THE UNDERBELLY OF BUHARI’S ECONOMIC DIVERSIFICATION POLICY

AdeRemi Medupin

Rationale for a Policy of Economic Diversification

One major, technically all-embracing policy loudly harped upon by the Buhari administration, especially during its early days, was economic diversification. In essence, the policy was an acknowledgment of the dangers inherent in what economists refer to as a mono-product economy characterized by heavy reliance on a single or at best a few commodities, especially by government for its revenue. In the Nigerian case, the single most important source of public revenue is crude oil and its associated gas of more recent addition. Most of the crude oil is exported to earn foreign exchange which in turn is needed for paying for the country’s imports which are many-ranging from non-essential consumables to critical capital goods.

A peculiarity of the Nigerian situation and which is a compounding factor in the management of the country’s economy is that after exporting crude oil, there is a follow-up with importation of refined oil products including gasoline (petrol) and kerosene, the latter now rarely available at filling stations and where available at a high,  ill-affordable price. The reason for importation of refined oil is of course the literal collapse of the nation’s refineries which rehabilitation and or replacement has proven to be beyond the will and or capacity of successive administrations, including the one currently in power. Apart from the consequent high price Nigerians have to pay for the imported product with negative implications for citizens’ welfare, there is the huge loss in the byproducts of the refining process with potential benefits cut across various sectors THE UNDERBELLY OF BUHARI’S ECONOMIC DIVERSIFICATION POLICY

THE UNDERBELLY OF BUHARI’S ECONOMIC DIVERSIFICATION POLICY

THE UNDERBELLY OF BUHARI’S ECONOMIC DIVERSIFICATION POLICY

agriculture, infrastructure, health and education. It is a painfully embarrassing paradox of plenty in which the people are poor because their country is potentially rich, referred to in academic circles as resource curse. So, conceptually, a policy of economic diversification aims at broadening the revenue base of government and reducing its reliance on a few products, especially in its export market.

Since the issue of export versus import has been prominent in the discussion thus far, it is pertinent to highlight the nature of the profiles of the two trading spheres. Flowing from the above, we see an unequal relationship between the profiles of Nigeria’s exports and her imports with regard to product type and range. The point here is that on one hand Nigeria’s exports are essentially raw products mostly from the oil & gas and agriculture sectors; on the other hand its imports are dominated by manufactured products. At a more concerning level is the range of products which shows that whereas her exports are relatively few, the range of imported products is large, the top five being Refined Petroleum, Wheat, Non-fillet frozen fish and Raw Sugar-an indication that even the country’s food basket has a significant import component. Other notable imports into the country are Special Purpose Ships, Cars, Packaged Medicaments, Telephones and Vehicle Parts-all manufactures.

Another point worthy of note right is that the price of Nigeria’s major export, crude oil, is outside the control of the country, being an outcome of international game between the major producers and the key consumers of oil. The relevance of this factor lies in the fact that the heavy reliance of the government on a product whose price it can hardly influence places expected revenue during any fiscal year in unbridled uncertainty which has manifested in the shortfalls in revenue over the years and the subsequent budget deficits now on the increase on annual basis especially in the most recent years with rising external debt as its concomitant. We are all familiar with the loud noise in the public space expressing worry about the country’s rising external debt.

Economic Diversification Policy in practice

A logical question is: How has the government implemented its policy of economic diversification? Of course, the government has approached the implementation through the meaning it gave to the policy essence which is precisely where yours sincerely disagrees with the government because to put it bluntly-the President and his economic team have missed it. From their interpretation of economic diversification, what needed to be done is promote greater production of agricultural products, especially rice and cassava. This arguably defective understanding is the basis of the celebrated ‘rice pyramids’ whose authenticity was even contested by critics but that is not the focus here. Our position here is that, yes, producing more rice, cassava and other agricultural products may help address local needs and also boost the country’s foreign reserve position; however, the model suffers from the critical blow of limited value addition as the economy remains locked in the raw product bracket. The weakness of raw material production comes from the nature of primary products being of short shelf life. Worse still, there are several other countries, especially among the so-called Third World-capable of competing with Nigeria in the primary producers’ league. The result is the uncertainty characterizing these markets and why the policy suffers hiccups.

