NIGERIA: Economic Recovery is Fragile as Another Crisis Looms
NIGERIA: Economic Recovery is Fragile as Another Crisis Looms
Workers and the Masses Must be prepared to Resist Capitalist Attacks
By Peluola Adewale
Moody’s, a credit rating agency, describes Nigeria’s recovery as currently “slow and sturdy” following its exit from recession in the third quarter of the 2017. Truly, there are some statistical indications to buttress this assertion. Though, the growth rate slowed down from 1.95 percent in the first quarter of this year to 1.5 percent in the second quarter, 2018’s annual growth is projected by the IMF to be 1.9% which is higher than 0.83% recorded in 2017. There have been also been deceleration in official inflation side by side with stability of naira at the forex market.
But social indicators have hardly suggested any sign of recovery as the unemployment, especially youth unemployment, and poverty rates are on the rise, while the prices of goods including food items remain very high. Though from a projection, Brookings Institute, quoting data from the World Poverty Clock, ranks Nigeria as the poverty capital of the world, having been projected to harbour the highest number of people living in extreme poverty in the world; overtaking India, whose population is over 6 times the size of Nigeria’s.
However, fuelling the growth, albeit sluggish, is the relatively high price of crude oil. This suggests that growth is not only sluggish but also fragile due to volatility of the world’s oil market. Contrary to claims of economic wizardry by the successive governments, the fundamental of Nigeria’s economy is oil price. This explains why the economy grows when oil prices are high and slows down when oil prices are low. However, sadly for ordinary Nigerians, it is they who hardly benefit from high oil prices that are the worst hit when the prices are down.
FALLING OIL PRICES
Now, since October, oil prices have started plunging by a terrible combination of oversupply due to output from non-OPEC producers, especially the United States, and weaker demands especially from the emerging markets including, according to America’s media organization CNBC, India, Turkey and Indonesia along with, to some degree, China, and generally as a result of the subdued world economic growth. For instance, as of mid-November the oil prices plunged more than $20 since the start of October when Brent Crude rose to $87 a barrel a four year high. Brent crude dropped to $65 which is the lowest level since March. The prices are expected to be lower next year as OPEC has reduced is forecast for oil demands in 2019. For Nigeria this suggests a worsening economic situation next year.
Also propelling the growth is the dead weight of foreign debt that has grown by 114.05 percent in the last three years; rising from $10.32billion in June 2015 to $22.08 as of June 30, 2018. Nigeria is a neo-colonial economy with a primitive capitalist ruling elite worshipping on the altar of market fundamentalism. This explains why Nigeria is essentially an import dependent economy including importation of refined petroleum products (petrol, diesel, etc.) despite being world’s eighth largest producer of crude oil. This is why, on the basis of capitalism, Buhari government faced with collapsed oil revenue and depleted foreign reserve resorted to foreign borrowing not only to finance the budget but also augment the reserve in order to finance importation.
It should be stressed that it was the same rise in oil price that made the foreign borrowing through Eurobonds possible and also accentuated the increase in foreign holdings of Nigeria’s local debt (bond and Treasury bills), something that also contributed to the rise in foreign reserves. The foreign investors need a guarantee of easy exit, something that is only possible with high oil price. This explains why between 2015 and 2016 the government was unable to sell Eurobond and the foreign portfolio investors ran away with their hot money when the oil price was still low. The Buhari government resorted to devaluation of Naira in June 2016 ostensibly to woo foreign investors and thereby resolve the foreign exchange crisis. As we argued and predicted then, the foreign investors still avoided Nigeria like a plague while devaluation only compounded economic crisis; effects of which the working masses and the poor are still suffering till date.
As it is the case with capitalism, whatever step or action taken as a solution itself becomes the outset of another round crisis. The borrowing has now started triggering a debt burden as about 50% of revenue is being used for servicing debt at the expense of financing services like education, health care, etc. it should be however stressed that debts being serviced also include those incurred by the previous governments especially Jonathan administration. Though still high, Buhari has projected to reduce the foreign borrowing both in 2018 and 2019 budgets relative to 2017 fiscal year.
While reducing foreign borrowing is a music to ears of Nigerians it breeds its own danger. Reduced foreign borrowing together with lowering oil prices means there will be an anaemic foreign reserve, something that poses an ever-present risk of crisis to an import dependent economy and the stability of naira. Capitalism is a vicious cycle especially in a neo-colonial economy. Already the foreign reserve has slumped from about $48bn in June to about $43bn in October. So the working masses must be prepared to resist another possible plan to devalue naira next year especially after the general elections, regardless of the party wins the presidential election.
Side by side the possible devaluation of naira is a possibility of another hike in fuel price. The possible foreign exchange crisis means that only NNPC will continue to import fuel. Though crude oil prices may drop as projected, they are not likely getting to the 2015 and 2016 levels. So the landing cost will remain relative high. Therefore, the NNPC will continue to incur losses to what it calls “under recovery”- a euphemism for an opaque subsidy payment – in the course of fuel importation. This has been causing tension between federal and state governments as the NNPC “under recovery” cuts into monthly share of oil wealth with states relatively more affected.
A higher minimum wage that may be likely enacted before the general elections will give the states more excuse to demand a higher or fair share of the oil wealth, even if they are not going to pay workers from higher revenue as the experience with the special federal government bailout has shown. Beyond the pressure from the states, that relative slump in oil revenue would also prompt the federal government, which has already projected lower revenue in 2019, to wanting to cut the “under-recovery” losses (remove fuel subsidy) and thereby increase fuel price side by side with lower spending on education, health care, etc. Again, if this happens, it will be irrespective of the party, between APC and PDP, which wins the election.
So, workers, youth and the poor masses must be prepared to resist increasing attacks that will be unleashed as from next year. Good enough Buhari has already lost his bounce and if Atiku wins he is not likely to enjoy any honeymoon unlike Buhari at the inception of his government. So, the struggles that may break out will be massive in spite of the readiness or disposition of labour leaders. Nonetheless, labour, socialist and pro-masses organisations must be prepared to provide leadership and direction for the struggles.
CAPITALISM MUST BE OVERTHROWN
However, while struggles can win some concessions force government to retreat on a policy or help expose the anti-poor character of the government, they cannot fundamentally resolve the economic crisis. This is the lesson the working people should learn from all the struggles fuel price, minimum wage, education workers strikes, high school fees, etc. that have been waged especially since the return to civil rule with its promise of “dividends of democracy”. All the struggles are in the final analysis a response to the crisis of capitalism, which creates the mounting myriad of unceasing economic crises the working people and the poor face on a daily basis. Besides, all the parties that have ruled at both state and federal levels are driven by same capitalist philosophy. This is why the working masses confront the same crisis and attacks regardless of the party in power.
So capitalism has to be defeated and a socialist system enthroned before human and material resources of the society can be used for the benefit of the vast majority and the vicious cycle of poverty, unemployment, wars, etc. is ended. This is more so the case in a neo-colonial economy likes Nigeria with parasitic and primitive capitalist ruling elite who cannot develop the country even to the level of guaranteeing basis things like roads, electricity, potable water, etc. despite advancement in science and technique let alone having capacity to industrialize the country.
Therefore, where to start is building of a mass working people’s party with a socialist program that can wrest power from the capitalist ruling elite and overthrow capitalism. This is one of the reasons we of the DSM have been consistently calling on the leadership labour movement, as well as socialists and activists, to build such a party or join the Socialist Party of Nigeria in order to build it as a mass party.