What has emerged in the last few years is that oil prices is hardly in the control of anyone country and cartel at any point in time, even though OPEC manages to curb supply sometimes and achieve a spike in prices. Yet shale producers and other non OPEC countries can flood the market and slow down prices. These are, at best, eventualities that should wake up economies dependent on the commodity to be less dependent on it.
If the economy was less dependent on the commodity, there would have been no need to fret. Unfortunately, this has been the case since crude oil took centre stage in the economy by earning 90 percent of the country’s foreign exchange, a structure that remained unchanged nearly 50 years after. In what is described as a boom bust pattern, the economy grows when oil prices rise and decelerates when prices ebb. The periods are characterised by growing foreign exchange reserves, more government spending and fewer borrowings among others.
According to estimates by Capital Economics analysts, every $10-per- barrel fall in oil prices leads to a slowdown of 1.5-2% percent of GDP in a country like Nigeria on an annualised basis. Nigeria’s economy slipped into recession once again due to a play of that dynamics . And the dreadful thing is, there’s absolutely nothing government can do about in the short term to medium term.
But government can sustain its level of spending if revenue sources are multiplied and thus better plan and meet spending targets of midterm expenditure frameworks with some level of certainty once the economy is diversified. What is more, the resultant portfolio will help in the optimal allocation of resources because as one or two earns negative or lower returns in a particular period, others may earn positive returns thus helping to smoothen and predict both revenue and expenditure patterns.
We would recommend a few low hanging fruits towards diversification of the economy including agriculture which is encouraged by our natural factor endowments; services and transportation.
Services account for 58.8 percent of Nigeria’s Gross Domestic Product (GDP) as of 2015. It has grown 97 percent in the last ten years from 20.5 percent. Nigeria ranks 27th worldwide and number one in Africa in services’ output, according to Wikipedia.
It means that Nigeria has competitive advantage in this sector and it behoves government to help improve the sector that has driven countries like Singapore and other Asian Tigers to development. In the United Kingdom, Services accounts for 80 percent of GDP.
Given the dire need for diversification as argued above, it is now a matter of urgency for government to walk the talk to put the economy on a sound footing so that the welfare of the over 200 million Nigerians is not jeopardised by an unwillingness to act. Posterity will not forgive such complicity.