Upon taking office as the 47th President of the United States, Donald Trump demonstrated a clear alignment of his presidential agenda with his campaign promises. Whether one agrees with him or not, he showed he is in charge, intentional, and determined. The main thesis I present here is that the second coming of President Trump will likely have profound implications and consequences for Nigeria. I hope that the Nigerian government has individuals who are paying attention and working for the country, its government, and its people.
Trump has a reputation for doing what he says he will do. He puts energy into being seen as someone who follows through on his promises. Hence, I take his inauguration speech very seriously, as he has already commenced action on several fronts, including withdrawing from the Paris Climate Agreement and sending troops to the US southern border. On day one, he signed a record number of Executive Orders, previously unseen.
What is the threat to Nigeria?
President Trump has pledged to bring down the cost of living in the United States. A key approach to achieving this, he says, will be to reduce energy costs. He reminded his listeners that the United States has the largest oil and gas resources in the world and will use them to bring down domestic energy costs. He further stated that he will return manufacturing to the United States by reducing production costs. Many heard him say, “Drill, baby drill.”
The risk to Nigeria is that whatever happens in the international oil and gas market has severe implications for the Nigerian economy. If we see a significant decline in oil and gas prices in the international market, it will have severe macroeconomic implications for Nigeria, given that these are the country’s main exports and sources of foreign exchange. This will translate to adverse public finance conditions, including further depreciation of the Naira against major global trading currencies. We know what this means for Nigeria, as we have been there before. The managers of our economy may desire this scenario to have more Naira for less USD to fund the government.
However, this will lead to increased hardship for the people and wider adverse social consequences. Even if there is a slim possibility that a significant decrease in crude oil costs could translate to lower domestic petrol prices, the government, desperate to fund budgets, may not encourage that. Any reduction in domestic petrol costs will not compensate for the adverse changes in the exchange rate.
Another likely effect will be increased smuggling of petrol from Nigeria to its neighbors. One argument for raising domestic petrol costs in Nigeria was to reduce smuggling. However, despite increasing petrol costs threefold last year, smuggling continued. This is because the value of the Naira was reduced by a similar proportion, canceling out the effect of the petrol price increase. This is a classic case of policy myopia or a lack of holistic and dynamic understanding of the market. Partial analysis is often limited. As writers in the literary world would say, it’s the danger of a single story. What we achieved was to sustain the real market conditions for petrol with our neighbours while Nigerians suffer.
The gainers are the governments who now have more Naira, which, due to inflationary consequences, commands fewer goods and services. Wage earners, especially in the public sector, and most SMEs, whose wage increases are less than the rate of inflation, bear the brunt, along with those who depend on them. Governments (federal and states) also suffer, as anyone paying attention would have seen that most government employees exhibit very low productivity. When considering the entirety of these consequences, central to this is a reduction in the quotient of national sovereignty.
I also see a return to the Ronald Reagan and Margaret Thatcher era during our second republic under President Shehu Shagari. Some may remember that around 1981, there was a crash in crude oil prices in the international market, coupled with a rise in interest rates on foreign loans. Nigeria may not have seen that coming. The effect of that preceded the first General Buhari government and the austerity measures before the coming of General Babangida and the Structural Adjustment Programme (SAP).
Today, Nigeria is exposed yet again, courtesy of huge exposure to debts, both foreign and domestic. What will happen in the coming months if we see a significant decline in the cost of crude oil (and natural gas) in the international market? I see this happening as a result of actions that Donald Trump will take. I also foresee a rise in interest rates on loans in the international market due to international geopolitics and competing efforts to dominate. Clearly, the world is on the verge of an economic “war,” as informed listeners would have heard in President Trump’s inaugural speech. It was a speech like no other in the history of presidential inaugurations, and the speaker means it.
Let us not imagine that what Trump has declared for the United States’ economy is not wanted by the rest of the G7. One example is Germany. The German economy, strong on exports, has been in difficulty for some time now. A key challenge to that economy is the cost of energy, especially since the Russia-Ukraine war. Germany and the rest of Europe will be keen on reducing energy costs. Please bear in mind that in this subject, there is no morality.
Another distraction is the significant share of Nigeria’s petroleum that is stolen and sold on the international market. The process of stealing crude oil is not by hiding it in pockets; it is stolen in huge vessels. Who does the stealing, buying, and transporting? Where are the markets, and how are these sold? Are the buyers unknown? If a country exhibits the characteristics of the tragedy of the commons, the communal goat who is owned by no one and goes hungry, who cares? A key factor is the want for cheaper energy. Nigeria should take note of this, as the leader of the global economy declares reducing energy costs as a principal interest to boost domestic production and reduce the cost of living for its citizens.
If we see a drastic reduction in the price of crude oil and natural gas in the coming months, the implications for Nigeria are not only well known but will be very serious. If this comes with a rise in the cost of servicing foreign debts, it does not look good at all.
What should Nigeria be doing now?
There are urgent actions that the Nigerian Federal and state governments should be taking now. I believe there are individuals in the government, advising the government, consulting for the government, or think-tanking for the government, who should be having sleepless nights right now. Maybe we should borrow from President Trump’s declaration of emergency on the southern border and declare a national emergency on the economy.
For the ordinary, struggling Nigerians who have been in severe difficulties for some time now, I will end with a common Igbo saying suitable for this time: “Ihe anuru na okwukwu, adighi nma” – what we heard at the funeral is no good story.
In this era of the second coming of President Trump, I say, God please save your people, as in God we trust.
By Prof. Chinedum Nwajiuba, chnwajiuba@yahoo.de