“Why Nigeria’s Crude Oil Dependence Is A Dead End” – Kingsley Moghalu Reveals

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Professor Kingsley Moghalu, former Deputy Governor, Central Bank of Nigeria and President, Institute for Governance and Economic Transformation, is a Distinguished Non-Resident Fellow and Senior Fellow, Council on Emerging Market Enterprises, The Fletcher School of Law and Diplomacy, Tufts University Massachusetts, USA.

In this online interview with ADEMOLA ADEGBAMIGBE, he speaks on leadership problem in Nigeria, the country’s influence or global competitiveness, lessons of covid-19, scenario of Nigeria without oil and other issues.

Let’s talk about the general concept of ‘global competitiveness.’ What does the man on the street need to understand in this regard?

In very simple terms, “global competitiveness” means how able a country is to achieve prosperity for its citizens. It is about how successfully a national economy can compete in a global market of goods and services and create wealth for its citizens.
This competitiveness or lack of it determines, for example, whether we have higher or lower living standards in our country Nigeria. The global economy is a marketplace, and some countries sell more goods of high value in that market than others. This means their citizens are more productive, and often have higher wages, than others.

In your view, where exactly does Nigeria stand on a scale of global competitiveness?

The World Economic Forum does an annual review of global competitiveness and ranks countries. Nigeria ranks relatively low in global competitiveness. In the 2019 Global Competitiveness Report of the WEF which assessed 141 countries, Nigeria was placed at 116. Singapore was number one globally, followed by the United States. America was number one in the previous year, so these rankings are not destiny and can change. Mauritius, at number 52, is the highest ranked country in sub-Saharan Africa, followed by South Africa at number 60.

What/who’s responsible for this position? What room for improvement?

Most of global trade is in manufactured, value added goods – about 55% — although there is currently a declining trend in manufacturing and that is partially because trade in services is also rising. The massive impact of the Covid-19 crisis will see this trend continue in the near future. Agriculture accounts for less than 10% of world trade. The countries that engage in value-added manufacturing and export these products, or have advanced technology that provides all kinds of services will be better off in the global marketplace and so will be more “competitive”. Because Nigeria, for example, relies mostly on crude oil exports and the price is not stable, instead of real and diversified production at home that is exported abroad to earn foreign exchange from multiple sources, the price of oil mainly determines the value of our naira. Our oil sales determine the size of our external reserves, which determines how many months of imports we can pay for in hard currency, and this determines the value (price) of our naira relative to the dollar and other hard currencies. The competitiveness of national economies is influenced by factors such as the strength of national institutions, infrastructure, level of adoption of ICT, macroeconomic stability, healthcare, and skills. Labor markets, financial system, and capacity for innovation are also count heavily in determining competitiveness.

Share your thoughts on the global energy challenge

The world faces a serious energy challenge because we need access to reliable energy for economic growth. Meanwhile, much of the energy that countries are using, especially fossil energy such as coal and crude oil, is non-renewable. They have a limited time-span in which they will be available. British Petroleum did a report that said the world has 1.6 trillion barrels of oil, which will last only about 53 years at the current rate of extraction. These non-renewable energy sources are also harmful to our health and to the environment because they contribute heavily to greenhouse emissions that deplete the ozone layer. We need to move to cleaner, renewable energy sources such as electricity, (which is used for non-polluting electric vehicles), wind, solar energy and so on.

Other nations are talking of renewable energy, Nigeria is still talking of building new refineries or carrying out turnaround maintenance of existing ones. What does this portend for the development of the nation?

As other countries shift to renewable energy sources, Nigeria is exposed, first of all, to massive economic risk because of our reliance on hydrocarbons like crude oil for foreign exchange revenues – 90% of our forex income is from oil sales. Several European countries, and even India, have set deadlines between 2025 and 2035 to stop making use of petrol-fueled transportation. They are moving to electric or hydrogen-powered vehicles instead. Are we prepared for this looming shift and decline in global demand? I don’t see much evidence that we are. This scenario, when it comes, will leave us economically stressed. We already are stressed! Plus, the political implosion that will come when the federal government no longer has adequate revenues to share to the states, except we quickly restructure the country on the basis of a new constitution that brings us back to real federalism. We need to prepare in a strategic manner for the post-hydrocarbon future by investing massively in alternatives such as solar energy. India recently constructed a world-class airport that runs entirely on solar energy. There’s plenty of sunshine in Nigeria!

What are your general thoughts on Nigeria’s response to the COVID-19 pandemic?

Nigeria has responded to Covid-19 as best it can, but his response was still not what it should have been. We are fortunate that the pandemic has so far not exploded here as mush as much as it did in western countries, but we need to be very vigilant now that we are opening up international travel. Our health systems were ill-prepared, we have focused on urban areas, understandably, and the fiscal response from the federal and state governments in terms of the economic impact of Covid-19 lockdowns was quite weak. The National Center for Disease Control has done its best, but testing capacity is weak compared to countries like South Africa and even Kenya. And there are larger governance issues that affected the Covid response but are beyond the pubic health mandate of NCDC.

What, in your opinion, is the biggest or most critical flaw that the response revealed?

The biggest flaws were the absence of public health infrastructure across the country because of years of under-investment, and the weak fiscal capacity of the government, which was unable to provide palliatives. We also saw worrisome allegations of opportunistic corruption.

What’s your appraisal of the leadership attitude and performance in the face of the public health crisis?

The leadership performance was not what it should have been, particularly in the early phase of the pandemic. All around the world, though, we saw a mixture of leadership failures and successes even in well developed countries.

How do you see Nigeria preparing to cope with the realities of a post-COVID-19 world?

Nigeria needs to fundamentally re-calibrate itself for a post-Covid world. I hope we won’t continue with our short-term, crisis reaction mode, after which we return to business as usual. Covid-19 showed how naked we are in terms of state capacity, and we need a more fundamental response in terms of how our country is structured and governed. I also think the federal government should deploy a significant part of the foreign loans it has borrowed in response to the coronavirus crisis to investments in skills-building for our youth, and to finance new ventures that can create jobs after the pandemic response phase is over.

The pandemic has caused losses in excess of hundreds of billions of Naira. Do you see brighter or bleaker days ahead?

Nigeria is going into its second recession in five years. Covid has a lot to do with this, combined with the oil price crash. The near-term future looks very difficult, but I hope we’ll have some rays of sunlight after the storm. Realistically though, Nigeria will remain economically challenged and unstable for the next five years at the very least.

If brighter or bleaker, why do you say so?

The near-term future isn’t hopeful because we have had many structural problems in our economy before Covid-19, and these structural challenges are still largely there. The fundamental nature of the Nigerian economy as an oil-dependent, rent-seeking one hasn’t changed.

Crude oil prices dropped and it would seem that the nation has hit a dead end economically with our dependence on crude oil revenues. What lessons should we be learning as a nation?

The main lesson is that crude-oil dependence is a dead end, and the world is moving on and leaving us behind. The fiscal economic model we are operating, which is more of a unitary state model in which the federal government controls and relies on revenue from natural resources and distributes smaller portions of those revenues to states, rather than a truly federal one in which sub-national governments control their revenues and contribute to the maintenance of the central government, is simply not sustainable.

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