[dropcap]T[/dropcap]he unfortunate incidence of COVID-19 bears many lessons and has tested every social, political, religious, cultural, economic institutional arrangement the world over. And those who can clearly understand its lessons and heed them would be better prepared to navigate successfully in the post COVID-19 era. Hence, the focus here is on Nigeria and the nature of oil in the context of the coronavirus COVID-19 pandemic.
The world, in the aftermath of this scourge of a virus, would undoubtedly be recognized as the post COVID-19 world: it would demand that resolute and adroit adjustments be made in every sphere of human endeavor at policy and institutional levels. In the interim, a trifecta of events: coronavirus pandemic, slump in oil price due to global oil glut occasioned by OPEC and OPEC + disagreement about oil output levels, and U.S. oil shale producers which has alloyed to put downward pressure on oil price in the world market, creating a perfect storm of deleterious problem for Nigeria’s oil dependent economy, with potentially serious implications for the country’s political and social stability. But in Nigeria, where oil comprises about 60% of GDP and 90% of foreign exchange and with a breakeven price of around $57 a barrel and fiscal breakeven of around $100, the economy is in serious trouble. If the economy is in trouble, the government and country is in even bigger trouble. Roughly 20 million people are unemployed; and, that is now expected to climb to at least 35 million, based on conservative estimates. This is enough to bring about substantive social ills which any reasonable government is bound to prevent.
Perhaps somebody knew, but an overwhelming majority of the world’s peoples’ had no idea that COVID-19 pandemic would crystallize, with such ferocity, attendant destabilizing human and economic challenges, the sort of which the world has not witnessed in about one hundred years. But well led countries and good leaders should always be prepared for eventualities such as that which is unfolding at the moment. Expert and lay warnings about imminence of the pandemics and the end of oil era were abound, but they were met with official abnegations. Hence, the difficulties that Nigeria is facing as a result of this pandemic stems from a long period of unforced economic and political errors. Nonetheless, the coronavirus pandemic serves as a sneak peek into the future of a Nigeria without oil and the social and economic, and perhaps, the political dislocations that could result from it. Anyone with even a perfunctory interest in the history of pandemics and their attendant social dislocations can understand the havoc that has been brought about by past pandemics, which was able to alter the destiny and trajectory of many societies and civilizations.
In about 430BC Athens was struck by a pandemic that destroyed as many as two-thirds of their population; and, small pox contributed to ruining the Roman Empire. For millennia, historians have noted that pandemics can destabilize the societies they strike. Of the Athenian plague of 430 BC, Thucydides wrote: “The catastrophe was so overwhelming that men, not knowing what would happen next to them, became indifferent to every rule of religion or law.” Defeat at the hands of Sparta in the Peloponnesian War was followed by a period of political instability, culminating in a temporary breakdown of Athenian democracy in 411 BC. The two great plagues that struck the Roman Empire — the Antonine Plague (165-180 AD), probably a smallpox pandemic, and the Plague of Justinian (542 AD), which was a bubonic plague — also weakened the structures of Roman rule, allowing barbarian invaders to make significant inroads against Roman rule. Recent scholarship on England after the Black Death of the 1340s shows that efforts by the landowning class to offset the effects of chronic labor shortages led to escalating tensions that ultimately erupted in the Peasants’ Revolt of 1381. Furthermore, deliberately introduced by the Europeans into the native population, small pox decimated the autochthonous population of the United States, bringing about more hostile conditions than enemy armies in each case, also, in the fourteen century, the bubonic plague swept through Europe, killing more than half of the population of that region creating serious social and economic dislocations. The Spanish flu of 1918 killed about fifty million people around the world, transforming social culture for many decades.
Although medical science has made laudable progress relative to fighting hitherto dreadful diseases such as small pox, typhoid, measles, chicken pox, and tuberculosis to name some salient killers throughout history. In the recent times, other killer viruses come to mind – HIV-AIDS, SARS, MERS, and Ebola. HIV-AIDS has killed over thirty million and another forty million persons around the world live with the infection. Ebola is now an occasional dreadful visitor to mankind, but, thankfully, progress has been made in the medical strategies to control it. All these disease outbreaks changed the global community in some way. In short, history shows that pandemics all too often exacerbate existing social and economic tensions relations between classes and ethnic groups.
