Reminiscent of the COVID-19 era when Nigeria’s economy was badly destabilised by the pandemic and global restrictions on trade and movement, the imposition of tariffs by the United States on goods exported by Nigeria to that country is threatening to affect Nigeria and pull the country into recession. But this need not be, as the government can leverage the tariff reality to reshape the national economy and make it assume its rightful position as a leading economy based on the country’s unexploited diverse resources. What Nigeria needs to do is to stop playing lip service to the diversification of her economy, and stop her perpetual reliance on crude oil export.
Exactly five years ago, the Nigerian economy was crippled by an epidemic that had a relatively low impact on the country. The global supply chain was disrupted by the general system collapse. Like many other economies, Nigeria was brought to its knees with revenue and the naira tumbling. The COVID-19 epidemic gave the country another opportunity to reflect on the danger of our economic dependence on crude sales, as well as the concentration risk posed by overreliance on that sector.
Sadly, the country again missed the opportunity. While officials spoke elaborately on the need to reform, broaden the production base, diversify foreign earning sources and increase economic complexity to wean the country from the crisis of crude market volatility, they did virtually nothing to concretise the speeches. Five years later, not much has changed. Nigeria’s budgets are still benchmarked on oil prices, and their implementation success is still largely influenced by the vagaries of the international oil market. Today, the oil and gas sector accounts for less than 10 per cent of Nigeria’s output. Yet, other sectors, which make up over 90 per cent of the economy, are so infertile in public revenue contribution that when the oil market sneezes, both federal and state governments catch a cold.
Just like the COVID-19 crisis, the ongoing tariff is pulling the string of recession. Already, there is panic even in government circles on the likely consequences of a global economic recession for the Nigerian economy. Of course, the United States has imposed a substantial tariff on Nigerian exports. But coming from a country whose total trade with Nigeria only rose by 61 per cent last year to come near $10 billion, the 14 per cent tariff should apparently not hurt Nigeria.
However, there is a substantial reason to worry if one considers that this year’s budget is built on an illusion of a prosperous oil market cycle. Sadly, crude is trading around $65, or $10 short of the $75 budget benchmark price. Even at $75 per barrel, Nigeria still recorded a net revenue shortfall of N2.5 trillion in Q1 on account of low production. This could potentially increase the estimated N13.6 trillion fiscal deficits significantly.
This leaves Nigeria with questions on how to find the huge deficit in an increasingly risk-averse global financial market and the extent to which the country can continue to add to its existing N144 trillion public debts. Where and how to borrow has become the government’s shortcut approach to addressing the shortcomings caused by the failure to build resilient public financing options. That is bad enough, but it is more frightening that the government does not seem to realise the damage this has done to the country’s fiscal position and economic stability.
COVID-19 was the best time in recent years to lay the foundation for sustainable economic stability and resilient public financing. The second best is now. There is anxiety about the imminent global supply chain disruption and how this could increase inflationary pressure and food crises. In response to the apprehension, the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, said the crisis would not hit Nigeria significantly. The assurance is necessary to build confidence, but not a sufficient guarantee against major distortion.
The government needs to come up with a programme of action to deal with the situation and coordinate all stakeholders that could be affected by the crisis. A broad base strategy that is delineated into short-term, medium-term and long-term responses to the trade war is not only important but also urgent in minimising the impacts of the higher tariff regimes and subsequent trade wars.
President Donald Trump has not pretended about his ‘America First’ agenda – a mindset that is reinventing protectionism across the globe. While autarky is a mere academic economic philosophy, which no country can lay claim to in the modern economy, countries long realised that international relations are all about self-preservation. Hence, Nigeria must recalibrate its economy to advance its survival without recourse to external support. During a crisis, individuals, firms and governments retreat from long-term growth to survival. If the tariff crisis deteriorates and the food supply chain is broken, can Nigeria grow and harvest enough to feed its population? Other needs can wait, but not food, meaning that building an efficient agriculture must be the country’s priority going into the ultra-high tariff regime. This requires a robust and sincere measure to end the perennial insecurity on farms, occasioned mostly by invasion and attacks by armed Fulani herdsmen who delight in feeding their cattle with farm produce of native farmers.
Fortunately, the country is at the beginning of the planting season, so it is not too late to plan with farmers and record some quick wins in the self-sufficiency ambition. Interestingly, the government cannot throw money into the food shortage problem as it did in the past, and not expect a disastrous result. This time, relevant agencies need to work and coordinate with genuine farmers to design incentives that could be timely implemented to increase food production. But Nigeria cannot incentivise food production before thinking of what to do about the recurring farmers-herders crisis across the country. For once, the government must realise that this crisis is about the survival of Nigerians and seek solutions that will work for all and stop massaging the egos of politicians.
Then, the country can face the big issue – industrialisation. Beyond the façade of small and medium-scale promotion, which has become a catchphrase, it is time to take up the big responsibility of transitioning from a commodity-trading and service-based economy to an industrialised society. This is the ultimate path to self-sufficiency and diversified public revenue, which will reduce the concentration risk of the petrodollar economy and increase tax revenue. But Nigeria cannot achieve this without a more aggressive infrastructure revival.
As a country, Nigeria should realistically consider and select its trading partners based on the country’s economic goals. But more importantly, Nigeria should be more concerned about what decision it can take now to make the country less dependent on others, whether as sellers or buyers, to survive in the future.
