The reality today is that the Nigerian economy has now been fully certified to have gone into recession, the second in a short duration of five years. The recession, which preceded this one, took place by the end of the first quarter in 2016 but it proved to be a V shaped recession as we notionally exited that recession after only five quarters in 2017. But the growth in GDP of the economy told a clear story of an economy though growing but was not delivering development. For instance, the growth of the economy in the first quarter of 2020 before the onset of the pandemic was an uninspiring 1.87 percent. When we recall that the average rate of growth in population is 3 percent, the stark fact of lack of development is brought forcefully home to all concerned. We would not allow the inconsequential talk of when we would exit the recession delay us here.
The Nigerian economy today is being ravaged by the headwinds of both the pandemic which brought the economy to a halt, the soft oil market which at some point in time saw the price per barrel of oil fall to as low as 25 dollars a barrel. In fact, at some point in time word out there was that our crude was on the high seas incurring demurrage in search of buyers. We thank God for his mercies as the oil market today has witnessed some rebound as the price per barrel is now in upper 40 dollars per barrel as we are reminded that the benchmark price of oil used for the preparation of 2021 Budget is 40 dollars per barrel. In fact, it has just been reported that oil price hit 50 dollar per barrel for the first time since March, 2020.
We must also remind ourselves of the #End SARS protests, which took place in October, 2020. This was a protest which informed compatriots thought was long overdue as the seeming lack of care by those in authority as they could not be bothered about accountability was galling. This protest was given full marks for its peaceful nature as our youths leveraged on cutting edge technology to take the protest to the world out there. Unfortunately, the protest was infiltrated as hoodlums, hooligans, bandits and miscreants took over the protest and unleashed unprecedented carnage in the Land. The extent of loss of life and property suffered we pray is never to be witnessed in this country again. No doubt this development to say the obvious was a setback to the Nigerian economy in more ways than one.
The extent of insecurity in the land in Nigeria today is of such a scale that one could be forgiven for thinking of the country as a failed state. This time primordial sentiments have been shoved aside as the call for the President to resign reverberates particularly from his home base and from sections, which no one could have thought of a few months hitherto. The clamour to sack the service chiefs who invariably have all over stayed the statutorily allowed service duration for retirement reverberates across the land to no avail as the President for reasons best known to him refuses to budge. There is therefore no iota of doubt that one of the issues that must engage us all as we revisit the Constitution will be how to revamp the security architecture as it is today as it has clearly been overwhelmed as it has proven ineffective and ineffectual.
Available data provided by the National Bureau of Statistics confirm that for the last ten years the Country has incurred Budget deficits. Deficits are not such a strange phenomenon. What is of critical importance is what the deficit is incurred for and the arrangements that have been made for repayments. Unfortunately, since after the efforts of Ngozi Okonjo-Iweala as Minister Finance in 2006 to secure the country debt forgiveness against the once and for all pay out of the whopping amount of 12 billion to return the country to the path of rectitude with regard to debt, we have since gone back to our old ways to pile up debts. Often of balance of payment support nature without much worrying of how the debts are going to be repaid. In fact, available data indicates that in the period January to May, 2020 the Federal Government spent 97 percent of its revenue for debt servicing. The IMF projects that by the end of this year debt service would gulp all the revenue accruing to the government. The dilemma facing this country could not have been starker. How then do we run the government? How do we fund the capital projects so essential for job creation and growth?
There is therefore the urgent need to grow revenue. Ordinarily revenue from taxation should fund recurrent expenditure. We suspect that there is plan to increase VAT to 10 percent from the current 7.5 percent. VAT is a consumption tax and therefore compatriots are allowed some discretion in this respect whether to incur or not. But what is important is that we must be innovative and leverage on digitalization to aggressively mobilize tax revenue to reduce the incidences of tax evasion and we must also reach out to the formal sector to broaden the tax net. There are many strategies that could be adopted to do this such as making the presentation of evidence of tax payment as requirement to access some municipal services.
The Nigerian economy is mono cultural only from the perspective of foreign exchange earnings. Otherwise, oil is an enclave economy, which only makes less than 10 percent paltry contribution to GDP. The engine room of the economy are MSMEs, agriculture, Services including telecommunications. There is the need for us to leverage on the value chain in the oil industry. In fact, Nigeria is considered a gas territory with some oil and yet we have not paid deserved attention to gas production along with the other valuable by products from oil. We therefore commend government on the recent launching of gas expansion program and National Auto gas initiative particularly in view of the push for the adoption of electric cars in the foreseeable future.
Subsidies have no place in the running of a modern economy. It is mis allocation of resources. Therefore, the recent decision to end subsidies in the oil market should be allowed to stick. There is the need for us to bite the bullet to see this decision driven through the ecosystem. Government has no business with refining petroleum products. Once the environment is sufficiently made enabling it should be handed over to the private sector. We look forward very much to the coming on stream of Dangote Refinery with its projected 650,000 barrels a day capacity; the largest refinery in Africa South of the Sahara. This refinery is supposed to provide employment for about 35,000 people. It is therefore going to be truly a game changer that should impact positively on the development prospects of this economy.
The promise of the recent developments with Diaspora remittances should be awaited to berth with great expectations. If it could result to a projected inflow in remittances of 24 billion dollars a year that should terminate the involvement of the Central Bank with the supply of foreign exchange to the market and lead to the much asked for unified exchange rate in the economy.
But whatever we do there is the urgent need to return competition into our economy through revisiting resource control. We must go back to our erstwhile arrangement whereby component sections of the country earned income from resources in their back yard and paid tax to the centre for the provision of common services.
The Nigerian economy today is on shaky and faulty foundation. It does not make sense to continue to build on the structure as it is now. The imperatives for a restructuring of the polity could not have been more urgent.
I thank you all for the kind attention.
The article has been extracted from opening comments of a virtual meeting organized by members of Friends Ikoyi Club 1938.