Coping with looming post-oil age (l)

Also published in Daily Trust

The recurrent deterioration of the financial crisis that repeatedly hits the already economically struggling state governments in Nigeria, and which further exhausts their rapidly depleting finances hence affects their ability to meet their most basic financial obligations i.e. workers’ monthly salaries, represents the predictable and indeed inevitable consequence of their overreliance on the federal government, and also their failure to build sustainable economies that will sustain their respective states with or without the monthly statutory revenue allocations they receive from the federal government.

It also further highlights some of the serious economic implications of the successive federal governments’ failure to diversify the economy and liberate it from the mercy of crude oil price fluctuations in international markets. Besides, as the prices continue to show no sign of significant improvement anytime soon, Nigeria’s revenue from crude oil sales would continue to decline leaving the country with little or no control over the situation.

Though all crude oil exporting countries suffer from the economic impacts of sharp revenue decline, Nigeria is particularly affected and is indeed vulnerable to further economic difficulties as long as the oil price crisis persists under these circumstances. This is partly due to its failure to prudently invest the oil sales proceeds it has generated over the decades in the provision of adequate and sustainable economic infrastructure and other capital projects that stimulate macro and micro economic development in the country, and partly due its failure to diversify the economy and reduce its reliance on the oil sales proceeds.

Unlike Nigeria, many oil-rich countries have been able to take advantage of the massive revenues they have generated over the decades from their oil resources to invest hugely in the provision of strategic and modern economic infrastructure for industrial utilization and which also has the potential to accommodate further industrial growth for many decades to come.

This has enabled their leaders to dramatically improve the living standards of their respective citizens and transform them from poverty-stricken and camel-riding nomads wandering in the desert into immensely rich, sophisticated and indeed pampered citizens of modern countries with modern infrastructure and social amenities. The dramatic transformation of this part of the world i.e. Arabian Gulf, in this regard is particularly remarkable.

They are therefore able to absorb the economic impacts of the declining crude oil prices in international markets even in the aftermath of their adoption of some necessary economic measures e.g. removal of fuel subsidy, which recently came into effect here in the United Arab Emirates, for instance.

They have also adopted cost cutting measures to reduce unnecessary costs, as they have, for the time being, resorted to their accumulated foreign reserves that had piled up over the years when crude oil prices were high, to augment their finances and fund their rare budget deficits, which they have been recording over the past few years since the beginning of the oil price crisis.

Meanwhile, having already made appreciable progress towards diversifying their sources of revenue away from oil, they continue to steadily but consistently adopt alternative economic strategies to cope with the medium-and long-term economic consequences of the dwindling oil prices. In this regard, they pursue, adopt and implement economic policies and strategies with a view to gradually switching to more sustainable economies to cope with the economic challenges of the looming post-oil age.

Now, considering how crude oil increasingly loses its economic value as a substantive source of revenue to sustain a country due to oversupply as a result of the growing number of countries that explore, exploit and export it, scientific innovations and discovery of alternative, more sustainable, cheaper, safer and healthier energy sources and, of course, market manipulation by the powerful vested interests in international markets who benefit from its price collapse, one wonders how Nigeria could survive the devastating economic impacts in the long run. 

Because obviously unlike many of its counterparts among the oil exporting countries, Nigeria’s already substandard and dilapidated economic infrastructure is simply too insufficient and too inefficient to provide the necessary basis to instantly embark on an effective economic diversification process. Besides, in addition to the persistent and extremely huge budget deficits the country has continuously been recording over the years, its relatively ridiculous foreign reserve is equally too meagre to provide a sustainable lifeline to its battered economy.

Moreover, the amount of funds expected to be saved from the desperate cost cutting measures being taken by the federal government e.g. cutting the salaries and other costs of maintaining top political office holders and the other austerity measures simply can’t make any considerable deference in the country’s constantly shrinking finances. In fact, even the ongoing process of revenue leakages blocking, which, though if conducted thoroughly and sustained, will certainly prove to be the most effective funds saving measure, can’t provide enough funds for the federal government to cope with the severe economic consequences of the dwindling oil revenues in the long run, anyway.

Incidentally, as the federal government itself, and on which the state governments rely for sustenance, wallows in this tricky dilemma, the situation at the state level is obviously worse making it worst at the local government level, as a matter of course.

Anyway, in a nutshell, while many oil exporting countries, which, having immensely benefitted from their respective oil resources as countries, are busy bracing for the apparently unavoidable post-oil age, Nigeria, which has over the decades squandered its revenues from its vast oil resources, appears to be stuck in a terrain rendered muddy ironically by its own oil.