Of oil glut and Covid-19

Ropo Sekoni

When President Buhari said after his electoral victory in 2019 that his ‘last lap of four years would be tough,’ he could not have seen the kind of toughness that has come to Nigeria in the wake of Covid-19 and its verdict on the mainstay of Nigeria’s economy—petroleum. The toughness that has come to Nigeria and most of the world is certainly worse than what President Buhari must have meant one year before the onset of Coronavirus. Now is the time for Nigerians to remember the saying: “Tough times don’t last; tough people do.”

The big threat to Nigeria may not be the spread of Covid-19, despite strict warnings to sub-Saharan African countries already famous for their fragile healthcare systems. Nigerians live in a country starkly divided by class. The majority group of lower-class and under-class and the narrow strip of upper-class men usually have no reasons to mix. Lassa fever is likely to kill more people than Coronavirus, Nigeria’s borders are closed immediately and the three spots where the two classes come in contact—churches, mosques, and parties are closed in addition to educational institutions.

But with oil going down to $30 per barrel, the 2020 budget experiencing cuts at a time that the country just got out of the 2014 recession, many of our political leaders are already pontificating about how the current challenge can become an opportunity for Nigeria to boost its ongoing diversification project. Transforming challenges into opportunities should not end with economic diversification, it should extend to political decentralization. Diversification answers just one side of the problem. Freeing subnational governments from the strictures of centralism can bring economic diversification to success much faster than our leaders think. Countries with the right infrastructure for manufacturing, strong healthcare, and an economy not largely dependent on the price of crude oil do not have to panic as much as countries, like Nigeria that depend largely on selling of crude oil. When Nigeria gets its governance system right, it may, like countries on the same par with it in the 1960s, such as North Korea, Indonesia, Malaysia, no longer need to be sent into jitters  any more than other developed countries with modern capacity to respond to global threats.

To make diversification work, Nigerian leaders need to pay more serious attention to going back and forth between oil boom and bust, such as we have done between 2014 and 2020. It is a no brainer that it is recognition of the interconnection of a country’s economy and politics that forms the core of political economy. Diversification in an over centralized country where over 80% of resources of the country are spent on administration of 37 states and 774 local governments with each state not having any fiscal autonomy to innovate is something that should worry political leaders, including those who have sworn to hold on to the centralist state in the name of national unity. It is not only individuals who want to be presidents of smaller countries that can undermine Nigeria’s unity, hungry, sick, ill-clad, illiterate, homeless citizens not in positions to become presidents are equally dangerous to national unity—whether the nation is Nigeria, Biafra, Oodua, Edo or Opobo republic.

This may be a good time for the country’s rulers to take a long-term view of fluctuations in the price of oil and the threat precipitous drop in oil prices brings to the country periodically. We are never going to have control over the price of crude oil at any time, except when Nigeria becomes the only oil producer and there is still need for oil elsewhere on the globe. But our leaders, especially those who believe they hold the country by the jugular, can give political reform a chance, especially if doing so can cut resources spent on governance considerably and enable Nigeria to become modern.

It is remarkable that after almost five decades of running a monocultural economy, the current government has initiated a return to economic diversification. Nigeria had economic diversification before 1966. This was why the four regions of North, East, West, and Mid-West were able to function. But there is need for a political reform that can make economic diversification policy more effective across the country. Diversification policy without political decentralization is bound to continue to slow down diversification projects. Leaving major decisions on the economy, especially agriculture to the central government and states without fiscal autonomy may continue to make economic diversification a pipe dream, regardless of the stridency of the rhetoric that promotes the policy.

For example, the Central Bank governor recently announced the intention of the federal government to assist in boosting the production of palm oil, with the promise to do the same for cocoa production much later. Any good reason why the two could not go together? Regional governments pumped funds into the development of palm produce, cocoa, cotton, rubber, and groundnut production at the same time before 1966, largely because of a different model of governing Nigeria. Each state ought to have been assisted to improve the production of any cash crop that can earn foreign exchange, especially since 2014 when the price of petroleum collapsed shortly before the coming of Buhari to power.

Reducing the size of the federal budget is a good idea, but this decision may not address fundamental problems of spending most of the country’s expenditures on recurrent items. Lawmakers, regardless of what may be the level of the obsession of the executive branch over the centralized governance system ought to take the current challenge of economic uncertainty thrown up by the low price of crude oil to call for more creativity in governance. Undoubtedly, the easy flow of petrodollars during the years of military rule encouraged the centralization of governance, the massive political corruption that followed, and the decapitation of federating units.

The prediction that oil may go down to $20 per barrel or worse calls for courageous and creative leaders to push for a polity that will cost much less than the parasitic governance model of the last half a century. There can be no better time for a government committed to reducing the cost of governance to commit to rightsizing government at the national and sub-national levels. Returning to the Oronsaye report on reducing the cost of governance is a good start.

The worst form of over administration of the country is the number of states and local governments that are sustained principally from revenue from petroleum. Our leaders should not wait until the price of crude oil goes to $10 per barrel before they do a major review of the constitution that sanctifies 774 local governments. Nothing about governance is cast in stone in a country that cannot fund its budget. Just as we can reduce the budget by a stroke of the pen or after a visit of ministers to the president, so can there be other ways to cut out the pork of federal and state governance.

Even with 36 states, a federal system that stops handing over funds to governors to spend on a monthly or quarterly basis is likely to be more cost-effective than what we currently have. The quality of life of the average Nigerian needs to be improved. There is no evidence that this can happen under the current system of collecting all revenues into the federation account and allocating funds to 36 states and 774 local governments to spend as they wish. States should be given the fiscal power to enable each of them to create an economy that can generate funds to run such states. Whatever revenue accrues from the oil and gas should be used as capital allocations to fund specific infrastructure projects in all the states, rather than transferring funds that now function like welfare checks to states.

It is about time to recognize that a country that has not succeeded in giving citizens benefits of modern governance—access to potable water, reliable electricity supply, public education, healthcare system—deserves to be told by international leaders to brace up for the challenge of Covid-19 or any virus for that matter.

As this column observed in 2012 in a series on Petroleum and the Future of Nigeria, failure to reform governance in before fossil energy becomes unprofitable can only produce a destitute post-oil Nigeria, more so if the generation of leaders that created the current parasitic system continues to argue that there is no better way to keep Nigeria united.