Fixing Nigeria’s Broken Economy

April 1, 2016

“Only God can fix Nigeria.” – proverb

Chairing a debate organised in collaboration with the Royal African Society, broadcaster Funmi Iyanda began by asking what could be done to combat the perfect storm of plummeting oil prices, a widening budget deficit, plunging growth rate, and dwindling foreign currency reserves currently threatening Nigeria.

Feyi Fawehinmi, a senior investment accountant at Canada Life, said that while the current crisis represented an opportunity to diversify, over the past year a collective “nervous breakdown and sense of feeling sorry for ourselves” has revealed a country unable to function with oil prices at the current levels, and a “government that is unable to think its way out of this crisis.”

“Can it be beyond the capacity of 170 million people to fight their way out of a problem?”

The key to solving the problem, said Fawehinmi, is finding a way to replace lost dollar income from diminished oil revenues by boosting production and growing exports.

Natznet Tesfay, director of Africa analysis, economics and country risk at IHS, agreed that increasing exports from other sectors was vital to any long-term economic solution. She stressed the importance of boosting agricultural and manufacturing sectors whilst addressing the infrastructure limitations to stimulate growth from non-oil sectors.

Professor Charles Soludo, economist and former governor of the Central Bank of Nigeria, said that the challenges facing the new administration can be framed by the view of a “Nigeria characterised as a failed state, but also with a failing economy.”

“The challenges are enormous, the government is doing its own bit, but there is a fundamental question, which is whether the government – at a historic point with falling oil prices and a failing state – can actually self-correct without some external undertaking.”

The question, therefore, becomes whether Nigeria can engineer a path in this post-oil, post-primary commodity dependent system. With a new government looking to the failed economic initiatives of the past, “screening Nigeria from the bad ideas can actually be more important than the new ideas we put in place,” said Soludo.

For Iyanda, the current crisis is a direct result of a contradiction at the heart of Nigerian society with “a constitution that seems to prescribe a socialist economy while our objectives, aims and aspirations are to be a capitalist or market based one.”

“Is Nigeria a socialist economy or is Nigeria a capitalist economy by intention and practice?”

The problem, said Soludo, was that that the constitution itself is fundamentally flawed, with an edifice designed for the consumption of oil rent based around sharing.

“The whole apparatus of the government, local states… consisted of everybody talking about their share of the federation, not about production. The fundamental thing is that the music has changed and the dance steps have to change too.”

“No economy is run on the back of an infantile nationalism or pseudo-socialist populism,” said Soludo. To fix Nigeria you must address the issues on a macro level, as part of a structural transformation process similar to the one the country went through in the 1980s.

For Fawehinmi, “there is nothing about Nigeria that is inherently communist or socialist.” Instead, he said that “people take their pointers from leadership” and therefore it is up to those in power to be honest with the public about the current situation.

Central to any shift from a consuming to a diversified producing economy is foreign investment. However, with the president categorically refusing to devalue the currency, Tesfay said she remained sceptical in the short term, citing questions over the regulatory environment, the pace of reform, and infrastructure as driving low foreign investor confidence.

“Having said that, you do have Nigerians doing successful business within Nigeria; and then you have the rest of Africa looking at that as a model to follow where you stimulate your own industrial growth. It’s not government led – it is still market led – but this presents, perhaps, a silver lining that leads to a more robust domestic economy that is growing.”

While the consensus was that the current situation for Nigeria remains dire, and will remain so as long as low oil prices continue, the panel agreed it nevertheless represents a blessing in disguise that must not be missed.

Soludo once again described the crisis as “an historic opportunity, one which must be seized with both hands,” to move away from the oil-driven consumption economy of the past and towards a diversified market-driven production base.

“We are waiting for that fundamental thing that says we have turned a corner. If God loves Nigeria he will keep the oil prices down.”