A Reuters report in February 2017, painted a sordid picture of the Nigerian economy. Basing their findings on information sourced from the National Bureau of Statistics, it noted that Nigeria’s economy shrank by 1.5 percent in 2016 as a result of lower oil prices and scarce foreign currency.
This was the country’s first annual contraction in 25 years. The repercussions were evident and in the second quarter of 2016, a global decline in the prices of crude oil that severely hurt OPEC member’s state finances in general and the value of the naira, in particular, sent Africa’s largest economy into recession. It was an unavoidable consequence, given the reality of having as much as two thirds of government revenue sourced from the selling of crude, even after years of half-hearted preachments of diversification.
A similar scenario as Nigeria’s was concurrently playing out in another sub-Saharan OPEC country. Economic difficulty was brewing in Angola and the country’s currency, the Kwanza, was in a free fall. As of September 2015, the second-largest oil producer in Africa’s currency, which was dwindling in value, continued to lag behind the US dollar, extending a pattern that began in mid-2014.
It was a revealing case of riches-to-rags because Angola’s “mini-golden age”, as leading economist Alves da Rocha referred to the period between 2003 and 2008, was a period of bustling wealth created by oil. Hundreds of thousands of Chinese builders and Chinese construction firms arrived as a result of the credit-for-oil arrangements with Beijing and skyscrapers, malls, premium residences and elite development areas sprung up to accommodate the lifestyles of the country’s nouveau riche population. Until the nosedive began by September 10, 2015, the Kwanza traded at an all-time low of 127 to the dollar. It continued into the following year.
The free fall was, as in Nigeria’s case, a result of falling oil prices in the international market, which had an impact on Angola’s main source of income, oil sales, as with Nigeria as well. The crucial public splashing of oil rents stopped. Soon businesses could not cope, employees were fired, and public services ceased. When the Angolan Government eliminated fuel subsidies, both private and public transportation became significantly more expensive. The majority of Angola’s young people had never gone through such a financial catastrophe and understandably most of them were fuelled with anger, which they focused on the government for having handled the economy poorly.
The rainy season of the year brought litter and the overall unhygienic conditions led to a widespread outbreak of acute respiratory and diarrheal illnesses, yellow fever, dengue fever and chikungunya. Due to lack of adequate medical personnel, electricity, supplies and equipment, hospital patients were dying at an alarming rate. Some did not even make it to the hospital.
As similar as that may sound to a Nigerian, the example of Angola is very instructive to my focus here as we fast-forward to 2022. By April, it was obvious that the similarities between the two countries had vanished. The Kwanza had increased by 22.2 per cent since January, outperforming all other African currencies, helped by rising oil prices, due to the Russian invasion of Ukraine and IMF payments.
The Kwanza rose by 22.21 per cent versus the US dollar to register Africa’s best performance, per a Bloomberg index that looked at 20 African currencies. The index noted that the Central Bank had more foreign currency on hand than required by the country’s commercial banks and that explained the Kwanza’s performance. In addition, the country’s foreign reserves increased as a result of IMF payments made under the context of its economic and financial agreement with Angola.
Two events in September clearly demonstrated this recent difference between Angola and Nigeria. First, for the first time in more than two years, Angola’s inflation rate fell below 20 per cent in August, which allowed the Central Bank to begin lowering interest rates. Angola’s statistics department confirmed that consumer prices were at 19.78 per cent, a drop to its lowest point since March 2020, and from the 26.09 per cent recorded in the same month last year.
By the end of the year, the Central Bank expects inflation to decline to below 18 per cent. Secondly, the numbers showed that Angola displaced Nigeria as Africa’s leading oil producing country with Nigeria’s production issues occurring just when oil prices were on the rise, in part due to Russia’s invasion of Ukraine and when Nigeria ought to be harvesting petro-dollars by the barrels.
Instead, our oil production decreased to 972,000 barrels per day in August from roughly 1.1 million barrels per day in July, according to the Nigerian Oil Regulation Commission, allowing Angola to surpass Nigeria in terms of monthly oil output. The NNPC, the Ministry of Petroleum and our Navy must end this organised large-scale crude oil theft that is badly hurting the nation’s revenue.
What this comparative sample has highlighted is the unfortunate consequence of Nigeria’s culture of wastefulness and fiscal indiscipline. Instead of reining in expenditure, tightening wastefulness and seriously engaging in economic diversification, the country has resorted to borrowing to arrest the shortfall in financials. The result is an unrestrained haemorrhaging of financial resources as the country bleeds more than it replaces what is lost.
