FEATURE ARTICLE


Zakari Tata Askira, MD, FRCSMonday, March 10, 2003
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[email protected]
Michigan, USA


MINERAL WEALTH, VENEZUELA and THE HONDA CIVIC
- LESSONS FOR NIGERIA


Preface

etroleum today, is Nigeria's main source of income and provides 95% of our foreign exchange earnings. We are still in the process of developing a diverse economy that is independent of petroleum. We have moved from a net exporter of food to a major importer. This situation is not unique to Nigeria. It seems to apply to all the mineral dependent countries in the developing world that rely on petroleum or other natural mineral as major source of income.

This article tries to analyze some of the reasons why Nigeria and other major oil producers have not been able to develop fully vibrant sustainable economies despite their great potentials. I have used Venezuela in South America as a close example. The reason is because Venezuela like Nigeria had a very solid economic growth before petroleum was actively drilled. During the oil boom years of the 1970,s both countries experienced a large boost in their incomes. A few years after petroleum arrived with its large profits, the economies went down. This is a paradox that needs to be corrected. Many close parallels with the Venezuelan example can be found in Nigeria. We need to learn from this and avoid the Venezuelan experience.

The Honda Civic, which I will go into more detail at the end of the article, is a symbol of our reliance on Imports. It is very familiar as one of the cars one sees on Nigerian roads today. Ownership of a new one is affluence while driving a used one is a sign of practical economics; it is affordable, reliable and has low fuel consumption It is indeed a very Nigerian car.

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Juan Pablo Perez Alfonzo, Venezuelan Oil Minister and OPEC Co-founder in the early 1970's said, "oil will bring us ruin". He call Petroleum "Devils Excrement". It was a wonder that he made this statement because at this time in 1973, Venezuelan Government revenues were higher than all the previous years combined since the country was formed. In addition Venezuela had the highest per capita income in the South American continent. This economic success was due to Black Gold or Petroleum.

It seems history has proven him a gloomy prophet. Today, 30 years later because of the same Petroleum, per capita income in Venezuela is lower than its 1960 level. 80% of its 24 million inhabitants still live in poverty. The PDVSA or Venezuelan Oil Company was recently on strike and the country was on the brink of a civil war. The economy had basically collapsed because that was the industry that accounted for 80% of the country's exports.

A study by Jeffrey Sachs and Andrew Warner - the Natural Resource Curse, tried to explain this paradox. In the study of many countries, they found that countries like Venezuela and Nigeria that depend on a single mineral wealth had a lower economic growth rate than non-mineral dependent countries. Chief among the reasons they found was that mineral wealth tends to produce a sudden influx of wealth into the economy that cannot absorb it. This sudden influx of wealth causes salary hikes and inflation. The end result of this is that the currency gets overvalued and imports become cheaper. When imports are cheaper, the local industries collapse and this causes a depressive effect on the local economy. The Udoji arrears in Nigeria is reminiscent of this. Many of us can remember the huge increase in commodity prices and inflation that accompanied Udoji.The effects are present with us to this day.

Another reason in the study is that the government becomes wealthy and embarks on large unsustainable projects. A lot of these projects collapse when the mineral prices fall. The public sector balloons and the private sector- vital in creating a self sustaining creative economy, is thinned considerably. Money is not channeled into the local economy to stimulate the growth of vital non-lucrative economic activities. As such, the country gets more and more dependent on imports. A lot of wealth then leaves the country to more developed economies.

Venezuelan dependence on petroleum also led to a loss of investment in human capital. People who otherwise would have been starting off innovative businesses that would have stimulated growth in the community were instead using their energies chasing the spoils of mineral wealth. Why struggle in a low-margin industry when steering some oil business to a contact could make you a millionaire?

In the defense of these developing countries like Nigeria and Venezuela however, there is a potent force against their economic development. This is called Global Trade Liberalization. This is an IMF brainchild. In simple terms, what this means is that countries should have open trade policies that allow all kinds of imports. You should not selectively decide which imports come into your country. This concept is obviously one sided and developing countries cannot compete against cheaper subsidized imports from developed economies. A lot of the amendments to the rules frequently favor developed nations and are written in secrecy that is often cloaked with highly technical language and in large volumes. Global Trade is important to us because it floods our country with cheap imported items. At the short term this seems like a great convenience but long term it destroys our local industries and sends all our foreign exchange out of the country. The combination of single mineral economy and Global Trade Liberalization has significant negative effects on our economic growth.

A good example of this is Senegal. In 1990-1991 the Senegalese tomato industry was producing 73,000 tons of tomatoes a year. By 1997 because of Global Trade Liberalization, production had dropped to 3,000 tons a year. The obvious cause of this was cheaper imports from heavily subsidized European farmers. Nigerians should realize that "Ragu" and other food products are available today not by popular demand but by carefully planned economic moves by developed countries. Eating imported tomato products should not be seen as a sign of sophistication. In practical terms it is a sign that we are actually spending our hard earned petro-dollars on farmers in more advanced countries. This at the expense of our farmers. If we refuse to eat imported tomatoes, we get to keep our petro-dollars. The dollars should stay in Nigeria and circulate in the economy. A lot of developed countries do not import African foods because of very strict controls on weights, measures, sterility and other parameters that the African countries often fail to achieve. The real reason is not always apparent. They are only too aware that if the Western public start enjoying cheaper African produce, the dollars may flow back our way. So they flood us with cheap attractive parboiled rice and juices. We enjoy these cheap products and impoverish our farmers.

