Nigeria’s economy has been described as a mono-commodity economy due to its heavy reliance on crude oil for its revenue and foreign exchange inflows for decades.
Despite several dialogues and policies aimed at changing this narrative, oil and gas continue to account for almost 90% of export revenue and 85% of government revenue in Nigeria.
The country, which is one of the leading economies in Africa, is endowed with vast arable land and statistics show that even though Nigeria has over 80% of its arable land, less than 40% of the land is cultivated.
Its heavy reliance on crude for which it has no pricing power has made the economy largely susceptible to the whims of outside forces.
According to Development Consultant and Principal Consultant, Industry and Private Sector Development, ECOWAS Commission, Professor Ken Ife, the effect of this has been evident in the face of recent global recessions of which Nigeria has had its fair share. .
Prof Ife, speaking at a one-day seminar for financial journalists organized by the Central Bank of Nigeria (CBN), noted that the economy was still mainly dependent on imports, despite half a century of rhetoric diversification, backward integration and import substitution. .
“Import dependence is compounded by a monocultural source of foreign exchange imports dominated by hydrocarbons which accounts for 79% of crude oil and 10% of natural gas, a third of banking sector credit and half of income government, even though the oil sector accounts for just over five percent of GDP.
“The impact of this is that the Nigerian economy finds itself on the transmission belt of global supply chains. Any exogenous global headwind affects the Nigerian economy. The 2008/2009 global financial crisis precipitated by mortgage lending in the US forced CBN to create AMCON which gobbled up N6 trillion to clean up the balance sheets of Nigerian banks and financial institutions.
“In 2017, the global energy crisis forced Nigeria into stagflation, prompting extreme measures and domestic financial intervention in support of the backward integration of 31 items removed from CBN Forex eligibility.
“In 2020, the global Covid-19 pandemic and global supply chain disruptions pushed Nigeria into a deep recession. And now the Russian-Ukrainian conflict. Crude oil price crashes between 2015 and 2017 led to a loss of over $100 billion (41.5 trillion naira). In the current recession, we must have lost more than 30 billion dollars in foreign currency,” he pointed out.
However, Dr. ‘Biodun Adedipe, of B. Adedipe Associates Limited, stressed the need for urgent action to ensure that the country moves from a mono-commodity economy to a multi-commodity economy.
Adedipe, who explained that diversification means that the country is not just dependent on one or a few related sources of revenue, income or inflow, said that with (dirty) fossil fuels gradually becoming obsolete, “approximately 80% of Nigeria’s export goods are threatened! Frantic search for clean and green energy to fight climate change. Green bond issuances and other financing are pouring in massively into developments in this space.
He also listed as reasons why the government needs to move away from oil, the cocktail of policies and incentives driving the evolution of e-vehicles – ICE ban or electrification: Norway 2025 ; 9 countries + United Kingdom 2030; United States, China and Japan 2035; others 2040, 2045 and 2050. There is also the discovery of crude oil in a growing number of African countries whose oil policies are more favorable to investors.
“If Nigeria is serious about getting out of its dependence on crude oil and the woes it has brought since the petrodollar began to sink in 1974, courageous steps must be taken,” he said. We have to understand that it is not a question of money and funding. Removing or reducing the exchange premium will not solve the problem.
“Coming to terms with the IMF won’t either – Ghana has done it 17 times and yet the Ghanaian Cedi is not a super currency today. The fundamental problem is that we produce enough and we do not produce enough. We look more outside Nigeria for redemption, while the solution to most of our problems lies within. Looking inward preserves. We need to deliberately align fiscal, monetary, trade and industrial policies.
Identifying sources of foreign exchange earnings, Professor Ife previously listed oil export earnings, non-oil export earnings, foreign direct and portfolio investment as well as diaspora remittances, which rose from 6 million per week in December 2020 to $100 million. per week by January 2022.
On how CBN interventions have benefited the economy, Prof. Ife said, “In 2020, like 2016, Nigeria entered stagflation. While it took 5 quarters until 2017 to come out of recession, in 2020 it only took one quarter. This was due to quantitative monetary policy intervention (3.5 trillion naira) and fiscal intervention (economic sustainability plan – 2.3 trillion naira of which CBN was to contribute 1.5 trillion naira) . Supply chain disruption, widespread insecurity, reduced staffing and high levels of unemployment mean that more people could have died of hunger and starvation than insecurity and COVID-19 combined.
“But the CBN Anchor borrower program stopped him. The result was that 4.5 million farmers gained access to N945 billion unsecured credit; 5.2 million hectares of crops planted and intervention in 21 sectors. Targeted credit facilities of N368.79 billion (as of February 2022) reached 648,052 households and 130,000 MSMEs to support aggregate demand, while the real sector support facility of N1,452 billion helped to boosting 337 businesses, real sector production, supplemented by 134 naira. AGSMEIS program of 63 billion for the benefit of 37,571 MSMEs.