Posted by Chamberlain Peterside on
At an average per capital income of less than $400, Nigeria’s population is anything but financially buoyant.
At an average per capital income of less than $400, Nigeria’s population is anything but financially buoyant. Most macro-economic indicators (except the growing foreign reserves) leave much to be desired. Ranging from quality of life index, unemployment rate, wage level, purchasing power etc. This dismal financial status underscores an intractable vicious circle that has formed in Nigeria.
Different statistics have been put across, but World Bank estimate reveals that Nigeria has literally squandered over $250 billion of export revenue in the past twenty or so years, with little to show for it. External debt-stock, currently stands at over $32 billion, consuming more than a quarter of federal budget or $1,5 billion in annual debt-service payment. Capital flight resulting from various financial shenanigans by operating local and foreign companies as well as public officials has immeasurably hemorrhaged the economy.
As a junior partner in the global financial dispensation, with substantial oil-revenue, you could argue that Nigeria has during the last two decades been virtually lending money to itself but paying interest to international financiers. Most of Nigeria’s export earnings are domiciled abroad anyway. So these funds are recycled back to Nigeria through the international financial system as loans at obnoxious interest rates.
The portion of revenue that penetrates the domestic market is frittered away through capital flight, outright theft or exorbitant import bill. The only thing left is the meager income from oil royalties and rent that circulates around the country. Empirical evidence shows that a portion of loan portfolio in the international marketplace are oil proceeds from OPEC countries.
…Pay Thy Self
Little wonder why Nigeria’s economy has remained comatose. Historically, the bulk of foreign direct investment (FDI) in Nigeria is targeted to the extractive industry, nay oil exploration and production. As efficient as the oil industry is, the much sought-after technology transfer hasn't materialized, just as the industry has remained an unenviable employer of domestic labor, except in related fields that are few and far between. The economic impact on host communities remains very minimal, hence the social tension and incessant civil unrest witnessable in the Niger Delta.
In pursuit of their self-interest or by dint of stupidity, decision makers in Nigeria are to blame for the inability to adequately nudge the oil industry to meet national aspirations or discern the rules of international financial practices.
The failure to diversify Nigeria’s economy is a direct consequence of over-dependence on oil sector. Notwithstanding the substantial foreign earnings from oil export, Nigeria perennially runs a budget deficit and lacks the capital to fund development projects. In the past it had often resorted to foreign borrowing at a huge price tag. More often than not, the loans have been utilized to finance unviable or uncompleted white elephant projects dotted around the country.
The net effect is that the populace continues to wallow in a vicious circle of poverty as creditors and politicians laugh to the bank. Realistically, the seeming asymmetry of dependence in global finance might look unfair but it’s not illegal. This will remain the status quo until developing countries like Nigeria learn their lesson. It is possible that Nigeria’s economic team might have learnt a thing or two from this experience and starting to get its act together. Unlike before, Nigeria now has the chance of building a virile financial platform on the heels of recent gains.
…Mirage or Reality
When the debt relief by Paris club is consummated, it would herald a new beginning on the path of financial stability. If the opportunity is not misused, thanks to external reserves currently at nearly $30 billion, Nigeria could open a new vista by retiring its huge debt-load with $12 billion from the reserves and still be left with a lot of money to plan the economy and stabilize its financial system.
Given its economic potential with little or no external debt in the horizon, Nigeria would definitely become more credit-worthy and garner confidence of international financiers. This means a lot, because strong financial standing often translates to better ability to attract increased foreign direct or portfolio investment, issue debt securities on more favorable terms in the global market, and create employment opportunities at home. It runs parallel with the maxim that "to whom much is given, more is given".
The sine qua non for financial stability will remain disciplined fiscal policy and financial prudence by leaders domestically, but a favorable international credit rating of B+ or better could rank Nigeria the same as most emerging markets in Asia or Latin America, enabling it to compete head-on for capital in the world market.
Nigeria is no China or India and might not be out of the woods yet, given the myriad of social problems and political volatility, but as the Finance Minister Dr Okonjo-Iweala rightly said in an investor forum in New York City, the economy is gradually but surely treading on an "even keel".
…Food For Thought
Real risks exist that come 2007, a new administration could toy with reversing some of these gains. Nigeria would hardly be capable of extricating itself from the prolonged quagmire or join the ranks of new emerging economies, unless:
It is often said that nothing is as constant as change, but unless this change-process is managed smartly Nigeria would miss the opportunity to turn its fortunes around, then things could get even more ugly in the country.