Nigeria, Africa’s largest economy, the world’s most populous black nation and Africa’s largest exporter of crude oil is teetering precipitously on the brink of financial bankruptcy. Nigeria’s debt is very modest by world standard, but its revenue has receded so menacingly that it could no longer foot the cost of servicing its modest debt.
Nigeria’s debt is below 30 per cent of gross domestic product (GDP). The average in developing economies and emerging markets stands at 53 per cent of GDP.
Rich economies are even more indebted. Japan, the world’s third largest economy is the heaviest debtor in the world. Japan’s debt is 230 percent of GDP.
Even China, Nigeria’s jumbo creditor is indebted to the tune of 48 per cent of GDP.
Ironically Nigeria’s modest debt is no longer sustainable because it is heavily in deficit in two key indices that determine the liquidity of a nation. The two indices are debt service-to revenue ratio and revenue-to GDP ratio.
A nation’s revenue is expected to be a minimum of 12 percent of GDP. Nigeria’s annual revenue is a scant seven per cent of GDP. The situation is worse with revenue-to debt service ratio.
In the first quarter of 2020, the federal government serviced its debts with 99 per cent of its revenue.
Revenue retained by the government during the quarter plunged to N950.5 billion as against N1.9 trillion in a similar period in 2019. Unfortunately, the government spent N943.12 billion on debt service during the quarter.
The Central Bank of Nigeria (CBN) has been funding government services through an odd combination of debt acquisition and ways and means process bordering on printing currencies not backed by government earnings.
Nigeria is broke, but the federal government can reverse the calamitous journey to bankruptcy by doing things differently.
Agriculture accounts for 24.5 percent of Nigeria’s GDP and creates jobs for close to 60 per cent of the nation’s 204 million people. If agriculture is upgraded from its primitive peasant farming level and given a massive mechanized boost, it would produce enough food for the nation to halt the senseless waste of scarce foreign exchange on food imports and create more jobs for most of Nigeria’s 40 million jobless people.
The federal government should approach the current cash crunch from the supply and demand sides of the economy. The CBN had all along approached Nigeria’s revenue crisis from the demand side. It would mount artificial obstacles on the way of demand through implicit import ban on certain items.
Right now there are close to 50 items in the CBN implicit import restriction list.
The banned items are imported through the efficient port of Cotonou in Benin Republic. The importers pay import duties to the Benin Republic, bribe officials of Nigeria Customs Service (NCS) and smuggle them into Nigeria. Nigeria gets nothing.
The CBN restriction is designed to encourage local production of the banned items. Unfortunately they cannot be produced locally at the moment because the environment is very hostile. Epileptic power supply, terribly bad roads, banditry, kidnappings and armed robbery makes production very expensive in Nigeria. What is produced in Nigeria in the hostile environment hits the market at twice the price of imported goods.
The federal government can empower local producers by tackling Nigeria’s eternal darkness and caging the Fulani herdsmen who have switched from the noble business of cattle rearing to the insidious venture of kidnapping.
If power supply is regular and peace is restored in farms and factory floors, the cost of production would plummet. That is the only way Nigerian producers could compete with their counterparts abroad.
Mechanised farming is the only way to conserve the billions of dollars spent annually on food imports. Indonesia, a nation made up of hundreds of islands with a hostile environment, earns $18 billion annually from palm oil export.
Nigeria spends $600 million annually on palm oil imports because 80 per cent of its fresh palm fruits collection is from wild groves (uncultivated palm trees) that germinated, grew and bear fruits by providence.
The consequence of Nigeria’s near-total dependence on providence for palm produce is low fresh fruits yield and low oil content. The catalogue of low yields is worsened by primitive processing techniques that extracts only 50 per cent of the low oil yield from the fruits.
That explains why seven million farmers produce just 1.03 million metric tons of palm oil in a year when less number of farmers in Indonesia churns out 34.5 million metric tons.
The federal government can reverse that trend by helping the peasant farmers to chop down something close to 80 million wild groves and replace them with high yield seedlings from the Nigerian Institute for Oil Palm Research (NIFOR).
Nigeria spends $1.5 billion annually on milk and dairy imports when it is blessed with vast arable land for cattle rearing. The problem with Nigeria’s low milk and dairy production is that primitive Fulani herdsmen march cattle through miles of dry land in search for grazing ground. During the process, the cattle are malnourished. That accounts for the abominably low milk yield.
With one liter per cow per day yield, Nigeria probably has the lowest milk yields in the world. The global standard is 40 liters per cow per day.
Nigeria can attain that standard by replacing the nomadic cattle rearing method with grazing grounds where nourishing grasses grow and pastoralists are trained to adequately care for the health of their cattle.
Nigeria is the world’s largest producer of cassava. But it spends almost $1 billion annually importing cassava derivatives. That is because it does not add value to the low yield from the land. Nigeria produces a scant seven tons of cassava from one hectare of land. Indonesia produces 23 tons per hectare.
Nigerian farmers need high yield seedlings on mechanized farms. Statistics show that 90 per cent of the 54 million tons of cassava produced annually in Nigeria is processed into garri and fufu (pounded cassava) for local consumption. Nigeria can produce 200 million tons of cassava annually and flood the global market with cassava derivatives like industrial starch if government provides the necessary incentives.
Nigeria has made modest gains in rice production. But it needs more mechanised rice farms and modern processing mills to bridge the three million metric tons deficit needed to make it self-sufficient in rice production. With the right incentives, Nigeria can supply rice to the West African sub-region. That is the cheapest way out of the menacing cash crunch and looming bankruptcy.