With the decline in the price of oil and the subsequent decline in revenues accruable to the federal government; there have been strident calls for the Nigerian economy to be diversified. And both President Muhammadu Buhari and Vice President Yemi Osinbajo have agreed to take urgent steps to diversify the Nigerian economy. But these are mistaken views; because our economy is well diversified.
According to the World Bank, in 2014, after the rebasing of our economy it was discovered that the Nigerian economy was more diversified than previously documented. Though we can diversify further, diversification isn't our priority. Our problem lies in oil and gas which accounted for 11 percent of our Gross Domestic Product (GDP); and this oil accounts for 90 percent of our foreign exchange income. Moreover, oil accounts for 80 percent of our yearly revenue.
This means we have for too long relied too much on revenues from oil. We have neglected other sources of revenue. However, now that oil revenue has plunged down to its lowest ever, Nigeria must of necessity sink deeper into recession. Let us therefore seek ways to pull Nigeria out of recession. One of our faults is pride or ignorance; a refusal to change in the face of imminent danger. We also hate to imitate good policies elsewhere. We are a federation but our leaders chose to run Nigeria as a unitary state which makes governance very expensive.
To bail Nigeria out of recession, we must look for how they extricated themselves from recession elsewhere and imitate them. It is as simple as that. To foolishly persist in wrongdoing is to continue to wallow in poverty. For the second time in eight years, Greece came out of recession recently. With a bail out from the International Monetary Fund, Greece had to fulfill some harsh austerity measures. These measures included a cut in the salaries of public office holders, workers including civil servants and pensioners. That led to street protests and strikes by workers. These austerity measures led to the privatization of airports, highways and government housing estates.
Apart from the reduction of the staff strength, austerity also led to higher taxes and cuts in allowances. Subsequently, Greece got out of recession. Before we offer solutions rather than palliatives, let us examine our confused monetary policies. In the third quarter of 2014, the Central Bank monetary policy committee increased interest rate to 13 percent and stayed there till November 2015. Thereafter it was cut to 11 percent. In March 2016, this rate was raised to 12 percent and then in July, it was raised again to 14 percent.
However, between May 2015 and November 2016, inflation doubled from 8 percent to 17.7 percent. This inconsistency in policy should stop. Since we have opted for a fixed exchange rate, we either have monetary autonomy or capital mobility. Thus, the first step is to float the naira continuously. Then we can negotiate foreign loans as standby facility in the event of a crash. That $30 billion federal government planned to borrow might have this policy somersault in my mind.
Under these circumstances, the naira will depreciate as it had been doing. Going for loans elicits a range of policy options in a developing economy like Nigeria. We have to abide with the terms of our lenders. Continuing our current policy will result in high inflation, low investment and high unemployment. These short term pains are inevitable. We must pay the price in hunger for not saving for the rainy day. Such a new policy option will be followed by higher investment and a sustained period of low inflation with higher growth.
However, to boost employment, we would need the enthronement of a National Full Employment Plan with special funds to prosecute it. To make it a proper palliative, NAFEP loans should be collateral free,interest free and used mainly for import substitution enterprises. In these dire circumstances, the Buhari administration must push forth aggressive initiatives. Recently, the African Development Bank approved $56 billion to scale up industrial development in Nigeria. In the medium term, industrialization must be the catalyst of the job creation category of the Nigerian development effort. The government must support this effort with a favourable business environment , access to the capital market and competitive entrepreneurship.
In effect, Nigeria must jump start cooperation with China, as reflected by our official visits to Beijing. Cooperation with China provides the potential for substantial project financing at low interest rates. The efforts to accelerate the development of our infrastructure through Buhari's state visit to China last April are commendable. A key project is the modernization of the Nigerian railways. This has the potential of unifying fragmented markets and boosting national cohesion.
Moreover, efforts to rehabilitate Boko Haram ravaged North East and the proposed Export Processing Zones will attract Chinese investors bent on displacing Anglo American armada in Nigeria. In 2017, Buhari must protect fiscal sustainability at all costs, even as this might exacerbate external imbalances. Government must also reinforce the resiliency of the banks. Most importantly, Nigeria must execute structural reforms for sustained and inclusive growth.
For clarity,for our leaders are hard of hearing, structural reforms mean the merging of states to reduce expenditure; reduction of staff strength of the civil services of the states and that of the civil service of the federation. The National Youth Service Corps should be scrapped. It serves no useful purpose in a depression. We can no longer finance it. The refineries should sold with a maximum government equity of 30 percent. Ever heard of a government owned refinery in the United States? As the global economy continues to deteriorate, the time to accelerate policy responses is now. The worst is yet to come in the aftermath of Donald Trump's self interest economic outlook.