Nigerian Economy: Can Economists Come to My Aid?

By

Abdullah Musa

kigongabas@yahoo.com

Many Nigerian laymen (and lay women: is that not a bit too suggestive?) are confused by a seeming economic puzzle. Being a layman myself, I also want an explanation, or a road map, which will show us that we are on the right track with regards to attaining societal well-being. The economic puzzle is that we are touted to have within the nation’s coffers, fifty billion dollars as foreign reserves. The meaning of the word ‘reserve’ may not necessarily be universal. I prefer to see it as money set aside for the rainy day: and rainy day to the understanding of us laymen, being the day when for instance we find ourselves as a nation with totally dilapidated infrastructure; of more worrying dimension being near collapse of the national grid.  Left to us alone, we would simply dip our hands deeply into the reserves to immediately finance new power plants. The construction work will have to be immediately: with 24-hour working day, seven days a week, fifty two weeks a year, completely non- stop! After three years, we would say that at least one of the seven-point agenda has been met 60-70%. We can forgive the rest.

What we hear from the federal government is however highly puzzling. Here am I being told that I have reserves bursting to the seams, and someone says: ah! Nigerian! You are highly under-borrowed! And another puzzle: a top figure in the electricity regulation agency says: the federal government cannot finance the required investment in the power sector. Luckily some investors have applied for licenses, and they will help in augmenting the power supply!

The puzzle is starting to make me dizzy. When the application for license was being forwarded, was it accompanied by a detailed feasibility study, a full-blown engineering drawing of the proposed power plant, location, financing plans, and most importantly commencement of works after license is obtained and completion date?

Otherwise, what will give government the assurance, that licenses would not be hawked around, looking for the highest bidder, as per the import license of old? And while this is going on, Yar’Adua’s term will be ebbing out, and with it the seven-point agenda. Now my first question to the economists: who owns the fifty billion dollars? An investment bank is in deep waters in the United States of America due to the burst of some mortgage finance bubbles. China was approached by the bank for a five billion dollar bail out, which will give it a 10% stake in the bank. Why were we not approached? Is ‘our’ fifty billion a kind of basic platform for the current naira value, such that we cannot tinker with it without unsettling the Naira? Just like you may have some fluid remaining in a container which a pump cannot extract out?

We are also of the opinion that daily crude oil extraction brings in daily cash flow. Is that not so? How much do we spend daily, and how much do we earn? If there is surplus, does it add to the reserves? By how much? Do the reserves earn any income, or are they just dummy free funds, fuelling western economies while we sleep in the dark? Left to us laymen, we would like a monthly statement of account giving us the following: opening reserve balance, additions during the month, subtractions during the month, and closing balance. A further analysis may satisfy us all the more. We will need a summary of the major contributors of the addition, a detailed breakdown of the subtractions, particularly with regards to what we have been importing.

We learn from the newspapers that the federal government sells foreign exchange, and the naira proceeds are what are shared to the tiers of government plus locally generated revenue. We ask the economists: why is it that we cannot fund the daily activities of all tiers of government from locally generated revenue? Are we so weak and unproductive such that our endeavor is of such miserable value, it cannot finance our monthly recurrent expenditure? If the reality is what obtains, what do we do to obtain the desirable outcome? Is it part of the seven-point agenda? If it is not, is it because it is not important enough to have sound economic base, away from the volatility of oil? A volatility more enhanced by the belief of Niger Deltans that they are not Nigerians, than by the fluctuations of international oil market.

Our perception as laymen with regards to oil revenue is best explained by the example of how a manufacturing company operates. The company buys raw materials which it processes for sale to the consumers as a final product. Within its pricing decision, the cost of production must be taken in to account. No company can survive if its selling price cannot cover its cost of production consistently. If it sells below cost of production, it means that certain components of the cost cannot be financed in future production runs. For instance you may either not be able to pay wages, or power, or even to buy new stock of raw materials. So the price of the said product being sold by the company must cover the raw material component also.

Going back to the issue of crude oil, the selling price is determined by the markets, or more appropriately by the international oil companies of the Western World. So when we extract crude and sell at the reigning price, do we consider crude oil as the ‘finished product’, the cost of production of which is only the labor and the use of drilling rigs? The accountants are the ones who prepare balance sheets; a balance sheet, according to them is a snapshot of the position of the company at a certain period in time, mainly at the end of a given operating year. Within the balance sheet are two sides, or two main components: assets and liabilities. Stocks form part of what they call current assets, which are assets that are easier to turn into cash than other forms of assets called fixed assets, like buildings or plant and machinery. Now we may want to ask Nigerian economists: does crude oil have no value other than its extractive costs? Meaning, if it remains below the ground it is simply worthless? If NNOC were a truly limited liability company, what will its assets side of the balance sheet look like? Does it reflect as assets the proven reserves that are yet untapped? Does it reflect also the depletion of the assets when we extract and sell crude oil in the international markets, or refine and sell locally, or when militants and other barons find a way of stealing the crude or waste it in pipeline vandalization?

Our questions may sound naïve, but we said we are laymen. But the questions look relevant to us for if a company sells its assets, which are also its final products, and the whole cash proceeds are shared because a non-economic document called constitution says so; what will be the value of the company after it might have exhausted its assets, in this case crude oil? And what will be the economic future of the said owners of the company: federal, states and local governments, when the stock of crude is depleted to appoint when it is no longer profitable to extract it?

What we need from Nigerian economists are answers to our other wise foolish questions. We would not want to anticipate what the answers might be. But we would not want answers based on mere intuition. We want concrete analysis. On our side, pending the dismissal of our questions by the economists, we are fearful of our future. Left to us, we would address our fears by proffering possible protective measures, to protect our young ones from our seemingly suicidal living: a living style that does not save for the rainy day; a living style that pardons us when we burn the rafters of our homes to cook food and stay warm also. So we would have wanted a federal legislation that would seek to curtail this madness. The federal legislators are unfortunately the most paid from the assets that are wasted for day to day consumption. They are so spruced up with wealth at the expense of other members of the society, such that they will surely not be able to see the possibility of a looming disaster if we continue to behave this way. For when we continue to behave this way, they would grow all the richer, and have their own rainy days insured for their own generations yet un-born. And this will be right in front of the silent and foolish majority, who believe that the leaders must be in opulence while the led are in misery.

Still yet, let us say we want a legislation that will direct all state governments to find alternative means of financing their recurrent expenditure. That which they are given from the proceeds of oil via federation account is simply a capital return, which must be invested in infrastructure and other revenue generating investments. Why are we so poor in output such that we cannot pay for education? The farmers are un-able to pay for fertilizers, and we are not even able to produce sufficient quantities internally. Why is there no system to enable income earners to pay for health services? Why is it that we are only to survive on the extractive industries, and yet we have the effrontery to say, and conduct our lives on the premise that God does not exist, while we are the most dependent of all people on His largesse?

Nigerian economists: would you choose to answer me in one simple Hausa dictum: Mutuwar yawa kaka ce? Meaning a collective suicide is tolerable?

I hope not, for there are many others who want to live, and live well.

 

 

Abdullah Musa