The foundation of Nigeria’s primary producer status was deliberately laid by the colonial authority in order to make the local economy a literal complementary appendage to the British economy in particular and the economically advanced economies in general. Here is where we find the unfolding of a historic trend termed ‘deteriorating or worsening terms of trade’, in practice. What this term captures is the reality of the tendency for the prices of primary products to fall over time while the prices of manufactured items rise. Economists calculate this asymmetric relationship by the ratios of the export price index and the import price index such that when the ratio rises and an indication of rising price of exports relative to the imports, the outcome is considered favourable to the country.  Contrarily, if the ratio falls meaning that the prices of imported products are rising in comparison to the county’s exports, the outcome is unfavouable to the economy under consideration. It should not be difficult for the reader to see the link between this arithmetic and the foreign exchange earning fortunes of a given country. Let us note that these deteriorating terms of trade which is the typical fate of most agricultural producers is a major explanation for their falling into debt and consequent conditionality attached to borrowing from the international financial institutions, notably IMF and World Bank- with obvious implications for a country’s sovereignty. The former President of Tanzania, late Julius Nwalimu Nyerere, during his lifetime, often publicly lamented the reality of the worsening terms of trade and their negative impact on African economies.

Perhaps just as a footnote to our thesis, a point needs to be made to clarify our invocation of colonialism as a culprit in the fashioning of the primary production specialization by Third World countries that had been victims of colonial plunder. The point is that by boxing these colonies into the raw material producing bracket, the colonialists’ access to cheap inputs into their industrial production process and overall cost reduction is facilitated. In this vein, there was a deliberate policy of arresting the industrialization potential of these hapless countries bearing colonial yoke and unfortunately, long after nominal independence, not much has changed. This is why the intellectual outputs of progressive and patriotic minds such as Bade Onimode, Claude Ake, Walter Rodney, Frantz Fanon and others of similar orientation, remain relevant after their demise.

Limitation of the Policy: More of the Same

As hinted earlier, President Muhamadu Buhari evidently meant well while conceiving the policy of economic diversification; the problem is the wrong meaning given to the policy and the subsequent inability to deliver the right fruit. Simply put, the policy has been interpreted as more of the same old primary products. Therein lies the policy’s limitation, its handicap, and underbelly. And as already argued, this is really not addressing the challenge of sustainable revenue generation, especially at the country’s external front. For illustrative example, available trade data shows that the value of Nigeria’s exports fell from $97.6 billion to $52 billion over the last seven years; four of the top five  commodity exports being primary products-specifically Crude Petroleum, Petroleum Gas, Cocoa Beans and Gold.

Superior Policy of Econ Transformation and what it entails

Given Nigeria’s situation in the context of contemporary global order, there is need to transcend economic diversification and embrace a policy of economic transformation. This is hardly any longer a new vocabulary given that there is already indeed in existence the African Center for Economic Transformation (ACET) based in Accra, Ghana but most likely funded by American interest groups which may explain its limited definition of transformation.  To the Center, transformation basically means “growth with depth”, their argument being, that: African economies need more than growth; if they are to transform, they need growth with depth. That is, they need to diversify their production, make their exports competitive, increasing the productivity of farms, firms, and government offices, and upgrade the technology they use throughout the economy-all to improve human well being. But transformation is a long-term process. This rendition is somewhat loose and weak but at the same offers some insight into the subject especially where it points to the imperative of technological upgrades across the system. It is also correct on the point that transformation implies diversification but superior to it and that it is a long-term agenda.

