Venezuela on the brink; What Nigeria can learn from her collapse

By Ugo Nwagwu

Venezuela is on the brink to total collapse. Venezuela as of now is a failed state. And that’s just the beginning because unfortunately, things are actually going from bad to worse. Venezuela’s GDP is expected to plunge by and additional 8 percent this year, and inflation is set to rise even more by 720 percent according to projections.

The Washington Post writes,

“According to the International Monetary Fund’s latest projections, it has the world’s worst economic growth, worst inflation and ninth-worst unemployment rate right now. It also has the second-worst murder rate, and an infant mortality rate that’s gotten 100 times worse itself the past four years. And in case all that wasn’t bad enough, its currency, going by black market rates, has lost 99 percent of its value since the start of 2012. It’s what you call a complete social and economic collapse.”

Earlier this week, President Nicolas Maduro declared a state of emergency to combat the economic war he blames on “foreign powers and right-wing forces” in Venezuela.

Currently, there is a recall effort on the way to oust President Maduro and that effort is gaining steam. 70% of Venezuelans want him out.

Food shortages are prevalent leading to long queues that start at dawn and looting has become rampant. In Venezuela’s hospitals children are dying for lack of medicine.

So how did the country with the world’s largest oil reserves get to this point? What can other oil producing nations especially Nigeria learn from it?

All this began with socialist policies of the past President Hugo Chavez who came into power in a socialist revolution that was very popular. Chavez imposed heavy taxes on business and redistributed the wealth to reduce poverty, a move welcomed by the people. Several businesses were nationalized and price controls drove many others out of business.

Here are some quick hits

  • Venezuela depends on its vast oil reserves so much so that it counts for 96% of her exports and 50% of the government’s budget
  • According to Transparency International, it is the 9th most corrupt country in the world and several politicians are and having accused of enriching themselves with sovereign funds
  • Venezuela has the second highest murder rate in the world at 90 per 100,000 people
  • Venezuela’s budget was pegged at $40 to the barrel for oil. The excesses rather than being saved over the years was blown due to corruption and high subsidies on nearly everything from groceries, to fuel (lowest fuel prices in the world) and power.

So does any of this sound familiar? Currency controls, crime, subsidy, dependency on imports, dependency on oil prices for a budget…stop me when you’ve heard enough.

It is easy to say that several of these don’t apply to Nigeria. But as the labor unions continue to protest the removal of subsidy from fuel, it is important to note that petroleum was easily the largest single item in the budget for Nigeria until this year.

Our population is 180 million and projected to reach 400 million by 2050. Opponents of subsidy removal have also championed subsidies in other avenues such as food, transportation, power e.t.c. But even if we only subsidized fuel consumption, that level of population growth would put significant strain on the coffers of the country.

But the solution to moving Nigeria forward long term has to be private industry. We can’t continue to subsidize consumption in whatever form it exists.

Instead, Government should subsidize production. I am not advocating that the federal government give actual cash to business owners. I do advocate lower business taxes, public private partnerships, stronger intellectual property protections and incentives to aid companies who choose to start manufacturing companies and create jobs.

We should seek a reduction of our dependency on oil exports. Venezuela as I mentioned earlier depends on its vast oil reserves so much so that it counts for 96% of her exports and 50% of the government’s budget. It stands at 80% and 40% respectively for the Nigerian government.

We should also at all cost look to ways to shrink the size of our government. Say what you want about dictatorships, at least there was only one mouth to feed. Today, we have umpteenth amounts of senators, representatives, state governors, state senators, state representative and numerous duplicated ministerial feeds with each individual with endless amounts of commissioners and assistants.

We should also pass laws to curb the way the government spends not just how much. If we make civil service an actual service and reduce the glam and corruption in politics, it will reduce the attractiveness to higher office to people who want to actually serve.

One can at least make the argument that Venezuela reduced poverty of her citizens when things were good. All we did was line the pockets of the elites.

Now is the time to make the tough choices and avoid a similar fate to Venezuela. It has started with the removal of fuel subsidy. That should only be the beginning.