Opinion: Nigeria – Towards economic diversification

by Kayode Oluwa

The United Nations Conference on Sustainable Development tagged Rio+ 20, took place from June 20 – 22, in Rio de Janeiro, Brazil. The conference, which was attended by world leaders, including  President Goodluck Jonathan, and delegates from across the globe, was quite apt and timely. This is because sustainable development is one of the most critical, challenging and fundamental issues most developing countries, including Nigeria, face today. Sustainable development is about ensuring that, while satisfying the needs of the present generation, a country’s natural resources are not depleted, or jeopardised, so as to meet the needs of future growth and secure the livelihood of coming generations.

In other words, sustainable development ensures that a country is in charge or control of its economic destiny and resources, in order not to unfairly mortgage the interests of future generations. In the end, sustainable development ensures the creation of national wealth, durable growth, economic progress, prosperity and an egalitarian and a better society, based on equitable distribution of resources to engender social justice and dignity of the human person.

It must, however, be averred that, without the mobilisation of long-term savings to support the consolidation of future growth and development, there cannot be any sustainable economic development. Accordingly, to achieve inclusive growth, macro-economic stability and sustainable development of the Nigerian economy, we must begin to de-emphasise the habit of consumption and ostentatious living as a nation (i.e. consuming what we do not produce) and imbibe the culture of savings and wealth creation, based on increased productivity/output, value addition, economic diversification and self-sustenance. We cannot achieve sustainable development as long as the economy depends on just one product. The sole dependence of the economy on crude oil export as the main source of revenue and foreign exchange earner puts the country in a risky position that makes it vulnerable to oil price volatilities. Consequently, there is the urgent need to move away from the present monolithic economy, diversify the country’s economic base, within and away from crude oil, and explore other sources of revenue. It is pertinent to note that, while crude oil constitutes only 20 per cent of the country’s Gross Domestic Product, it accounts for over 80 per cent of government revenue and 90 per cent of its foreign exchange earnings. What this implies is that, once the global oil market sneezes, the Nigerian economy catches cold! The rapidly changing dynamics and volatility of the oil market has, therefore, underscored the need for rebuilding national fiscal savings. This has become imperative, more so, in view of the recent report that Nigeria may be exposed to potential oil price shock due to the combination of new supplies coming on stream from non-members of the Organisation of Petroleum Exporting Countries, as well as lower imports from the United States (our largest market). The concomitant effect will be a squeeze on revenues from oil exports. In fact, in the last one month, there has been over 24 per cent decline in the price of oil in the international market.

It is against this backdrop that one should view the Sovereign Wealth Fund as a strategic tool in the quest to enhance fiscal revenue and provide an edge over risks of future external shocks occasioned by fluctuations in the price of oil in the international market. Moreover, a situation in which the Excess Crude Account-which is meant to serve as a proxy for fiscal savings where the country saves any earnings above the benchmark budget price – keeps getting depleted, due to deductions by the Federal Government for sharing and distribution to the three tiers of government, has further made the creation of the SWF strategically imperative. Presently, it is reported that the Excess Crude Account balance is critically low, at less than two per cent of the GDP, compared to a median of 67 per cent among oil producing countries. Interestingly, the consolidated government revenue could fall to 17- 22 per cent of GDP, this year, according to budget analysts and financial experts. A further depletion of the country’s fiscal savings will expose the economy to external shocks. The persistent dwindling government revenue has, therefore, reinforced the need to create an additional mechanism for mobilising national savings and fiscal revenue in order to overcome the shortage of accumulated domestic capital for investment and developmental purposes.

In spite of its vilifications and criticisms in certain quarters,  the SWF should be considered as a national savings trust or a rainy day fund of sorts, which is to provide an escape valve or a shock absorber for cushioning the economy against possible future adverse effect. The fund should also be seen as a Special Purpose Vehicle for financing infrastructural development and other socio-economic intervention programmes to enhance the long-term, sustainable development of the national economy. The initial start-up fund of $1bn is to be pulled from the ECA. Although, state governors initially opposed the idea of deducting $1bn as start-up fund from the ECA, they finally agreed, after months of political wrangling, negotiations and much persuasion on the strategic need and economic benefits of the fund.

Going forward, the prospects for economic transformation and sustainable development of the country will depend to a large extent on the political will, strength of character and strong commitment of the leadership, more than mere vision statements or contents of laudable economic policies and blueprints.

*Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija. This piece was originally printed in Punch

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