…there’s a very strong case for insisting that the recovery in domestic output growth that we’re seeing in the country, today, is simply piggy-backing on better global oil prices. It is not, in other words, the consequence, yet, of anything the government has done.
An ongoing conceit of the Buhari administration is constructed on the description of how, following five consecutive quarters of contractions in domestic output, it somehow managed to engineer the economy’s emergence from recession by Q2-2017. If the media is to be believed, this reading was a staple of the valedictory session of the Federal Executive Council meeting, last week.
Stripped of the more obvious politicking, how much of this story is borne out by the logic of our economy? To begin with, it does presuppose that the lag between the government’s policy response to the main driver of the recession and the desired outcome took all of 15 months (up to the first quarter of 2017). Yet, we all know that the recession was one result of the bottom falling out of global oil prices by mid-2014. As a result of which an economy completely dependent on oil prices for its dollar earnings simply tanked.
So, what did the Buhari government do? Given the little control it exercises on global oil prices, did it then break the dependence of the domestic economy on oil prices? How? By borrowing a great deal more? By tweaking business registration processes? By strong-arming local businesses into coughing out more money as “tax”? All of these, the government did. And probably more. You only need to listen to the gripes of the private sector to understand how deleterious the effect of some of the government’s policies have been on businesses over the last four years.
But after giving up 57 per cent of its price between August 2014 and January 2015, the trajectory of the spot price for Brent crude oil has trended up ever since. Run a regression of Nigeria’s annual output growth against the price of its major export (crude oil) and you’d be surprised by how the troughs and peaks mimic each other. In other words, there’s a very strong case for insisting that the recovery in domestic output growth that we’re seeing in the country, today, is simply piggy-backing on better global oil prices. It is not, in other words, the consequence, yet, of anything the government has done.
Over the longer term, the backlash against fossil fuels, the U.S.’ emergence as an oil producer, and shale output’s direct competition with the Bonny Light and Qua Iboe blends in the light sweet crude category, mean that we may no longer even feature as an investment destination for the oil sector.
For context, it helps to look at the latest quarterly numbers for gross domestic product growth. The economy grew by all of 2.0 per cent in the January to March 2019 period. Despite government’s best effort, growth was not driven by an increase in direct investment. At least not in the oil sector, where continuing debate over the regulatory shape of the upstream sector, especially passage of an oil industry bill, has held up new investment. Over the longer term, the backlash against fossil fuels, the U.S.’ emergence as an oil producer, and shale output’s direct competition with the Bonny Light and Qua Iboe blends in the light sweet crude category, mean that we may no longer even feature as an investment destination for the oil sector.
It mattered, then, that agriculture and telecommunications were key drivers of output growth in the first quarter of this year. Agriculture’s recovery is counter-intuitive. Its return to the rate at which it grew just before the breakdown of relationship between pastoralists and farmers (which led to many of the latter taking refuge in camps for internally displaced persons) suggests a pacification of the restiveness in the food belt, which isn’t supported by anecdotal evidence. Or a displacement of crop production activity away from these areas — evidence of which is scantier still.
Telecommunications was about two-thirds of first quarter 2019 growth. Subscriber numbers were up significantly. But they weren’t doing business on those phone lines. The numbers for wholesale and retail trade were simply not robust enough to justify this argument. Those new phone lines were most likely used to make calls to more affluent family members soliciting aid for one emergency or the other. Non-wags have pointed me to banks’ agency banking operations as a possible explanation for both the rise in mobile phone subscriber numbers and growth in the industry’s output numbers. But then, the financial services sector didn’t do well enough to provide this argument a decent leg to stand on.
We, obviously, need more real sector growth to fix this problem on a sustainable basis. And despite the lofty rhetoric out of Aso Rock, we are yet to find the password (that isn’t a derivative of our oil export earnings) that will unlock growth in our economy.
What to make of the poor numbers on government spending in the first quarter of the year? It would seem that a fixation on the general elections, which held in the period put the kybosh on governance generally. Indeed, despite elevated oil prices, the period since the Buhari government was returned to office in the election has felt like an interregnum. Government has simply gone on vacation. Another way of looking at this part of the gross domestic product equation is to further disaggregate the numbers. The Buhari government has borrowed rapaciously. Borrowing is a problem, because despite elevated oil prices, government isn’t earning enough from oil exports.
The U.S. isn’t taking as much of our output as it used to. But Indonesia and India (rapidly growing Asian economies with outlandish appetites for oil) looked like they are stepping into that shoe. The only difficulty is that the higher oil prices reach, the less relatively poor countries such as these can afford to buy from us. And the less oil we sell, even at current prices, the less there is to support the servicing of our burgeoning national debt.
We, obviously, need more real sector growth to fix this problem on a sustainable basis. And despite the lofty rhetoric out of Aso Rock, we are yet to find the password (that isn’t a derivative of our oil export earnings) that will unlock growth in our economy.
Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
