One of the likely ‘gains’ of the Coronavirus (Covid-19) pandemic that has been ravaging the world since the dawn of 2020 is the expectation that the plague might drive a country like Nigeria into effective diversification of its economy. This expectation is essentially hinged on the fact that the emergence of the disease has led to the crash of oil price to such an extent that Nigeria’s public revenue plan for 2020 and beyond is already in a terrible mess. The national budget depends on oil revenue to a very large extent.
Indeed, for over half a century, Nigeria has almost entirely depended on revenue from crude oil sales. About ninety per cent of the nation’s foreign exchange income flows from crude oil. But with the onset of covid-19 and the resulting collapse of economies across the globe, oil consumption and demand also crashed. Economic activities, especially industrial production, were forced to a virtual stand-still; leading to the collapse of supply chains and panic by economic agents.
Nigeria is no exception to this yet unfolding socio-economic confusion. Indeed, with the price of crude oil crashing from about US$70 per barrel early in the year to about US$25 per barrel by close of the first quarter 2020, the nation’s ‘existence’ can never remain the same anymore. The 2020 national budget is based on a projected oil price of US$57 per barrel: and only an empty hope can expect any significant gains in oil price in the near-term.
Even before the crushing impact of covid-19 became noticeable, the 2020 budget had been criticised for being founded on huge borrowing – locally and externally. This also was compounded by a huge outstanding debt profile amounting to billions of dollars.
In the face all these, there is a growing expectation that the current reality would compel the effective diversification of the Nigerian economy to commence. For too long, economic diversification had been the sing song or ‘mantra’ of successive administrations in Nigeria. Alas, only a lip service is paid to the diversification agenda. About sixteen years ago, for instance, the National Economic Empowerment and Development Strategy (NEEDS), said, among others that “the government will diversify the economy away from oil and solid minerals in order to increase economic stability and generate jobs.”
But so many years down the line, the question remains: is diversification really taking place? Has the operating environment improved in ways that encourage diversification? Again, NEEDS said: “overdependence on oil and traditional sectors such as agriculture and services, is partly due to the hostile business environment. Businesses wishing to operate in Nigeria face many constraints, including poor infrastructure, particularly road networks and electricity supply; inadequate physical security, corruption, weak enforcement of contracts, and the high cost of finance. These factors have deterred foreign entrepreneurs from investing in Nigeria and induced many Nigerians to take their money and skills abroad.”
Again, have these situations changed for the better? Or, have things gotten worse? Howbeit, the current dire and bizarre situation (triggered and entrenched by covid-19) leaves Nigeria with one option: diversification. But is diversification in a crisis situation feasible? Is there really the political will to diversify now? Political will in all climes, is a necessary condition for effective and sustainable diversification.
Also, do we have ‘competitive federalism’ in place? This implies healthy competition among the constituent states, to engender better service delivery and governance. The extant arrangement hardly encourages any competition at all. The poor hard and soft infrastructure, bemoaned by NEEDS have hardly improved to make any difference.
Beyond all these, in the face of the ravaging covid-19, Nigeria has lost whatever modicum of macroeconomic stability it attained in the decade 2005 to 2015. Inflation rate is going haywire (currently at about 13%); exchange rate is in a yo-yo (already hitting N400/$); oil price is dropping to rock-buttom; and economic growth can no longer be predicted or projected (it is either recession or depression pretty soon). Yet, stability of the macroeconomy enables existing and potential local and foreign investors to plan and weigh costs and benefits of investing in Nigeria.
In addition to the macroeconomic fundamentals, peace and security are critical for effective diversification and growth. But, for Nigeria, the question had been persistent as to whether the country was in a war, even before the coronavirus damage. Insurgency, banditry, kidnapping, brigandage, cross-border crimes, human trafficking, name it, are thriving.
Given all these, can the ‘hopelessness’ brought about by the coronavirus pandemic bring economic diversification to life in Nigeria? Can the government capitalise on the current reality to draw investments into sectors beside oil, to effectively jumpstart the economy? May this hope not get forlorn.