‘Why Nigeria must save for future investment despite low crude oil price’ —Utomi

Professor Patrick Okedinachi Utomi is a professor of political economy and a management expert. He is a Fellow of the Institute of Management Consultants of Nigeria and a former presidential candidate, with a passion for the dignity of the human person and the spirit of enterprise. In this Interview with OLATUNDE DODONDAWA, he looks at how Nigeria became a mono-economy and proffers suggestions on how to be less dependent on crude oil exploration. 

Looking at agitations across Nigeria since the discovery of crude oil, would you say that oil discovery is a blessing or a curse to the nation?

There has been a global conversation for years on whether oil is a curse or a blessing. But if you look at countries that have managed their affairs very well, you will realise that oil has managed to be a blessing. Classic example is Norway. But for developing countries, you can see a comparison between Indonesia and Nigeria.

Indonesia has always been considered Nigeria’s development twin. Both nations are growing, but in different directions. A friend of mine at the School of Advance International Studies (SAIS), in Washington, Professor Peter Lewis, wrote a book years ago, titled: “Growing Apart, A Comparison of Nigeria and Indonesia.”

In the early 1960s, people said they wished Indonesia could be like Nigeria, but by the 1980s, people were saying they wished Nigeria could be like Indonesia.

They are very similar countries; they are both populous and oil gifted countries. Indonesia, however, has managed to harvest and harness its oil while keeping its economy diversified. Most of the pharmaceuticals you have in Nigeria are imported from Indonesia. Indonesia which did not have palm oil now has huge palm oil plantations. Their agriculture is thriving, the industry and oil is still there.

When Chief Rasheed Gbadamosi was the Minister of National Planning, he led Nigeria’s delegation to OPEC meeting at the time oil price was very low in 1998. Oil price was below $10 per barrel. While everybody at the meeting was fighting for increase in quota, Chief Gbadamosi noticed that the Indonesia Oil Minister wasn’t bothered.

Gbadamosi then asked him why he wasn’t bothered about the low oil prices, and the man looked at him and said Nigerians are not serious. He said Indonesia does not depend on crude oil because they are making more money from Liquefied Natural Gas (LNG). Nigeria started LNG before Indonesia.

Oil is not supposed to be a curse, but the way Nigeria has been running it has unfortunately made it a source of damage rather than advantage.

If you look at history, you will notice that crude oil price regime is cyclical. We have had a period of boom, doom, boom and doom. There was a time we had oil doom, we went into recession. Oil boom resurfaced again and oil price went as high as $140 per barrel in 2014. Now there is oil price crash and nothing has changed about 40 years after, it is still the same story. How did we get to where we are today when states are struggling to pay salaries, pensions, gratuity and provide basic infrastructure?

I pray that oil drops to as low as $4 per barrel and stay there for about four years, then Nigeria will have an economy. There is something wrong with the way we behave, such that we wait for oil price to go up and we will be in a more dangerous situation.

Things got so bad that in 2003; two famous economists from Colombia University wrote an IMF paper in which they said that Nigeria is better off without a government. They said that if you take all the receipts for oil proceeds and send out the portion that each Nigerian is entitled to from that proceeds, Nigerians will be better off without a government. These two economists are Irvin Subramanian and Xavier Sala-I-Martin.

The problem is not oil, but the people who have run Nigeria for the last 30 years. We are repeating the same mistake we made in 1984 today. We have repeated them between last year and this year.

What were the mistakes made in 1984?

In 1984, we made a classic Venezuelan error which is why though Venezuela sits on the largest global oil reserves, they are lining up right now to buy sugar. In 1984, we were also lining up to buy sugar and other essential commodities. People are now going down the road to buy sugar, milk, because we refused to understand that we have to produce and exchange with others. Once you don’t produce and the price of commodity that is giving you revenue crashes, you are stupid. I repeat the word ‘stupid’. I repeat again ‘stupid.’ If you pretend to believe you can continue to consume the way you were consuming before and the exchange rate is what you used to moderate behaviour.

Last year, we said we will not devalue, yet we are not producing anything. You are consuming what you are not producing, it is not an option to devalue, the economy will just crash and it happened.

All the banks that have credit for Nigerian banks withdrew them, we couldn’t import anything and we began to queue to buy sugar back then. That is what we have been doing since last year.

My argument for years has been that when you are in a commodity-driven economy and the commodity is in boom, you save a significant part of your earnings. And you use your savings to attract further savings from outside the country and make investment in the alternative areas of growth.

In the case of Nigeria, Nigeria has strong endowments in several areas. But unfortunately, we have lazy elites that want to extract rents from oil income as government officials, even the businessmen. And the country continues to wallow in poverty and the income gap continues to widen. A few people with access to power are buying private jets and our presidents are describing prosperity with how many private jets there are in Nigeria.

But there have been agitations for re-structuring, what is your take on that?

I am an advocate of restructuring and I have no question about that. Nigeria made more progress when it had regional government. For instance, someone told me a story by a senior Northerner, although I cannot verify its authenticity. He said Sardauna of Sokoto, Sir Ahmadu Bello, attended a meeting in Lagos, being the Capital of Nigeria, and it was announced that the Easterners will soon be exporting crude oil.

After the meeting, Sardauna met with his cabinet in Kaduna and informed them about the potential oil export by the Eastern region. He was so happy that his cabinet members were worried and asked why he was happy about the development, and he told them that it is an opportunity for them to develop their agriculture and begin to feed the Eastern region. He said this is because once oil proceeds begin to come, the Easterners won’t be able to farm anymore. He said that if they developed agriculture, they will be taking oil money from them in exchange for the food they will eat.

Nigeria started industrialising when Chief Obafemi Awolowo moved to set up Industrial Estate in Ikeja. The Premier of Eastern region said the West cannot be ahead of them so he established two (industrial estates) simultaneously, one in Aba and the other in Port Harcourt to compete against Ikeja. Northern region established Kakuri Industrial Estate in response and Kaduna became the hub of textile industry in Africa.

The same happened in television when Western region established the first television in Africa, WNTV in 1959, the Eastern region also quickly set up their television station. So when the Westerners say WNTV, first in Africa, Enugu will reply, Eastern Nigeria Broadcasting Television, second to none. And that was the competition that brought progress. All these have been lost by lazy governors who now just collect fat accounts. During the Obafemi Awolowo administration, the entire Western region from Lagos to Asaba had 12 ministers (now commissioners).

But today, each has several commissioners and if you count today, we cannot have less than 300 commissioners and several advisers within the same region that was managed with 12 ministers.

In your opinion, what is the way forward?

The pain from oil is self afflicted. I have argued for years that Nigeria should have a benchmark price for spending. I have suggested $40 per barrel and everything from $40 to $70 should go into a Stabilisation Fund, which we can borrow from if there is a downturn to ensure we have a stable $40 per barrel investment. If it goes above $70, the excess should go into a Future Fund (Sovereign Wealth Fund) so that we will be investing the Future Fund.