NIGERIA’S ECONOMY IN TROUBLED WATERS
Working People Must Resist Capitalist Attacks and Fight for Socialist Alternative
By Peluola Adewale
In February the National Bureau of Statistics announced that Nigeria’s economy grew in 2021 by 3.4%, which is the strongest since 2014 and faster than the forecasts by the Central Bank as well as the IMF and World Bank. For an economy that contracted by 1.92% in 2020, ordinarily this should be a music to the ears. But this is nothing to celebrate given the spiraling cost of living, increasing poverty and mass unemployment. The prices of goods and services remain excruciatingly high. Indeed, many items especially food and energy have gone up much higher than the price level a year ago. Currently, the inflation is put at 15.92 percent with the rising prices of food and energy as a major driver. The fact is that this GDP expansion is a mere reflection of the relative pick up in the economic activities compared to the lower level in 2020, the base year used for this comparison and which was wrecked by the Covid 19 pandemic and lockdown.
GLOBAL CRISIS OF CAPITALISM
When the global economy was still struggling to recover from the devastating effect of the pandemic, suddenly came a serious blow from the invasion of Ukraine by Russia which has further worsened the situation as it has ripple effects on the global prices of food, petrol, diesel and cooking gas. So given the current crisis of global capitalism, without a mass resistance by the working people and youth, more economic hardship should be expected in Nigeria.
Therefore, while Nigeria’s economy is already feeling a pinch, there will be more pain in the coming period from imported inflation as a result of the high global prices of commodities. Russia and Ukraine combined account for over 30% of the global exports of wheat. Nigeria imports over 95% of its wheat. This will further raise the prices of bread and noodles, something whose production, like other goods, is already affected by naira devaluation and high cost of diesel. Sadly, Nigeria does not have self-sufficiency in food and energy despite its natural endowment with resources because of the failure of the primitive capitalist elite.
The price of diesel has risen by over 100 percent from N225 in January 2021 to about 700 in April 2022. The high price of diesel was originally caused, like other petroleum products, by supply shortage due to a drop in the global refining capacity following the disruption of production by the Covid 19 pandemic. This was even before Ukraine war. As of March, the global refining industry was down by about 3.5 million barrel a day of refining capacity for diesel from pre-Covid Level (CNBC March 30, 2022).
Even as refineries began to gradually ramp up production to meet the post pandemic rise in demand, the crisis has been compounded by the sanctions imposed on Russia, world’s second biggest oil exporter. This has led to the surge in the crude oil prices to above $100 and also global diesel shortage especially as shipments are said to be changing course away from Europe where countries like Nigeria used to import most of its diesel and other petroleum products. Before the sanctions, Russia used to supply Europe over half of both its daily exports of 5.5 million barrels of crude and 2.4 million barrels of refined products including 1.1 million barrel a day diesel (CNBC March 30, 2022). As of mid-March, the diesel fuel stocks were at their lowest since 2008 in Europe.
The high prices of diesel, which has been deregulated and does not enjoy subsidy, have led to the rise in the input cost for transportation industry especially haulage, mass transits and long-distance travelling business with luxury buses. Also, in the face of poor electricity supply many businesses and factories are powered by diesel leading to high cost of doing business. This has fed into the inflationary pressure leading to high cost of living.
According to Director-General, Manufacturers Association of Nigeria (MAN), Segun Ajayi-Kadir, “the manufacturers who largely rely on diesel to run their factories due to the unreliable nature of the grid power supply are contending with a huge cost to sustain their production line.” He added that the “direct implication of this trend, as many Nigerians are already feeling the heat, is the reflective high cost of goods in the market owing to the high cost of production”. (This Day April 17, 2022)
Similarly, there were reports the price of diesel forced many banks to stagger their operations in order to reduce the cost. The same problem of global energy crisis also affected aviation fuel which has raised astronomically the air travel cost. This also applies to cooking gas which Nigeria imports over 55 percent despite the local capacity to meet the domestic demand.
MORE ECONOMIC HARDSHIP AHEAD
For now, Buhari government has postponed the evil day on the prices of petrol. This is because of the fear of backlash in the eve of general election. The massive EndSARS youth revolt was a big and well pronounced warning. There is also a lesson of the 2012 general strike and mass protest, the biggest in Nigeria’s history, that played a part in the eventual defeat of the PDP in 2015. The APC has not yet escaped the wrath of the electorate given the worsening of quality of life of the majority on its watch despite a huge mass illusion the masses reposed in Buhari. But Buhari and APC do not want to make their bad situation unsalvageable by a massive protest and mass anger less than a year to the election. So, the burden has been passed on to the next government which, in the absence of mass working people’s political alternative, will unleash attacks on working people and the poor regardless of which bourgeois candidate or party that wins the presidential election.
Therefore, Buhari has budgeted N 4 trillion for petrol subsidy and this has deepened the fiscal deficit in the 2022 budget and will further raise public debt which has already become a burden. The Minister of Finance Zainab Ahmed has already disclosed that the government would use $2.2 billion from the Eurobond it issued in September 2021; and add the proceeds of fresh domestic borrowings this year to fund fuel subsidy (Premium Times, March 16). As of December 2021, Nigeria’s total debt stock stood at N39.5 trillion and the Federal government is expected to borrow another N8 trillion to finance the budget deficit in 2022. But this is just preparing the way for a crisis and a further attempt to make working people and the poor pay the price.
