By Tolulope Ola-David
Africa’s largest economy, Nigeria relies on sale of crude for about 90% of its foreign exchange earnings. The economy has been hit hard by the fall in global oil prices over the last year.
Nigeria continues to bear the brunt of the fall in global oil prices. Oil accounts for nearly 70% of its revenues and, as an oil dependent nation, revenue continues to dwindle.
The economy has recorded the lowest GDP growth rate since the quarterly data has been released following drop in oil prices and production. It declined to 2.35% in the second quarter of 2015, from 3.96% growth recorded in the first quarter.
Reports – with a caveat of ‘dire consequences’ – from the state oil firm indicated that Nigeria recorded a sharp decline in oil earnings between September 2014 and July 2015. With a more than 67% decline in earnings, the firm cannot meet its monthly cash call obligations in joint venture contracts.
Corruption in the Oil Sector
Admittedly, there has been massive corruption across the Nigerian oil sector, and the country does not know how much oil it produces or refines.
Despite the sale of millions of barrels of oil every year, many Nigerians remain trapped in poverty. The state-run oil firm, the Nigerian National Petroleum Cooperation, has been indicted for failing to account for tens of billions of dollars in the past few years.
President Muhammadu Buhari has already fragmented the state oil firm into two entities as a measure to overhaul and fight graft and mismanagement. The Nigerian president has been quoted as saying he will personally oversee the country’s oil sector, an indication of Nigeria’s fixation on oil.
Diversifying the Economy
Exports remain the primary means to earn hard currency for imported capital goods. Unfortunately, Nigeria is primarily an oil exporting economy. Nonetheless, opportunities abound to transit into a diversified economy.
Diversified economies are less prone to GDP growth volatility. Tunisia, Angola, Kenya and South Africa are some of the advanced economies in Africa which are largely diversified and less disposed to economic instability.
For instance, despite its scant natural resources, Tunisia depends primarily on its good business climate, geostrategic location to Europe, and highly skilled human resources to drive its economic diversification. This has made its economy more resilient to both internal and external uncertainties, especially this current energy climate.
Given Nigeria’s series of economic reforms since the early 2000s, the manufacturing and service sectors have made appreciable progress and contribute significantly to the GDP. The same cannot be said for the agriculture sector, whose share of GDP has shrunk over the years. However, the rising global demand for food and arable land put Nigeria at an advantage.
Private participation is at the centre of economic diversification. Therefore, government policies should aim to strengthen and support private investors by creating an environment that facilitates business, giving support to public-private partnerships, enacting international trade agreements, supporting and improving access to finance for subject matter experts, and providing linkages with multinational companies to foster technology transfer.
Non-Oil Foreign Exchange Earner
While other sectors such as manufacturing, service, tourism, and the automotive industry are crucial to diversification, agriculture remains the cash cow for Nigeria. From north to south, there is arable land for the cultivation of cash crops in commercial quantity.
With the capacity to produce 300,000 tons of cocoa beans per year, cocoa is the leading non-oil foreign exchange earner that Nigeria needs to tap into. Rubber, peanut oil, palm oil, and cotton are other potential foreign exchange earners.
Agriculture: Going Back in Order to go Forward
In the 1960s, rural agriculture was the focus of economic development. Without federal allocation or revenue from oil, export crops were central to shaping the economy of different regions of Nigeria and served as the country’s main foreign exchange earner.
Nigeria was the number one exporter of palm oil globally and a major exporter of several other cash crops, including cocoa, rubber, and groundnuts. It was also the largest poultry producer in Africa, with an output of about 40 million birds annually.
However, Nigeria’s agricultural sector has suffered from many years of neglect and poorly conceived government policies. Nigeria now depends largely on imports to sustain itself. Potential growth of Nigeria’s agriculture sector will only be possible with adequate investment in small and medium-sized agribusiness enterprises.
Agriculture, National Youth Service Scheme, and Job Creation
Nigeria’s labor force is rapidly expanding, leading to an increase in unemployment. Over 250, 000 university graduates are posted annually across the 36 states of the federation for a compulsory one-year national youth service, albeit there are no employments for them after the service.
With abundant arable land across the country, Nigeria has the opportunity to train, support, deploy, and mentor its university graduates for food crop, cash crop, and agro-allied production. This will be an avenue for job creation and an opportunity to foster innovative agriculture and agro-allied businesses.
The Time is Now
The solution to the economic decline lies in diversification. Economic diversification holds great potential to increase Nigeria’s resilience and would contribute to achieving and sustaining long term economic growth and development.
The Nigerian government must create an enabling environment for foreign investments in manufacturing, tourism, agriculture, and the automotive sector to create a stable and more robust economy, as well as boost international trade tax revenues.
Redeveloping the agricultural sector through commercial farming, removing price controls, initiating a rural credit scheme, mentoring young farmers in agribusiness skills, and commercialising the agricultural sector will make the industry more sustainable.
With a new cabinet inaugurated this month, the Nigerian government needs to design a clear economic policy, thereby removing the burden of economic strategy on the country’s central bank, or else risk losing investors’ confidence.