This piece could also be titled ‘Getting off This Road to Zimbabwe’ but Venezuela is an oil dependant economy unlike Zimbabwe. Moreover the path Zimbabwe took to hyperinflation was not from mismanagement of its natural resources but from angst of the West because lands purportedly belonging to whites were seized. How a stupendous oil rich Venezuela became plagued with a dysfunctional economy is mind boggling because hyperinflation is a scourge of war affected countries like Weimar Germany or highly indebted countries like Brazil and Argentina of the 1970s.
Venezuela is not war torn nor highly indebted in foreign currency. So why the hyperinflation? Answer the oil got into it’s head, Nigerian manner of speaking, unfortunately this has also been Nigeria’s manner of directing it’s economy. Venezuela has the largest proven oil reserves in the world at over 300 billion barrels, larger than Saudi Arabia at 270 billion barrels and Nigeria’s at 37 billion barrels oil reserves. Like Saudi and unlike Nigeria it has a meagre population at 28 million.
How did Venezuela come to this rot? Indeed from bad to rot. Venezuela became an oil exporter earlier than many other countries. It became a major exporter in the 1920s fifty years before Nigeria. Meaning it has been in oil business for over one hundred years. Today should be a major contributor to the technologies of extracting and processing crude oil so it enjoys the full value chain of the petroleum industry but it remains at the rudimentary phase as Nigeria is. Contrast with new comers Brazil who have indigenised technology for deep off shore drilling.
Despite Venezuela’s dependancy on the West for drilling oil it antagonised the West hence sanctions, bringing a total collapse of oil production from heights of 3.5 million barrels per day to a low of under 0.4 million barrels in 2017! However our concern is Nigeria and we have seen Nigerian production drop from over 2.0 million barrels per day to 0.972million barrels this year.
Hugo Chavez’s grouse with the West was just the tipping point, Venezuela had earlier positioned itself for a great fall. With oil wealth it made it’s citizens dependant on the state and eroded serious entrepreneurial acumen. The reverse is the case in Nigeria with a pernicious and selfish elite that has appropriated all oil income leaving the hoi polloi to fend for themselves and not rely on the state.
The Venezuelan economy has more structural defects than Nigeria. Venezuela is the epitome of a country suffering from Dutch Disease with the oil sector wiping out other sectors from export earnings. The oil and gas sector is between 20% and 40% of GDP depending on oil prices. In Nigeria oil and gas contribution to GDP has declined from heights of over 30% in 70s to current level of 9%. This confirms the continued independence of the larger Nigerian population from oil, leaving those close to powcer benefitting from oil largesse. However there are troubling signs for Nigeria. Nigeria in recent times have introduced social investment schemes likes of what we see in Venezuela. These schemes tend to explode and exiting them pose serious political problems. This we see with oil subsidy. Indeed I believe we are compromising our innate strength by going the government hand out to citizenry way. Meanwhile Venezuela has near zero external debt while Nigeria’s external debt profile is rising, a path present government chose for us. Inability of a country to meet external debt obligations is a sure road to hyperinflation as happened with Brazil and Argentina in the 70s.
Nigeria has always been on this road to Venezuela. It’s just that we have not had the hundred year time frame Venezuela has and our velocity on that route varies with economic leanings of regime in power. If it is a liberal regime the speed slows, if its a statist regime velocity accelerates.
When oil became a big factor in Nigerian economy we had two pathways ahead of us. We could have chosen the Norway route of cushioning other sectors from oil induced Dutch Disease or we could choose the Venezuelan route, we chose the latter. We were advised to create a sovereign wealth fund as Norway did but we never gave it a thought. What we did with hindsight is rather appalling. We made oil prices the determinant of government budgets, a habit we are yet to jettison despite all pretensions of wanting to diversify the economy.
Would we say we are unaware of the other option? Oil induced Dutch Disease had entered the economic lexicon by the early 70s after it struck Holland in the 1960s hence the recommendations that Nigeria invests proceeds from oil sales in shares as Norway did. But Nigerians are not Norwegians so we behaved as someone who hit the jackpot. To date we are still troubled by this mentality of waiting for the next jackpot. Could be another oil boom or a solid mineral boom leading to continued resource curse..
We have a bit of the late Chavez in our president especially in economic outlook and crass populism. Had we had 96 months of Buhari in times high oil prices we would be further down the road to Venezuela, meaning we have lots to thank God for truncating his first coming to twenty months.
This piece is about changing track and getting off the road to Venezuela. The title gives us a real life vision of where we are headed as a country beyond vague description of an economy heading for the rocks or facing headwinds. Policy makers know that where Venezuela is currently is not good and if they have that in mind when crafting policy they should be better policy makers. This is not a given so prayers are needed. Suggestions are also needed are here are some.
⁶The changes required do not commence at our polity or policy level it begins at our psyche level both the psyche of policy makers and the populace. In fact some pundits are suggesting that economics become a general subject in our school system to improve knowledge of economic options. I buy into this because of the total lack of economic knowledge in the literate population. After all late professor Sam Aluko defined economics as the science of common sense. It need not remain an esoteric discipline.
Nigerians need to realise we are not an oil rich country and we never have been. While each Nigerian has 170 barrels of oil per head, Venezuelan has 10,000 barrels of oil reserves per capita that is oil rich. Yet Venezuela is in more dire straits than Nigeria producing just above 600,000 barrels per day from a peak of 3.5 million barrels. Of course Nigeria’s production is declining inspite of the PIA Petroleum Industry Act.
Nigerian government has to stop basing it’s budget on oil prices. This practice that began in the 70s need to be phased out over a number of years. Revenues from real economic activities should become the focus of government not rent from oil. Non-oil exports should also become our major source of hard currencies be it in Yuan or Dollars. The aim is to have crude oil and gas contribution to exports in line with it’s contribution to GDP.
Remittances at close to $40 billion dollars is about to exceed crude and gas receipts. These measures will insulate the economy from vagaries of the moribund fossil fuel sector. The goal should be refining the totality of Nigerian crude and exporting refined products. With Dangote and BUA refining capacity we are close to 50% of this laudable goal.
As earlier stated the Road to Venezuela is a mindset thing and changing destination entails changing mindset that could be as drastic as willingness to plug all oil wells so we can rid ourselves of oil addiction. Plugging oil wells can be for a time as to when we have domesticated technology for oil and gas extraction beyond local content. Already just as Venezuela we are at the mercy of IOCs International oil companies who are at the controls of where to invest and where not to invest. We are begging that the West accept gas as a transition fuel to achieve carbon emission goals set to avert global warming.
Olugbenga Jaiyesimi jerry3jaiye@gmail.com
