By: Oluseun Onigbinde
Nigeria is facing existential questions that run even deeper than its current economic recession. The downturn, confirmed in data released on August 31, presents an opportunity for Africa's biggest economy to change course. It's time to wean Nigeria from oil, propping up new growth poles in agriculture, light manufacturing and technology.
The Nigerian economy contracted by about 2.1 percent in the second quarter, while inflation soared to 17.1 percent in July. The decline can be seen in other measures, too. International airlines have pulled out, Nigeria's second largest commercial air fleet has shut down, industries are closing and 4.5 million people lost their jobs in a year.
President Muhammadu Buhari took office with a huge chunk of goodwill, but he has gradually expended that with his outdated thinking on the economy, open interference in monetary policies of the central bank and poor management of fiscal policies to stimulate the economy. While capital fled the country, the Nigerian government fed uncertainty with its flip-flops on foreign exchange and fiscal policy. The Nigerian currency has been devalued by more than 87 percent in the last year and the shortage of foreign exchange reserves threatens businesses. In Nigeria's states, there is a grimmer crisis as most of them can't pay salaries, paralyzing money supply and commerce at the retail end.
This was not what President Buhari envisioned when he took office a little over a year ago. Elected on a promise to fight corruption, he has instead continued his predecessor's' practice of withholding data on government spending. My organization, BudgIT, has written the Central Bank of Nigeria to detail spending on its bailout for troubled states. The response, time and again, has been "We are working on it." This means voters have little visibility into how their tax dollars are spent and the Federal Government is also yet to release the list of projects that N400bn have been released for. Tax revenue currently stands at just 6 percent of GDP, compared with 14.5 percent in sub-Saharan Africa. Just 10 percent of the population pays its due.
The global drop in oil prices revealed Nigeria's dangerous dependency on the energy sector. Many Nigerian analysts had underestimated the country's resource dependency, but with oil prices more than halving to $45 a barrel over the past two years, the problem has become clear. Oil revenue accounted for 70 percent of Nigeria's budget and its foreign exchange receipts added up to 90 percent of total inflows. Between the drop in prices and heightened tensions in the oil-rich Niger Delta which disrupted production, Nigeria's oil receipts have fallen to $19.1 billion in 2015 from $41.2 billion in 2013. This has led to a foreign exchange imbalance that Nigeria lacks the diversified export portfolio to correct.
With abundant energy and human capital, Nigeria should be a manufacturing hub and epicenter of innovation for Africa. It should be reaping a demographic dividend, with 43 percent of the country population younger than 15 years old, according to World Bank estimates. But Nigeria cannot meet its potential without policies that develop domestic power capabilities. The country at its peak period produces just 5,000 megawatts of power daily, far short of what it needs to climb the development ladder. Residents of Pakistan use more than three times as much. Nigeria has ample gas that could power its development, but it cannot extract the resource until militants are stopped.
Nigerian leaders need to understand that time is ticking and to achieve its potential, the country needs to start with expanding enterprise opportunities in agriculture, small manufacturing, technology and other small business schemes. The former government adopted a program called Youwin, which provided grants to businesses. This has stalled and reviving schemes like this is critical to expanding financing opportunities for businesses. Technology in particular requires targeted funding and skills development. Nigeria needs to invest in supporting small businesses and reducing the cost of doing business. This must start with streamlining taxation, reducing the cost of commercial capital which now stands at 28 percent, and investing in infrastructure - especially power. It is time to develop off-grid power solutions for businesses, simplify the tax codes and build alternative financing for businesses in targeted sectors.
Beneath the turmoil we can catch glimpses of Nigeria's potential. It is not by chance that Facebook's CEO Mark Zuckerberg made Nigeria his first visit in Sub-Saharan Africa. With pragmatism and smart ideas, Nigeria can pull itself out of stagflation. It starts with improving public sector efficiency, promoting targeted support for small- and medium-sized businesses, reducing the cost of doing business, and easing access to capital. By expanding the tax base, Nigeria will have money to deepen infrastructure spending and advance innovation on a large scale, all while delivering the accountability that its citizens deserve. It's past time for Nigeria's leadership to step up.
Oluseun is the founder of BudgIT, a public data visualization platform that allows anyone to access information about the Nigerian government's budget and expenditures. He is a 2016 Aspen New Voices Fellow. Follow him on Twitter @seunonigbinde.