|Urhobo Historical Society
Managing The Curse Of Oil
By Professor Pat Utomi
Lagos Business School, Pan African University
CONSCIENCE, NURTURED BY TRUTH
LAGOS, NIGERIA. Monday, November 24 2003
It used to be, in the time of Adam Smith, and for long after, that natural resources were considered prime in the computation of the wealth of Nations. Nigerians whose quality of life has been in consistent decline since oil became the primary denomination of economic life, surely can tell you differently. The real trouble with our commonwealth in Nigeria, is, however, that we cannot seem to find a way of preventing oil from continuing to deepen our misery and pronounce our destitution. I have lately begun to make a career of proselytizing a perspective on how we could escape this serfdom to which natural resources hold us prostrate.
It is not an idea I invented. Others, more clever, but more humble, than Nigerians, have implemented these ideas with considerable success. I had in fact hoped that when the President of Botswana came to this year's Nigerian Economic Summit that matter would form the kernel of his counsel, for Botswana has done an outstanding job of using that idea to make progress. As it turned out what did seem to resonate the most from his keynote speech is the important advise that our political elite should cut down on ostentatious living. Obviously, that was most valuable counsel seeing as ostentation creates, at the least, a psychological distance between those elected to lead and the people. This is at very root of the disconnected state, which makes policy implementation such a nightmare. What I had hoped he would speak on was the idea of a Future Fund and how Botswana came to tame the ultimate Achilles Heel of the Nigerian economy - Dutch Disease.
Natural resources, once thought so important to development that nations went to war to cease that which belonged to others and people like those of us who live in what is now Nigeria, were colonized in the quest for control over these resources, today impact negatively on progress. This has come mainly because of its potential for engendering Dutch Disease and its potential for distracting people from using their thinking faculties instead of fighting over how to share the natural booty.
Let's remind ourselves of how Dutch Disease does damage and how Botswana overcame it. As one of the fastest growing economies in the world in the 1970s, a growth powered by Diamond exports, Botswana got to deal with rapid income growth and what came to be the challenge of expanding spending. Invariably when the price of the rapid income generating commodity crashes, the challenge of reining in expenditures arise. Where badly managed, they result in deficits, debt and structural distortions that have crippling effects on economic performance. Botswana decided to save a portion of its earnings to cover more difficult times, a strategy celebrated by Joseph Stiglitz, winner of the Nobel Prize in Economics, in comparing Botswana with less effective economies like Nigeria, in his book, Globalization and its Discontents. In Nigeria the scourge of Dutch Disease has become a perennial problem. Each time Oil prices go up, our spending goes out of control, then the predictable price crash comes and we abandon projects and damage the estimates and plans of the private sector. Even when we announce that our budget is USD18 to a barrel and market prices are up into the 30s, we still manage not to save, with dare consequences for inflation as excited spending holds sway; pressure on the exchange rate mounts as rent champions head for the foreign exchange market to move money out, etc..
It is no surprise the rage of poverty persists. Long before, Stiglitz' other celebrated colleague at Columbia University, Jeffrey Sachs, and Warner, provided evidence, not just the East Asian ones I cite often, that natural resource rich countries tend to perform poorly, I canvassed the need to save all income beyond a certain price of oil. For me it has been US$15.
The reasons are both economic and moral. The moral bit comes from the problem of one generation consuming for itself all that nature gave as legacy in perpetuity to all who shall live in that land. The economic reasons include containing Dutch Disease, stabilization and the fact that natural resource income makes mad groups of predators whose desperation to extract rent without work often throws countries into war. Liberia, Congo, Angola of old etc are adequate references. More importantly, evidence continues to mount indicative of correlation between high oil prices and poor economic performance.
My friend Charles Soludo, the Economic Adviser to the President insists that analysis and prescription should be evidence based. I agree with him. The evidence I see is that the most growth in this era of prolonged stagnation came during a period of low oil prices between 1987 and 1990. It took the windfall of 1991 to sabotage that. Oil prices have been high consistently since 1999 and any player in the real sector will tell you things have not been worse in a previous time period. My conclusion is we need to keep away most of the oil income to allow people to entrepreneurally think and work their way out of poverty. In 1996 I wrote on these pages an OP ED piece titled Nigeria must produce or die. More evidence has come to show that Oil has blinded us to producing. Not even for the same \oil industry are we minded to producing - the so called local content. Nigeria has the lowest value-added among OPEC members.
I took the position for a Future Fund into which we make a mandatory deposit of every income above $15 a barrel. I made the point to a few friends of mine who are deputy Governors of the Central Bank of Nigeria about a year ago. They bought the concept and said its stabilization value had figured in their own advice. But for me it is beyond stabilization. It is about sterilization. We needed literally to get this generation to forget that Nigeria earns oil money, if we are to make progress. I argued this point at a Harvard Conference last year, put it forward in a presentation at the World Bank earlier this year and raised it in a speeches at Cambridge in England less than a fortnight ago, and at Wharton last weekend. No one has yet to show me that it does not make sense.
If we were not fixated on the income from Oil alone, for example, we would have we would have to come to terms with the great value of know-how developed through building local content in Oil and Gas. That would do more for economic growth generally than rent income from Oil and Gas. It is no surprise therefore that the economy has performed more poorly since 1973 than before Oil became a major factor in the economic equation, with living standards of Nigerians worse than in the 1960s. Same reason explains the low investment in education which has resulted in Nigeria's eroded national competitiveness in this age of the knowledge worker. Botswana saw these effects of natural resources. They chose to act with wisdom.
Even though it may offend some who think Botswana is some small country, I say again that we can profit by learning from Botswana. It is better to get wise late than never. If we do not learn from them, just as we can from South Korea, Singapore and Malaysia, poverty may apply for a resident permit and confront those who say that God is a Nigerian. Misery can then argue that it is he who is a bona fide citizen, not God.