NIGERIA UNCONSCIOUSLY TOWING THE DESTRUCTIVE ECONOMIC PATH OF VENEZUELA

NIGERIA UNCONSCIOUSLY TOWING THE DESTRUCTIVE ECONOMIC PATH OF VENEZUELA

According to tradingeconomics.com, Venezuela’s hyperinflation was at a staggering figure of 833,997% as at October, 2018. Reuters revealed in 2018 that the country owes over $60 billion to bondholders with the country's central bank having a capital base of $9.6 billion. The state owned Oil Company, PDVSA which oversees the oil and gas industry operations that generate a significant portion of the foreign exchange earnings is facing grave financial, infrastructure and human capacity shortages.

Prices of basic goods and services needed for survival have skyrocketed through a 1,300,000 percent year-on-year in November of 2018. Hospitals are without drugs, syringes, CT-scan equipments and medical supplies. The educational system is not exempted. Research shows that a significant number of children can no longer afford quality education as Venezuela’s hyperinflationary collapse has left pencils, books, and uniforms out of the reach of the average citizen. Citizens in their large numbers are seeking refuge in other countries as the condition is worsening with no form of improvements in sight. Daily lives of Venezuelans have become full of hunger, lack of electricity, lack of access to water and general inadequate access to basic social amenities. The image below depicts life in Venezuela presently.

Carlos Aquino weeping over the casket of his son, Kenyerber, who died of heart failure caused by severe malnutrition. Source: https://www.nytimes.com

Painstakingly, Venezuela did not start out as a failed state as most regard it today. Venezuela as a country with the highest crude oil reserves in the world, at a quantity of 303.2 billion barrels of proven reserves according to BP statistical bulletin (2018) had prospects of surmounting its socio-economic challenges some decades ago. Under the presidency of Carlos Andrés Pérez, revenue from crude oil export quadrupled from 1972 to 1974 during the oil crises of 1973. This prompted the president to pledge that Venezuela would develop significantly within few years. Fast forward to January 2019, the country is in total chaos. The question to ask is, “What went wrong with the Venezuelan system?”

It is an issue of wrong policies governing an oil and gas industry that accounts for over 90% foreign exchange earnings of a country. This is an area that Nigeria shares similarity with Venezuela. The Petroleum Industry Bill (PIB) that seeks to fix the policy lapses that have plagued the oil and gas industry since its inception has consistently met brick walls in its passage into law. Even after splitting it into Petroleum Industry Governance Bill (PIGB), Petroleum Industry Fiscal Bill (PIFB), Petroleum Host Community Bill (PHCB) and Petroleum Administration Bill (PAB) which some argued are watered down versions of the original PIB, the narrative has not changed for the better as President Muhammadu Buhari refused to sign the PIGB into law after passage by the House of Senate. This delay according to United States Energy Information Administration (EIA) is costing the country $15 billion dollars yearly.

Non passage of PIB is undoubtedly causing serious challenges with regards to the development and expansion of Nigeria’s oil and gas industry and the government is making little light of it. For over a couple years, there has not been drilling and prospecting operations for new oil reserves in Nigeria. Also, the corresponding value chains that accompany such capital intensive projects are non-existent. IOCs and other companies are skeptical about investing millions and billions of dollars into the industry because there is no clear cut policy on the governing and fiscal terms of the industry. The process of allocating oil blocks has been impeded as the last bid round for oil fields was held fourteen years ago with 24 marginal fields awarded to 31 indigenous companies. In a country where crude oil exports, account for 80% of foreign exchange earnings, these problems and more which affect revenues can significantly influence the spending power of the government.

With an inconsistent increase of the Nigerian budget (from 6.07 trillion Naira in 2016 to 7.4 trillion Naira in 2017, 9.1 trillion in 2018 and proposed 8.60 Trillion Naira in 2019), there has been a need for more revenue to fund the growing budget. Unfortunately as this is not the case, there has been substantial rise in borrowing, accumulating to 22.37 Trillion Naira in the second quarter of 2018. This is exactly the trend Venezuela towed, in its early days of economic crises, consistently borrowing to fund its budget and ultimately nationalizing oil and gas corporations to get funding for its different social and economic programmes.

It is therefore imperative to state that if PIB in all its forms (PIGB, PIFB, PHCB and PAB) is not passed into law in the face of non-diversification of the economy with consistent fluctuations in international oil prices and daily production of crude in Nigeria, Nigeria may in no time in the distant future face same challenges as Venezuela. The vulnerability of the Nigerian economy to crude oil price and production volatility highlighted by numerous researchers in different peer reviewed journals further corroborates this argument.

The PIB should therefore be signed into law to safeguard the future of Nigeria.