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Finally, The Hour is Upon Us – What Now?

The 20th century Russian politician Vladmir Lenin once famously remarked: “There are decades where nothing happens; there are weeks where decades happen.” The past seven day period in Nigeria has been one of those proverbial decade-weeks, with at least three major local and international stories emerging with seismic implications for the country’s future.


First, we heard that the National Assembly approved Aso Rock’s controversial $22.8bn borrowing plan, which would bring Nigeria’s total sovereign debt stock to over $108bn from its current level of $85.3bn. While we were still working out the math behind the projected impact of the mega loan and its proposed repayment schedule, markets around the world went into a tailspin driven by coronavirus fears, signaling an oncoming global recession.


The last of the triple whammy headlines came in on Sunday evening with news that crude oil prices went into freefall, breaching $30 for the first time since 2016. Overnight, Nigeria’s 2020 budget – benchmarked to an expected crude oil price of $57 – became an outdated scrap of paper. After years of frenzied warnings about the dangers of relying on a single source of export income, it would now seem that we woke up on Monday morning and discovered that the world has changed. Nigeria’s long-dreaded day of reckoning is finally here. So what now?


What is Nigeria’s Place in this Brave New World?


It is important to note that the last time the world went into a recession, relatively strong oil prices kept Nigeria insulated from the worst of it. For reference, during the fallout of the 2008 financial crisis, oil prices still managed to hover around $53.48 in 2009, before rebounding toward the $100 mark the following year. With a budget estimate of N2.67trn that year ($17.8bn in 2009 dollars), Nigeria actually planned to have a budget surplus. This time will be completely different.


The unfolding price war led by the Russians and the Saudis does not look to be a short term blip that will ease up after a few months, but a genuine war of attrition taking place over the next six years to a decade. According to senior officials from both countries, they have sufficient reserves to cushion the impact of oil at $30 and below for at least six years. The Saudis especially have an inbuilt advantage because unlike American shale oil or Nigerian light sweet crude, their oil is extremely cheap to produce – costing about $10/barrel.


On paper, at just $14 per barrel, Saudi Arabian oil production will still be profitable. At such a price, of course, Nigerian oil production of any description would have gone the way of the groundnut pyramids in Kano. So where does an impoverished West African oil exporter with no other source of export income, plus 200 million people with a median age of just 17.9 fit into this new reality?


Short answer – we don’t.


Nigeria as we currently know it is the Jurassic Park of oil exporters – a lumbering 20th-century entity populated with dinosaurs that think it is still 1976 and more good times are just around the corner. While other major oil exporters have spent the past two decades furiously retooling their economies preparing for this eventuality, we spent that period refusing to evolve and fighting over who gets what share of the crude oil pie. Now, not only is the pie almost worthless, but we are also supposedly taking on our single largest batch of foreign debt in history.


When you add drastically reduced or nonexistent export income to prodigiously expanded foreign debt that must be repaid in dollars, what picture do you see? Some see a government that will finally be forced to google the word “diversify” because it is left with no other choice. Others see a chaotic breakdown of law and order as the state loses its capacity to fund itself and impose its will territorially – something that may already be happening. Another school of thought sees foreign lenders such as China swooping in to claim income-generating Nigerian assets in lieu of unpaid debts, a la Sri Lanka.


How About all Three?


Informed ahead of time about the upcoming changes in global economic dynamics, the dinosaurs leading Nigeria have made a hash of diversification. Under Tyrannosaurus Buharis in particular, “diversification” has been misidentified as “shaking down corporates and foreign investors,” “using the FIRS as an extortion racket,” and “trying to develop solid mineral extraction using the same state-dominated model as the now-obsolete crude oil extraction space.” I fully expect these wrong-headed and doomed efforts to continue and double in intensity. The small matter of being catastrophically wrong has never been enough to convince a Nigerian government to change its approach to engaging the economy, after all.


While this is happening, the Nigerian state will continue to lose its monopoly of violence as armed forces budgets suffer. New insurgent groups in both the north and south will emerge, and the military will find itself bleeding from a thousand cuts inflicted across 993,000 km2 of what will be an increasingly ungovernable country. Then there is the small matter of the debt stock, which is projected to hit the scarcely believable sum of $200bn by 2024.


Chinese funding arrangements across Africa already have oil-for-infrastructure deals in place, so it is more than just oil that will be on the table when the inevitable default happens. Nigeria’s solid mineral sector will be in the crosshairs, but so also will Nigeria’s public infrastructure stock, as the example of Sri Lanka shows.


When Sri Lanka defaulted on a Chinese EXIM bank loan used to construct its $361 Hambanthota Port, the country was forced to hand it over to the Chinese government along with 15,000 acres of land on a 99-year lease. It may be a coincidence that this move gave China the strategic naval influence it had been seeking barely a few hundred miles off the shore of its strategic regional rival India, as well as control over a key shipping route. It may be a coincidence that no other lender would fund 85% of a port that all feasibility studies said would fail. Maybe it was Christmas in the Chinese EXIM Bank boardroom.


It may also be a coincidence that like in Sri Lanka, the Chinese EXIM bank is the only lender apparently willing to give a broke, unserious and strategically unfocused Nigerian government the ludicrous sum of $17bn that it cannot possibly pay back. It sure would be a great coincidence if Nigeria’s new standard gauge rail lines and airport terminals being constructed with Chinese funding had to be handed over to them, giving China control over critical transport infrastructure in West Africa’s biggest economy. What a coincidence that would be!


Some might even suggest that this is in fact part of a long term Chinese strategy to gain a strategic presence on the West African coast and thus bring Africa’s largest population into its sphere of influence in its game of chess against NATO. Some others might disagree because the implication would be that while Nigeria labours under the mistaken self-impression of giant-hood, we are in fact little more than spectators – pieces on a chessboard being moved by the actual players. The only way to know for sure is to observe the events that will shortly unfold.


May our gods help us.

David Hundeyin is a writer, travel addict and journalist majoring in politics, tech and finance. He tweets @DavidHundeyin

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