Though crude oil prices are above $100 which is higher than the budget benchmark of $62, it is not likely for Nigeria to meet the oil revenue target. This is as a result of the current production crisis leading to pumping a volume of oil below the OPEC quota of 1.8m barrel a day. According to an OPEC survey, Nigeria’s crude oil production averaged below 1.4 million b/d in the recent months. Therefore, Nigeria does not benefit from the current oil windfall unlike in the past. Yet, this year budget is based on the projection of 1.88m barrel a day. So, judging by what obtained in the past fiscal years Buhari government may borrow more than the budget projection. This will further worsen the debt burden. About 80 percent of the revenue realized in 2021 was used to service debt and the IMF projects that it will rise to 92 percent in 2022.
Given the nature of the disruption of crude oil production, it is not likely for Nigeria to ramp up production to significantly raise oil revenue in short and medium terms. More than the crude oil theft which is usually highlighted but not unprecedented, the crisis is much about the divestment by oil multinationals from the onshore/shallow water and withdrawal from the Joint Venture with the NNPC in addition to aging upstream infrastructure as a result of long years of inadequate investment. Indeed, Austin Avuru, the founding managing director of Seplat Energy Nigeria recently projected that: “by Christmas of 2025, TOTAL would be the only IOC in Joint Venture (J.V) with NNPC” (Cable, March 21, 2022). Similarly, Waziri Adio, the immediate past Executive Secretary of the Nigeria Extractive Industries Transparency Initiative (NEITI) revealed that oil production has largely shifted away from Joint Ventures (which give government more oil) to Production Sharing Contracts (PSCs) and other production arrangements which are more favourable to the oil multinationals, something he said is the major reason for this dramatic reduction of Federation’s share of oil (This Day March 13).
Therefore, the next government will be under greater pressure than Buhari to cut spendings and implement austerity measures which could include the removal of petrol subsidy, tax increase, further underfunding of education and health care, etc. So, the working people have to be prepared to resist any action or policy that will make them to pay more for the failure of the primitive capitalist elite.
The possibility of Dangote Refinery coming on stream in 2023 does not mean there will be elimination of necessities for petrol subsidy or that prices of diesel will fall below the international prices or immune from the external shock. In pursuit of super profit Dangote will charge as high as possible for petroleum products. This is the experience with cement and other commodities like sugar where Dangote enjoys near monopoly.
LABOUR MUST MOBILIZE FOR STRUGGLE
It is good that the Nigeria Labour Congress through its Easter Message released on April 18 has among other things called for “the total jettisoning of a deregulation policy” (Vanguard April 19). This is a positive departure from their position in September 2020 when they openly endorsed deregulation policy and called off a planned general strike against hike in petrol price. However, it appears the NLC are only against “wholesale importation of refined petroleum products which benefits only middlemen profiteers and their partners in the corridors of power,” and not seriously against deregulation if it is based on local production.
It is not clear whom the NLC refers to as Nigeria in the statement (Is it government or both the government and private sector?), when they added: “Nigeria can and should refine its crude oil to generate refined petroleum products, including diesel, which is one of the easiest refined bye-products of crude oil, especially using modular refineries. Nigeria can make refined products constantly available to ordinary Nigerians at very affordable cost.”
The fact is that while the stoppage or significant reduction of the importation of petroleum products as a result of local production can reduce to some extent the pressure on the foreign exchange it does not guarantee affordable prices for ordinary Nigerians as shown by the example of cement industry which is totally dominated by local production. For instance, driven by the quest for super profit, the prices of cement rose by 44 percent between December 2020 and January 2022 and specifically from N3,200 to N4,600 in the last six months up to January 2022 (Daily Trust January 27, 2022). So, as a result, Dangote, Bua and Lafarge made a combined huge profit of N469 billion profit-before-tax for the third quarter of 2021 alone. (Daily Trust December 6, 2021). Therefore, the NLC should specifically and unambiguously place a demand on the government to build adequate and functional refineries that will be run with workers’ democratic control in order to make refined products available at affordable prices for ordinary people and businesses.
It is also welcome that the NLC in the statement also called “for the scrapping of the Electric Power Sector privatization programme given its monumental failure to make affordable and constant electric power available to power the potentials of Nigerians and their businesses”. However, this call for the return of the power sector to the public must be matched with the demand for democratic control by workers and consumers in order to avert the repeat of the debacle of old NEPA but rather ensure the judicious use of resources and efficient delivery. This is what can “make affordable and constant electric power available to power the potentials of Nigerians and their businesses”
However, it is not enough to make verbal demands, they have to be backed by mass struggle otherwise, they become mere hot air. Therefore, we call on the NLC and TUC to develop a program of actions including 48-hour general strike and mass protest, as the first step, over energy crisis, both fuels and electricity, minimum wage which is already eroded by inflation, excruciatingly high cost of living and generally economic hardship, with clear demands part of which stated above. (See in the Frontpage the fighting proposal by the DSM to Labour and working people over the current mass suffering)
To be clear, the current economic crisis in Nigeria is primarily as a result of the global crisis of capitalism. However, Nigeria’s situation is worsened by the policies and corruption of its primitive and parasitic capitalist elite and its neo-colonial economy dominated by imperialism and profit-first capitalism. In this time of weak growth, at best, imperialism can no longer support or prop up the so-called progressive capitalist governments that previously used a developmental state model to build and grow the economy as obtained in Southeast Asia for instance. Capitalism has to be defeated before Nigeria’s enormous human and material resources can be used, on the basis of socialist planning including nationalization and workers’ democratic management of the commanding heights of economy, to genuinely and sustainably develop the country and for the benefit of the vast majority. Therefore, we call on the labour movement and pro-masses organizations to form a mass working people’s party with a socialist programme that can build a mass revolutionary movement to wrest political power from the thieving capitalist elite and begin the socialist reconstruction of Nigeria.