The Nigerian economy is in crisis and working people have started to feel its pangs with sky rocketing prices of commodities as the naira has been devalued by almost 10%. But, this bad situation is set to get worse with the unfolding implementation of austerity measures. The only way to avoid this impending doom is through struggle. We have to start mobilizing against anti-poor people austerity measures now.
As we organize to fight against the bosses’ putting the burden on poor working people, there are questions we must find answers to. There is abundance of natural resources in Nigeria and our labour creates vast wealth. Why then are we being told that the country is broke? When the price of oil skyrocketed, what was the benefit for the working class, urban poor, and poor farmers? Why is the economy suffering a crisis? Who are those that will bear the brunt of the austerity measures being introduced?
The main beneficiaries of the wealth of Nigeria have been the bosses in government and as business men and women. When oil prices were high, they made billions of dollars and trillions of naira. But for the common people, suffering has been our lot. The minimum wage was fixed at a paltry N18,000, which many states governments and private firms never even cared to pay. The poverty rate increased to 69% in 2010 from 54% in 2004. The number and proportion of the unemployed also increased, particularly amongst youth with 54% of them seeking scarce jobs.
Okonjo-Iweala, a former high-ranking official of the World Bank attempts to answer the question of why the economy is getting distressed. In her view, this is because of over reliance on oil for government revenue. This answer which is inadequate is itself is a condemnation of the federal government in particular and the ruling class in general.
Falling oil prices
From about $107 in July 2014, the price of a barrel of oil fell to $48.9 at the beginning of January, the lowest price in 5 ½ year. While the price has slightly come up to $51 as at our time of writing, this is still far below the $65 bench mark price of the 2015 budget. Further, there is still a great likelihood that the price would continue to fall for several reasons. On one hand, Saudi Arabia continues to pump more oil into the market, with the aim of crashing prices so as to make shale oil production unprofitable. On the other hand, the demand for oil remains dull, due to the global economic crisis.
Oil is the main source of energy for industries across the world. In the wake of the Great Recession, global industrial output decreased, leading to decline in the demand for oil, first by the advanced capitalist countries. Large economies in the Global South like China, India and Brazil, have also slowed down, in recent times. Their requirement of energy for production purposes have thus reduced. From the illusion of such BRICS countries being possible saviours of the world capitalist economy after the United States and Europe went into recession, these Newly Industrialised Countries are themselves in recession or at the verge of it.
Apart from the drop in demand, a major reason for the declining price of oil globally, is the turn to Shale oil, particularly in the United States, reducing its current need for imported petroleum. For example, since July 2014, USA which used to be the largest recipient of crude oil from Nigeria has not imported a single barrel from the country.
Shale oil is a substitute for crude oil, extracted from kerogen-rich rocks at temperatures over 300 degrees Celsius through hydraulic fracking. This has severe negative impact on the environment and activists in a number of countries such as Canada have been mobilising against it. More importantly for the bosses, presently, shale oil makes “economic sense” only when the price of crude oil is high (at least over $50). The falling price of crude oil, has thus led to a decline in the number of contracts for Shale oil extraction.
At this point in time, it is impossible to say just how low the prices of oil will fall, or if there will be some bounce back. But what is almost certain is that the time of over $100 per barrel of crude is gone. This marks an end to the slush of oil money that the Nigerian ruling class has gotten used to feathering their nests with, at the expense of the poor masses.
Is corruption the problem?
Most Nigerians would argue that corruption is the number one problem in Nigeria, and particularly so, in the oil and gas sector of the economy. Based on this, they would say, we could have enough for everybody to be well catered for, if only we could eliminate or at least curb corruption. There would thus be no need for austerity measures. This line of argument is only partially true.
Corruption is rife and not less than $440bn that could have been used for the betterment of the lives of millions of Nigerians has been stolen by politicians since independence. This sleaze is obviously most rampant in the oil sector which is the goose that lays the golden egg. The fuel “subsidy” is a major channel of this fraudulence.
Figures are bandied like abracadabra to siphon money. For example, according to the Federal Government’s statistics, daily consumption of petrol shot up from 30 million litres in 2010 to 60 million litres in 2011! And while N600bn was deemed to have been expended on subsidy in 2010, the figure for 2011 was more than double this. Actually, different representatives of government gave different figures for the 2011 subsidy amount when they were summoned by the National Assembly after the January 2012 anti-fuel price hike revolts. The Minister of Finance said it was N1.3tn and the Minister for Petroleum claimed it was N1.5tn while the Governor of the Central Bank quoted N1.74tn! After jumping to N2.7tn which was about half of the national budget in 2012, N1.2tn was disbursed for “subsidy” in 2013 and again in 2014.
It is beyond doubt that corruption permeates every strand of the Nigerian economy. It is also correct to argue that we must fight against corruption. But, corruption is a symptom of capitalism in general. In the United States, the United Kingdom, and other advanced capitalist countries corruption is equally endemic. It might not always be as obvious as it is in economically backward countries like Nigeria, but capitalism naturally breeds corruption. The primary cause of economic crises in Nigeria and across the world is not corruption, but the exploitative nature of capitalist production.
Crises are inherent in the capitalist economy, both globally and nationally. These two levels of crises are also interconnected, because capitalism is an international system for the global exploitation of the working class, and natural resources. There is abundant social wealth for the needs of everybody on earth to be met. But the bosses are not concerned about providing for each according to his or her need. Their concern is for ever increasing profit.