In regard to Nigeria, which depends substantially on oil commodity for its foreign exchange earnings, the coronavirus pandemic has delivered a swift and brutal lesson in many ways and revealed the future troubles that awaits it if it continues to depend solely on oil rather than diversify its economy. Essentially, oil is a quintessential social, economic and political grim reaper. Oil dependent countries that share Nigeria’s socio-ethnic fissures are characteristically exposed to corruption in the extreme. In the interim, the precipitous decline of crude oil prices has left Nigeria in a fiscal lurch. The economic event which is unfolding at this time is precisely the reason for the caveats about political and economic reforms that have gone unheeded to this day.
The troubles that oil can bring to countries like Nigeria was uncannily articulated by Juan Pablo Perez Alfonzo, a prominent Venezuelan politician, who, when Venezuela discovered oil in commercial quantity, warned his country’s citizens about the likely deleterious effect of reliance on oil; many had not suspected it at the time, but his admonition materialized for Venezuela and, might, if not sooner, then later for Nigeria. Alfonzo’s caveat came to fruition with the establishment of The Organization of Oil Producing and Exporting Countries (OPEC). Essentially, protection within the market and the promise of unfettered wealth arising from Venezuela’s immense oil reserves were undone by what economists came to term the natural resource curse, where the sudden influx of money would cause the national currency to dramatically appreciate, wages are driven up, prices inflate, but manufacturing, imports and exports all slump. Though this was yet to occur for Venezuela during the early OPEC years, Alfonzo saw it all coming. In a prophetic 1975 speech, he uttered these infamous words: “ten years from now, twenty years from now, you will see; oil will bring us ruins. ‘Oil is the Devil’s excrement’”. Oil is further described as capitalisms “infernal obsession and obscenity,” capable of bringing nothing but eventual ruin to “unguarded,” undisciplined countries. Alfonzo indicated that the ultimate outcome of an addiction to the omnipresent oil is economic laziness, national malaise, complacency, corruption, fiscal mismanagement, poverty, war and pollution. All this revolves around a grim speculation in the sense that oil bearing countries cannot get control of oil; it is oil that gets control of them, crowding out all natural economic endeavors to the ultimate economic and social detriment of oil dependent countries.
There are several other explanations for why dependence on oil does undermine societies. Some are that apart from manufactured goods, raw materials are more exposed and vulnerable to the vagaries and risk of global market prices. Price uncertainty and fluctuations tend to lead to a perilous cycle where irresponsible commodity dependent governments spend like drunken sailors when price are up and make drastic cuts when prices fall, usually leaving unfunded institutions and programs – schools, roads, hospitals, adequate salaries, etc – in its wake, with attendant disastrous social and political consequences. Another reason is that fiduciary power of a commodity like oil can easily marginalize other more fundamental economic activities in the country’s economy; and when the price of such commodity is high, the national currency becomes strong, hurting domestic manufacturers who would find it difficult to compete with foreign manufacturers and their lower priced imports. Attendant to this scenario is that the country’s labor and capital begins to devolve to nontradeable sectors of the economy; if not corrected quickly, the whole country begins to suffer, by losing the developmental benefits that normally accrues to economic domains that have strong manufacturing economy, such as strong technological innovations, good management, and reliable microeconomic environment.
Moreover, soft money that accrues from natural resource, such as oil, does corrode the political institutions, unlike economic productivity that is based on human intelligence, skill and know-how, oil yields very high rent with very little commensurate application of work. This excess fiduciary yield accompanied with little or no work are very easy to appropriate by the state or powerful individuals and their cronies who control who control the extraction of the commodity, be they foreign or domestic. Consequently, there is a disconnect from the people as the state itself is absolved of the pressure to tax the people and subsequently lose the incentive to carry out the basic functions of government, such as protection of life, liberty and property, as well as dedication to creating enabling environment for wealth creation. On the part of the citizens, because they are not taxed, they are effectively distanced from their government and have no incentive or strong mechanism by which to hold the government accountable; essentially, without popular stake in the system, the result can be an uncountable government with runaway powers and strident disposition that is prone to abuse. This scenario also subordinates the ways that government reconciles conflicting interests and demands, as well as who gets what, how much,when and how”. On the whole, this makes it onerous for political institution to develop, often creating political, economic and social environment that is inimical to investment and development.
For Nigeria, the lesson of this pandemic is that, perhaps COVID-19 and it’s economic and health impact might not have been expected, but the nature of the eventual end of the oil era is foreseeable and has been rehearsed; and Nigeria is not prepared for it, despite decades of warnings from well-meaning experts and sundry commentators to reinvent itself politically, diversify its economy, curb corruption and drastically reduce the cost of governance. In the interim, Nigeria clings stubbornly to oil while the world is moving steadily toward a post oil era, with the development of green energy and clean fuels. But, maybe it is too late now to close the barn door because of the goats have already left. Perhaps Nigeria has already eaten its seed yam and has nothing left for the planting season; so, trouble lurks around the corner, menacingly.