Way back in 2013, the Economic Commission for Africa (ECA) had issued a Paper entitled: “Economic Transformation in Africa: Drivers, Challenges and Options”, The Commission’s perspective is as follows: Four essential and interrelated processes define transformation: a declining share of agriculture in GDP and employment; a rural-to-urban migration underpinned by rural and urban development; the rise of a modern industrial and service economy; and a demographic transition from high rates of births and deaths (common in underdeveloped and rural areas) to low rates of births and deaths (associated with better health standards in developed and urban areas). Economic and structural transformation is also associated with rising agricultural productivity, an integrated economy and rising per capita growth rates. Even if also somewhat weak, this ECA perspective offers more in practical guide on economic transformation. The most insightful part of the Commission’s Paper is the section where it poses and answers the question: ‘Why Transform?’ It then offered the following answer: Africa’s growth acceleration in recent years has not been associated with economic transformation. Careful assessment of the economies in the region reveals the following characteristics: most economies are natural resource and or primary commodity driven; the manufacturing sector remains embryonic, limiting the potential employment gains from the processing of primary commodities; agricultural productivity remains low and characterized by limited application of modern technologies; the rural sector remains highly underdeveloped setting in motion a massive rural urban drift that has transformed urban areas into a haven for slum dwellers . . .  This is a detailed and factual rendition as it unequivocally points to the way forward after careful analysis of the reality.

The good news really is that there is already in place what is called Agenda 2063-designed in 2013 by the African Union-to be the guide for development planning among African countries. As the Union explains, AGENDA 2063 is Africa’s blueprint and master plan for transforming Africa into the global powerhouse of the future. Of specific relevance is one of the expected outcomes of the transformation agenda which is that: “Labour intensive manufacturing underpinned by value addition to commodities and doubling of the total agricultural factor productivity will be attained by 2023”. With the milestone date of 2023, seeing where Nigeria and most other African countries currently operate, it is obvious that AGENDA 2063 has remained, for all practical purposes, a mere pious declaration. With Nigeria as reference point, this sad outcome is hardly surprising because the country’s experience showcases an array of beautifully crafted national development plans, starting with the first post-independence 1962-68 Plan of impressive objectives but poor subsequent implementation.

Instructively, the ECA has provided an intimidating list of factors undermining the continent’s member economies, noting pointedly: Africa’s capacity to design and implement a successful transformation agenda has been undermined by internal and external factors. While some of these factors are currently being addressed, others persist. Internal factors include poor economic management capacities typified by macro-economic instability, poor planning design and implementation capacities, weak institutional and individual capacities, limited investments in social and economic infrastructure, limited investment in technology and R&D and political instability. External factors include: limited policy space due in part to conditionalities imposed by the Bretton Woods organizations and development partners that overstate the importance of market led approaches to development; barriers to trade that undermine export revenues and constrain exports of manufactured goods; and the disproportionate concentration of ODA on the social sectors as opposed to the directly productive sectors of agriculture and industry; and the concentration of FDI in extractive mineral and gas sectors of the economy with limited investments in value addition. Furthermore, in recent years climate change has emerged as a threat to development through its destructive impact on infrastructure and livelihoods.

Concluding note

It is obvious that by definition, economic transformation entails the total structural overhaul of the economy; it is therefore in essence a radical departure from the conservative economic diversification paradigm. To start with, it is only a truly development-oriented political leadership that can drive the process of economic transformation. In this vein, the concept of a developmental state registers as the key ideological frame work anchored to popular democracy and self-reliance. One of the most urgent steps that the envisaged developmental state would take will be the reactivation of the refineries thereby internalizing the benefits of the byproducts of the refining process which include gasoline (petrol), diesel fuel, jet fuel, petrochemical feedstock, waxes, lubricating oils, asphalt, and petroleum naphtha. This list of byproducts shows that it touches on various sectors of the economy.

As evident from the essence of economic transformation, the issue of technological progress of the country has to be given urgent priority. This would mean a radical review of the educational curricula from primary to tertiary levels-with emphasis shifted from theory to practice. In the same vein, the industrial pattern and process has to be worked out to promote sustainable linkage between the agriculture and industrial sectors and ensure value addition in agro-allied industry that has great potential given the economy’s natural endowment. All these measures and more will require a highly patriotic political leadership whose commitment to national sovereignty and self-reliance cannot be compromised.