America today subsidizes its farmers to the tune of $1 billion US dollars yearly. According to the National Public Radio in America, the US government subsidizes each cow daily by 2 to 3 dollars, while Japan subsidizes a cow daily for 5 to 7 dollars. Clearly, there is no fair playing ground. The lesson from this, is the determination of the most advanced economies to develop their farmers and place great wealth in their rural economies. Despite their highly diverse and industrialized economies, they have not forgotten that a thriving rural economy is the backbone of great nations. This is a policy we need to implement in Nigeria as well. Food production and related industries still remain the main priority in the developed world.

Mineral Rich yet Paradoxically Poor Nations need to develop a broad vision with well-defined realistic goals. The most important goal should obviously be utilization of the lucrative profits to stimulate other sectors of the economy. The dollars generated from mineral proceeds should stay within the local economies and not be exported to contribute to the overflowing coffers of the developed countries. We should stay away from large gigantic projects. Saudi Arabia, Kuwait, UAE and Nigeria today all import foods. In all these countries billions have been spent on structures that would not sustain their economies. Even after the significant drop in oil prices in the mid to late 1980,s they did not heed the warning signs.

Nigeria can do a lot to improve its current situation. First we need to become united as a people. Good governance and Commitment to Social justice should be our goal. Nigerians are very intelligent people individually. This has been proven worldwide. There is hardly any field of human endeavor like science and technology, medicine, astrophysics, mathematics and others where we have not excelled. Today, many major banks and industries in countries like USA have Nigerians in top management positions and many African countries rely on Nigerian technocrats. Many Nigerians hold key technological positions in car manufacturing, computing as well as pharmaceutical industries worldwide. To visit any of the best universities in the world one cannot help but be proud of the immense academic contributions and achievements of thousands of Nigerians. With regards to human resources, we are better than Venezuela or any other mineral wealth dependent country. No matter what the world says, Nigerians can never be described as dull. We now need to get together and use our immense intellectual resources as a team. We need to identify areas like agriculture and textiles where we should have a plan to be totally independent. Money being used to develop architectural marvels is better spent developing agriculture. The government should encourage local industries to thrive and create conditions that would make certain non-essential imports like tomatoes, and fruit extremely expensive or unavailable.

The government should encourage manufacturing companies to set up business in Nigeria. The government should provide funding for these companies. They need to be provided with security, tax free status and certain other privileges. The companies should be given all these privileges with conditions that they buy all their parts from local industries within a specified time period. Wealthy Nigerians should invest in industries and government should fight smuggling of cheap foreign products. Farmers must be encouraged to be productive again. We should encourage a renewed pride in Nigerian products. We are more than capable of making our own local "Five Alive" Juice. To my friends from the North I say "Zoporodo". Why not? If processed and bottled, this local drink would taste better than Ribena. After all Egyptian and Malaysian mango juice are consumed today in Europe. Why not Zoporodo? Nigerians worldwide should serve as partners in technological transfer back home. We cannot be independent if we have to buy food. The countries that provide us with food do not really make a profit from food. Their overall gain is the culture of dependency that importing food comes with. After all, if we need them for food, we cannot be economically independent of them.

With billions of dollars in oil revenue and limitless intellectual reserves, Nigeria could be a very dynamic economy exporting pharmaceuticals, processed foods and other items. Unity and a common shared vision are necessary for this dream to be realized. The great Nigerian Empires of the past, Yoruba, Benin and Kanem-Borno survived and prospered because of great vision and diverse trading. They did not depend on a single mineral as a driving force. Countries today like Mauritius and Tunisia in Africa invite clothing companies like Calvin Klein to produce jeans and other clothing products in their countries, that are then exported to the West. The company gets cheaper production costs and the local economy gets more employment opportunities and feeder industries develop like cotton, fabrics, button making etc.

Finally, The Honda Civic Hybrid uses a new technology called IMA or Integrated Motor Assist that uses fuel and electric energy to power the car to a much greater efficiency. The electric part of the car recharges itself and does not need external recharging. The car can go 650 miles or 1,040 kilometers on a single tank of gas. This is one of the firsts in a worldwide effort to reduce dependency on petroleum. This should be a warning as well as a catalyst for economic diversification in the mineral wealth dependent economies. This is because in 10 years time, Honda Civic will not need our petrol but we will still need Honda. At that time we should be ready with our Agri-Dollars.

Sources:

The Devils excrement ----- Jerry Useem([email protected]) Fortune Feb 03 page 96
The Paradox of Plenty: oil booms and petro -states Lynn Karl
Natural Resource Curse 1995 analysis by Jeffrey Sachs and Andrew Warner (the more an economy relied on mineral wealth, the lower its growth rate)
Africa Recovery- article by United Nations.
United Nations Economic and Social Council- Summary of the economic and social and economic situation in Africa, 1999