The current state of Nigeria’s economy and a bleak foreseeable future is an unequivocal indication that its political and business and governmental models are flawed and should be fundamentally revamped and recalibrated. A sustained poor economy, high unproductive illiterate population, terrorism, insurgency, unnecessarily huge bureaucracy, high cost of governance, separatist agitations and plain unfair national policies comprise veritable smorgasbord of salient concerns that could result in serious social disquiet. Coronavirus pandemic has created new threats of poverty and political instability, which would become glaringly obvious when the alterations in socio-economic processes that are presently in place is finally lifted and the public wake up to the new reality of serious economic dislocation.
The impact of drastically reduced income from oil could be devastating. Nigeria derives 90 percent of its export earnings and more than two-thirds of government revenue from oil sales. Even though there is some high growth in non-oil sector, Nigeria is, for all intents and purposes, an oil dependent country. And as the oil goes, so does Nigeria’s government and its main revenue stream. The incoming economic downturn is stirring deep concerns among the country’s political class. A large array of government expenditure and policy implementations is associated with oil, which plays a critical role in sustaining the co-operation and competing patronage network in Nigeria. Absent this political “palm oil” for lubricating the system by greasing “palms,” the country’s already unstable political situation could get much worse and create political uncertainty, as less money in the confers means less money to manage political problems. Although massive loans have been taken from international lenders, it would only inflame the problem because even with the oil revenue stream, the fundamentals of the economy is very poor, jeopardizing future borrowing, elevating the country’s debt burden and diminishing fiscal liquidity.
Government Reaction and Solutions:
The coronavirus pandemic has created serious problems for Nigeria’s oil industry, worsening its financial problems and calling for major initiatives to reposition the country. So, Nigeria has big problems; and big problems call for bold initiatives, not nibbling on the edges. Also, the effects of reduced receipts from oil are already apparent, but official government reaction is limited and tepid at best. The measures that the government has so far taken indicates that, characteristically, it is not serious about the political economic position of the country and is probably hoping that the oil prices would rebound to a bull market form so that it can return to their usual wasteful ways. One would expect that Nigeria can adopt the disciplined disposition to undertake necessary right measures to stave off a likely social-economic crisis.
Clearly the present government expenditure levels is unsustainable, in view of the current oil prices and quite a lot has to be done to nudge the country toward the proper social, political and economic direction. For decades, Nigeria spent billions of dollars to keep the price of gasoline artificially low. This policy was ended in early April. Also, restructuring of parastatals and ministries, reduction in force, and salary reductions are taking place or are likely to occur. The government has had to review its expenditure downwards, and one can fairly confidently expect capital expenditures to nearly cease. Essentially, what is being implemented at this time is unrealistic.
Nigeria must changes its business model fundamentally, in part by increasing savings during high profit oil years and spending less in order to shore up its foreign reserves and investments, diversify its economy and reform its political structure. But hoping that this would happen is quite unrealistic, given Nigeria’s tendency for profligate spending, borrowing and mismanaging money, overstaffed and inefficient bureaucracy, and bloated government, as well as an unyielding political class that is reticent about renegotiating their benefits, remuneration and sinecures. Even if Nigeria escapes the instant aforementioned problems and perhaps thrives, fortuitously, the lessons of coronavirus era is a clarion call for a comprehensive government, economic, social and political reforms, which is necessary to spur economic prosperity and social stability in the post oil era.
In the interim, in order to stave off a very bleak future, something big must be done to address the current difficult conditions in order to better position the country to address it’s socio-economic challenges. The calls by the many for comprehensive restructuring and returning Nigeria to a regional framework is meant to address these present and potential problems. It is premised on the fact that the present political structure is a hindrance to solid economic performance and political stability. The thriving regional federal system was hijacked when the military intervened and ensuing complex set of events led, inexorably, to the civil war, effectively robbing the regions’ nationalities of their true independence. Hence, there has been a renascence of clamor for return to the regional basis upon which independence was negotiated and gained in 1960. Nigeria’s economic, social, and political stability and progress might depend on how it manages this justifiable demand for regionalism.
AJP Okonkwo-Ifedi is a political economist and executive director of the council on African World Affairs, in Washington, D.C. He also presides over Machiavel Strategies, a Political advisory outfit in Washington, D.C.
The opinions expressed in this article are solely those of the author.+