While Angola is by no means Eldorado, her government ministries, departments and agencies are not in the business of frivolity that has become the standard pastime of governance in Nigeria. Where previously hundreds of millions of naira were siphoned from the country’s treasury via dubious means that range from inflated contracts to white elephant projects, today’s government officials are lining their pockets with corrupt enrichment to the tune of billions of naira.
That the budgeted costs of most of these projects are not in line with their usefulness or value tells the unfortunate story of why we have lost the competitive edge in sub-Saharan Africa and why other better-run countries are taking our place.
The unbelievable levels of waste are everywhere. From the N150 billion earmarked for the presidency in the 2022 budget, including N135 million for meals and N2 billion for international trips to the N50 billion (about N180bn in today’s rates) that Bashir Jamoh, the Director-General of the Nigerian Maritime Administration and Safety Agency (NIMASA), claimed was expended on a floating dock that is yet to be used more than four years after arrival because of administrative delays. What ought to be a source of revenue is lying fallow and will require turn-around-maintenance costs before it can become fully operational due to the years that have passed.
A similar situation applies with the four state-owned refineries. In Warri, Kaduna and Port Harcourt, these multimillion billion dollar complexes have been lying idle since 2019 without producing anything, yet the government pays billions of naira to the idle civil servants at the facilities as salaries. But the Federal Executive Council had in March 2021 given approval for the rehabilitation of the refineries, instead of selling them. Rehabilitating the Port Harcourt refinery alone will gulp $1.5 billion. These idle refineries posted a loss of N63.3 billion between September 2020 and August 2021, according to data made available by the Nigerian National Petroleum Company Limited.
There are billions of naira being paid out monthly in bogus oil pipelines surveillance and oil assets security contracts that have become avenues to siphon state funds.
Leaks and wastages of public funds abound everywhere in the public sector. Wasteful spending on poorly conceptualised projects to criminal duplication of projects and budget padding are some of the major factors draining state revenue.
In my previous writings in this column, I highlighted the extreme importance of removing the fraudulent and widely discredited fuel subsidy programme. Yet, this administration, which acknowledged that it was a fraudulent programme before it assumed office in 2015, has sustained this bad policy that is now projected to gulp as much as N6.72 trillion though next year. Imagine the positive effect that sum of money could have on the economy if spent on capital projects in a fiscal year.
Then, there is the wastefulness that has gone into the Nigeria Air project, which recently got its Air Transport License (ATL). It is billed to start operations, as the Federal Government has approved a lease of three aircraft for its commencement. Although the exact sum of money expended on this project remains contentious since conception till date, I ask if this venture is even worth the while at a time the country has only four truly viable airports out of the 22 available.
Furthermore, the price of aviation fuel remains exorbitantly high and there is no Maintenance Repair and Overall (MRO) facility in the country that can do high-level of aircraft servicing like C-checks and D-checks. Even though Nigeria’s local government councils squandered about 16.4 trillion naira ($76 billion) in national petroleum and tax income between 2011 and 2021, they rarely offered any meaningful services to their constituents.
In the same vein, state governments reportedly spend an estimated N93.5 billion ($245 million) annually on the administration of these wasteful local government councils. As usual, contracts fraud, ghost workers, questionable security votes, slush funds and embezzlements have combined to haemorrhage the state’s treasuries.
The Federal and state governments have resorted to reckless borrowings to run government, while this wastage has continued unabated.
While there is no debt-free country and some others are even more indebted than Nigeria, our penchant for borrowing for consumption rather than production, since we rarely produce anything, is another issue of very grave concern. A picturesque way to look at it is that as of last week, Nigeria’s debts reached N45.25 trillion, meaning that every citizen would have to pay at least N214,454 if they were to be paid off individually. According to information made accessible by the Debt Management Office (DMO) and the Central Bank of Nigeria (CBN), the nation’s debts have climbed by an additional N4 trillion over the past five months.
The consequence of such indiscipline is that we have to now spend more on debt servicing, fuel subsidy, white elephant projects, security bills and overheads on the presidency, state executives, the national assembly than we do on capital projects, education, healthcare and infrastructural development that can uplift the quality of life, improve the economy, improve the security and welfare of the citizens and shore up the value of the Naira. Because our revenue sources are limited with oil thefts and sabotage at mining platforms, the country cannot continue to exhibit this level of fiscal irresponsibility, rascality and insidious wastefulness.
That our only source of wealth was allowed to be so handicapped as to dry up to the point of requiring the government to borrow to pay salaries is a wake-up call for the need to approach governance with much more discipline than what is currently the case.
The Minister of Finance, whose responsibility it is to coordinate government income, must do more to improve revenue and block wastages and theft in the system that presently take a huge chunk of state resources.