The recent fall of crude oil prices and the concomitant decline in revenue has once again bought the vulnerability of the Nigerian economy to the fore. This is so because the Nigerian economy is intricately intertwined with crude oil. Nigeria’s fiscal revenue is dominated by oil which accounts for over 70%of government revenue and up to 95% of foreign exchange earnings. The near absolute reliance on oil export as a single income stream thus exposes the Nigerian economy to the vicissitudes of the global oil market especially demand shocks and price volatility.
This article addresses persisting changes and new possibilities of the Nigerian economy by focusing on two elements; first, global oil outlook and its effect on the Nigerian economy. Second, economic diversification and entrepreneurial approach for sustainable growth and development.
CUSHIONING MEASURES BY THE FEDERAL GOVERNMENT
The unfolding situation recently came to a head when the federal government announced some austere measures to cushion the effect of the dwindling oil price on the economy. Some of the measures include; the downward revision of the $78 per barrel in the medium term economic framework(MTEF) and the proposed 2015 budget. A new figure of $73 per barrel has now been proposed to the national assembly. Also government intends to draw money from the excess crude oil account to absorb some immediate shocks thus ruling out printing of extra currencies, mathematically known as quantity easing at least for now. Government also hinted that the haves in the society will be expected to give a little more to the treasury in the form of tax while a list of luxury goods hitherto part of government expenditures is being compiled with the aim of pruning such down. The federal Inland Revenue service (FIRS) has been challenged to rev up its revenue gathering. Also as part of the efforts to reduce expenditure, international travel by government officials will now be severely curtailed while local travels will be permitted when it’s absolutely critical. However, infrastructural projects will not be affected by new measures.
REASONS FOR CRUDE OIL PRICE MOVEMENT
Crude oil prices started sliding in June as a result of growth in shale oil production in the United States. According to Energy Information Administration , united states crude oil production has surged 14% the past year to 8.97% barrels a day as worlds’ largest oil consumer continues to pursue its ‘’oil independence policy’’. Declining demand from china and Europe has also affected oil prices. Crude oil futures prices are also falling, following a rise in U.S stocks. Expectations of tighter U.S monetary policy have also boosted the value of dollar economies. According to the international Energy Agency (IEA) a strong dollar and booming oil production in the United States could mean a new chapter in the history of oil markets.
How the unfolding development eventually pans out remains to be unseen but what is obvious at least for now is that the physical regime of countries whose major economic mainstay is crude oil will be altered. The drop in gross federally collected revenue has somewhat brought the reality of looking beyond the federal government and states. There appears to be a sudden panic and economic diversification has once again become the buzzword in the nations’ development discourse.
TRENDS AND EFFORTS TO ENCOURAGE NON-OIL EXPORTS IN NIGERIA
Structurally, the Nigerian economy is broadly classified by the National Bureau of Statistics into Oil and Non-Oil sectors. While the Oil sector refers to crude oil and natural gas, the Non-Oil sector comprises of agriculture, manufacturing, construction, information and communication, finance and insurance, real estate services, subsectors among others. Besides crude oil, Nigeria has a huge endowment of solid minerals estimated to be commercially viable and widely distributed which includes coal, tin ore , kaolin, gypsium , columbite, gold gemstone , baurites, graphite marble, tantalite , uranium, salt, soda sulphur among others.
Agriculture is also a dominant economic activity in Nigeria. As about 90%of the country’s 923 million square kilometres of land is arable with only about 40% been cultivated. The Agricultural Transformation Agenda(ATA), an intervention program launched by the federal government to refocus agriculture as a business and not as a development program has so far raised the net earnings of rural farmers in five agric value chains namely; cassava, rice(dry and rainy season), sorghum, maize and cotton. Nigeria’s food import bill has dropped significantly from 1.4 trillion naira in 2009 to a decline of 429 billion naira as at December 2013, a decline of $265 billion (429 billion naira). Also as at end 2013, the number of official commodities rose to 117, an addition of 11 products from 106 reported by year end 2012. The 11 new products include; Robusta coffee exported to Spain, educational books shipped to Sierreleone, double folded dust sheets to united kingdom, ice making machines bound to Ghana Muscovites to India among others.
In recognition of the need to encourage non-oil export, the Federal Government has put in place a number of measures to incentivise non-oil export. These export incentives essentially seek to mainstream businesses that are operating in the informal sector of the economy and assist exporters to diversify the total value and volume of non oil exports in Nigeria. Some of the incentives include; the Export Expansion Grant (EEG), Free Trade Zone (FTZ) and the Nigerian- Export Import Bank (NEXIM).
DIVERSIFYING THROUGH ENTERPRENEURSHIP
In countries whose economies are dominated by states, entrepreneurship helps overcome dependence on government and strengthens economic and personal freedom. In so doing, entrepreneurs not only advance their own business envision but also cumulatively create greater economic pluralism as an alternative to centralised state control.
What does it mean to be an entrepreneur? Adam smith demonstrates that societies prosper thanks to division of labour through specialisation. Extrapolating from his insight, entrepreneurship can be defined as the study of human actions that lead to innovative changes in the division of labour and entrepreneurs are individual who initiate such actions. Entrepreneurship is a grass root global phenomenon that stems from ingenuity, courage, and often as is the case with millions of informal entrepreneurs, the basic needs for survival-helping citizens move from necessity to opportunity. Entrepreneurship is the responsibility of government because they put in place the regulatory framework that either help or hinder entrepreneurial ventures to take root and grow. Start-ups require low barrier at the outset, to achieve scale, they require a legal and regulatory frame work that rewards entrepreneurial initiatives, ensures fair competition and protects private property rights. The city of Aba amongst other entrepreneurial cities in Nigeria is a prominent city that needs government intervention to scale heights.
In summary, this research article has successfully delivered economic knowledge by highlighting the current economic crises, reasons and solutions to combat them for the benefits of both the government and the general masses like you and I. Knowledge is future. To the individual reader, here are three tips for you to stay ahead of these unstable times. First, by striving to stay liquid amidst the increasing cost of goods through savings, returns on profitable investment, bank fixed deposit offers, purchase of treasury bills,(contact your bank account officer for more info). In this times of naira scarcity which resulted from dollar scarcity, liquidity will enable you invest in fixed assets and make more profitable investment when the opportunity arises. Secondly, expenditure on luxury goods should be reduced to a few necessities. Lastly, you can get ahead by expanding your entrepreneurial ideas into opportunities that meet a need in your environment with whatever capital at your disposal. Don’t wait until the conditions get better before you begin, begin and the conditions will get better. The year is still in its beginning stages, therefore add value to your beginning for in your beginning lies your end. Everything big starts with something small. Opportunity is where you are never where you where. Wherever you are, your land is green.
(Crown Nwachukwu is a graduate of Agricultural Economics; Federal University of Technology Owerri)
Sunday Enebeli Uzor (2014). ‘’ Global oil outlook; Non Oil export as Nigeria’s trump card’’. Zenith Economic Quarterly vol. 10 (no 4).
Anna Nagrodkiewicz(2014). ‘’Building Entrepreneurship Ecosystems’’. Zenith Economic Quarterly vol. 10 (no 4).