Nigeria Should Leave This Road To Venezuela -By Olugbenga Jaiyesimi

This piece could also be titled, ‘Getting off this road to Zimbabwe’ but Venezuela is an oil-dependent economy, unlike Zimbabwe. Moreover the path Zimbabwe took to hyperinflation was not from the mismanagement of its natural resources but from angst of the West because lands purportedly belonging to whites were seized. How a stupendously oil-rich Venezuela became plagued with a dysfunctional economy is mind-boggling because hyperinflation is a scourge of war-affected countries like Weimar Germany or highly indebted countries like Brazil and Argentina of the 1970s.

Venezuela is not war-torn or highly indebted in foreign currency. So what caused the country’s hyperinflation? Well, the oil got into its head. Unfortunately, this has also been Nigeria’s manner of directing its economy. Venezuela has the largest proven oil reserves in the world at over 300 billion barrels, larger than Saudi Arabia at 270 billion barrels and Nigeria’s 37 billion barrels oil reserves. Like Saudi Arabia and unlike Nigeria, it has a meagre population of 28 million.

How did Venezuela come to this rot? Venezuela became an oil exporter earlier than many other countries. It became a major exporter in the 1920s, 50 years before Nigeria; this means the country has been in the oil business for over 100 years. Today, Venezuela should have been a major contributor to the technologies of extracting and processing crude oil so that it can enjoy the full value chain of petrol but it remains at the rudimentary phase as Nigeria is. Contrast this with new comers like Brazil who have indigenised technology for deep offshore drilling.

Despite Venezuela’s dependency on the West for drilling oil, it antagonised the West; hence the sanctions, bringing a total collapse of oil production from 3.5 million barrels per day to less than 0.4 million barrels in 2017! However, our concern is Nigeria, and we have seen Nigerian production drop from over 2.0 million barrels per day to 0.972 million barrels this year.

Hugo Chavez’s grouse with the West was just the tipping point. Venezuela had earlier positioned itself for a great fall. With oil wealth, it made its citizens dependent on the state and eroded serious entrepreneurial acumen. The reverse is the case in Nigeria with a pernicious and selfish elite that has appropriated all oil incomes, leaving the hoi polloi to fend for themselves and not rely on the state.

The Venezuelan economy has more structural defects than Nigeria. Venezuela is the epitome of a country suffering from Dutch Disease, with the oil sector wiping out other sectors from export earnings. The oil and gas sector is between 20 per cent and 40 per cent of GDP depending on oil prices. In Nigeria, the oil and gas contribution to GDP has declined from heights of over 30 per cent in the 1970s to current level of nine per cent. This confirms the continued independence of the larger Nigerian population from oil, leaving those close to power benefitting from oil largesse.

However there are troubling signs for Nigeria. The country in recent times has introduced social investment schemes, the likes of what we saw in Venezuela. These schemes tend to explode, and exiting them poses serious political problems. We saw this with the oil subsidy. Meanwhile Venezuela has near zero external debt while Nigeria’s external debt profile is rising; a path the present government chose for us. The inability of a country to meet external debt obligations is a sure road to hyperinflation as it happened with Brazil and Argentina in the 70s.

Nigeria has always been on this road to Venezuela. It’s just that we have not had the 100-year time frame Venezuela has, and our velocity on that route varies with economic leanings of the regime in power. If it is a liberal regime, the speed slows, if it’s a statist regime, velocity accelerates.

When oil became a big factor in the Nigerian economy, we had two pathways ahead of us. We could have chosen the Norway route of cushioning other sectors from the oil-induced Dutch Disease, or we could have chosen the Venezuelan route; we chose the latter. We were advised to create a Sovereign Wealth Fund as Norway did, but we never gave it a thought. What we did with hindsight is rather appalling. We made oil prices the determinant of government budgets, a habit we are yet to jettison despite all pretensions of wanting to diversify the economy.

Should we say we are unaware of the other options? The oil-induced Dutch Disease had entered the economic lexicon by the early 70s after it struck Holland in the 1960s; hence the recommendations that Nigeria should invest proceeds from oil sales in shares as Norway did. But Nigerians are not Norwegians, so we behaved as someone who hit the jackpot. To date we are still troubled by this mentality of waiting for the next jackpot.

We have a bit of the late Chavez in our President, especially in economic outlook and crass populism. Had we had 96 months of  Muhammadu Buhari in times of high oil prices, we would be further down the road to Venezuela; meaning we have a lot to thank God for truncating his first coming to 20 months.

This piece is about changing track and getting off the road to Venezuela. The title gives us a real life vision of where we are headed to as a country beyond vague description of an economy heading for the rocks. Policy makers know that where Venezuela is currently is not good and if they have that in mind when crafting policy, they should be better policy makers. This is not a given so prayers are needed.

The changes required do not commence at our polity or policy level; it begins at our psyche level, both the psyche of policy makers and the populace. In fact some pundits are suggesting that economics should become a general subject in our school system to improve knowledge of economic options. I buy into this because of the total lack of economic knowledge in the literate population. After all, the late Professor Sam Aluko defined economics as the science of common sense. It need not remain an esoteric discipline.

Nigerians need to realize that we are not an oil-rich country, and we never have been.  While each Nigerian has 170 barrels of oil per head, Venezuela has 10,000 barrels of oil reserves per capita. Yet Venezuela is in more dire straits than Nigeria producing just above 600,000 barrels per day from a peak of 3.5 million barrels. Of course Nigeria’s production is declining in spite of the Petroleum Industry Act.

The Nigerian government has to stop basing its budget on oil prices. This practice that began in the 70s needs to be phased out over a number of years. Revenues from real economic activities should become the focus of the government, not rent from oil. Non-oil exports should also become our major source of hard currencies, be it in Yuan or Dollar. The aim is to have crude oil and gas contribution to exports in line with its contribution to GDP.

Remittances at close to $40bn are about to exceed crude and gas receipts. These measures will insulate the economy from vagaries of the moribund fossil fuel sector. The goal should be refining the totality of Nigerian crude, and exporting refined products. With Dangote and BUA refining capacity, we are close to 50 per cent of this laudable goal.

As earlier stated, the road to Venezuela is a mindset thing and changing destination entails changing mindset that could be as drastic as the willingness to plug all oil wells so that we can rid ourselves of oil addiction. Plugging oil wells can be for a time as to when we have domesticated technology for oil and gas extraction beyond local content. Already just as Venezuela, we are at the mercy of International Oil Companies who are at the control of where to invest and where not to invest. We are begging that the West accepts gas as a transition fuel to achieve carbon emission goals in a bid to avert global warming.

Jaiyesimi can be reached via  jerry3jaiye@gmail.com