budget deficits. Now the FG is adding its economically constricting fiscal policies with the economically constricting monetary policies of the CBN.There can be only one outcome. The Nigerian economy (which is currently growing at over 7% a year) is going to come to a sharp halt.

No economy can survive if both the public and private
sector seizes up. The CBN policies of increasing interest
rates and reducing monetary supply will drive up the costs
of business and investments and reduce employment in the private sector. The FG led fiscal policies will do the same for the public sector.

It would have been advisable for the government to cut
back spending whilst the CBN allows the private sector
sufficient breathing space to continue to grow and hopefully absorb some of the people laid off from the public sector.

Interest rates should be lowered even if it means allowing
the Naira to fall further. The fall in the Naira is the lesser of
the two evils. The inflationary pressure that comes with the
fall in the Naira will be ameliorated by the reduced
inflationary pressure that will come with the significant fall
in government spending due to reduced FG revenues.

Conclusion

There is no doubt that the Nigerian economy has been
poorly managed to a small degree since late 2007 and to a
massive degree since 2011. The responsibility of a
President is that he/she has the intelligence to be able to
ask discerning questions of the various experts charged
with the responsibility of managing the different sectors of
government.

The president is either not asking enough questions of
Iweala or has abdicated overall responsibility for the
economy to his coordinating minister for the economy. In
either case, Nigeria is suffering for that lack of oversight. A
PH.D is of no use if it means a person is unable to ask the
right questions even if the area concerned is outside ones
area of specialization. That, after all, was one of the strong
points of OBJ. Iweala, under OBJ, was well managed. When
her personal ambition and massive ego influenced her need to undermine Nenadi Usman (the then current finance
minister) by negotiating directly with Nigeria’s creditors
(whilst foreign minister) without the knowledge of the
finance minister, OBJ promptly removed her as head of the
economic team.

Jonathan bears ultimate responsibility for the errors of
Iweala. In a corporate setting, she would have been fired for
incompetence. In Nigeria, she will probably be rehired (if he
wins in February) as the coordinating acting President for
government policy and the economy. We all know Iweala
loves the acquisition of job titles!!

Source: saharareporters.com/2015/01/04/nigerian-economy-and-dangers-incompetence-dele-awogbeoba