It is however impossible for profits to keep increasing. On the contrary, there is a tendency for the rate of profit to fall. This is because; the bosses increase productivity by improving the technical means of production, while keeping wages of labour as low as they possibly can, in their quest for making more profit. Abundance leads to crisis as enhanced productivity which is not geared towards fulfilling needs, but rather aimed at exchange for more money results in lowered profit rates as more capitalists latch on the same market.
Thus, the generalisation of enhanced productivity while increasing the volume of profit reduces its rate! And once profit rates fall drastically, they cut down on investment for further production. Improved production which could be used to make life better for all therefore becomes a millstone around the neck of society. This general reality of how capitalism works is at the heart of the global economic crisis, which is yet to abate. And this worldwide crisis is largely at the heart of the collapse of oil prices.
Understanding the Federal Government’s response
The Federal Government is indeed confounded by the unfolding crisis. Its default position of pushing the burden of a quest for recovery onto the backs of the poor masses is constrained by the ambition of President Goodluck Jonathan to get re-elected. But we can learn from what the government did when general elections were not around the corner.
This will not be the first time in recent years that the Federal Government would be on the verge of bankruptcy. The sharp increase in fuel price on January 1, 2012, was as a result of the fact that the government was broke. The coordinating minister of the economy, Dr Ngozi Okonjo-Iweala confirmed this on April 12 2012, when she reported that the Excess Crude Account had been depleted from $20bn in 2006 to just $3.6bn by the beginning of 2012.
The current situation is worse and oil is again at the heart of it. It is not just about depletion of “excess” revenue, this time by 31% and the external reserves by over 60%. The sharp and continued fall in the price of oil in the international market is a disaster for the ruling class which is largely dependent on proceeds from (both legal and illegal) crude oil sales.
The Federal Government has acknowledged that the economy is in dire straits. Its immediate response has been to put greater emphasis on raising revenue through taxation. It has been announced that taxes on luxury goods such as private jets, yachts and champagne would be increased. Working class activists cannot but support this. The rich must be made to pay more taxes. This is an element of “tax justice” which several NGOs have been calling for, over the years.
But the tax regime being proposed by the government is not limited to that targeted against the rich. It is as well being proposed that Value Added Tax (VAT) would be increased from 5% to 10%. This means that the price for almost all commodities that we buy in supermarkets for example, would increase. VAT is generally considered as a regressive form of tax because it affects the poor much more than the poor. The federal government was forced to withdraw an earlier attempt to double the VAT in 2007 with a general strike and mass protest.
Working class organizations must call for the removal of VAT on non-luxury commodities. We should equally demand a more progressive regime of Personal Income Tax. The reduction of the ceiling for taxes of personal income of the rich from 25% to 24% in 2012 is a step backwards. It should rather be increased to 30%, and the rich must be made to pay. As Dr Ozo-Eson the General Secretary of Nigeria Labour Congress points out: “most of the very rich people in the country are not paying tax; there must be a scheme to get them to pay adequate tax”.
The taxation of corporate bodies also has to be increased. While Corporate Income Tax was 40% in 1961, it is now just 30%. This should be reversed. Tax holidays granted to so-called “foreign investors”, including in the Export Processing Zones must be stopped, to increase government’s revenue. Research has shown that tax holidays do not necessarily lead to increased investment. It is thus nothing but a source of revenue loss.
Further, those earning a living wage or less should not be taxed. This would not be a new thing as countries, including some in Africa like Zambia, Uganda and Kenya already practice this. The taxation of extremely poor people is inhumane to say the very least.
The working class and austerity measures
Both the Nigeria Labour Congress and the Trade Union Congress have spoken out against anti-working people austerity measures. A number of trade unions including the Nigeria Civil Service Union have also made it clear that they will resist anti-workers’ austerity. We join the trade unions in condemning the government’s austerity measures against the working masses.
We are all living witnesses to how austerity measures have worsened the lives of workers in Europe, particularly Greece, Spain and Portugal. The International Monetary Fund was central to the introduction of these attacks against the workers. And already, the IMF has thrown its support behind the introduction of austerity measures in Nigeria.
The working class must not wait until the austerity measures are fully unfolded. The National Assembly has postponed its ratification of the 2015 budget until after the general elections. This is because of its unpopular contents. There is no provision for increasing the minimum wage, for example. This is despite the fact that the National Minimum Wage is meant to be reviewed in 2015 based on the provisions of the 2011 National Minimum Wage Act.
By March when the budget is due to become operational, irrespective of which party wins the general elections, we should expect resistance by the bosses against increasing the minimum wage. There is also a strong possibility of fuel pump price increases as some members of the ruling class have already started calling for the removal of “subsidy”, due to dwindling revenues of the state. We must resist this. Rather, as countries including Tanzania and Kenya have done, we must fight for the reduction in the pump price of petroleum products, which trade unions have demanded.
This is the time for the trade unions and their allies in the civil society to start mass mobilization on the basis of the following demands:
an increase in the minimum wage across Nigeria, which would make it possible for the take home pay of the least paid worker to be a living wage;
a cut in the pump price of fuel to reflect the reduction in global prices;
no to casualisation, for the regularisation of employment schemes so all workers are paid proper wages for permanent jobs.
We say NO to anti-working people austerity measures. As the growth that did not benefit us starts to enter reverse, the poor masses must not be made to bear the costs of the bosses’ greed. This is the time to start mobilizing for a fight back. United and determined, we will win!
Baba Aye, a trade unionist and contributing editor of the Review of African Political Economy (ROAPE), is the National Convener of the United Action for Democracy.