Nigeria without oil: Has Buhari put the right foot forward?

 

The dwindling oil revenue was already taking a toll on the economy when President Muhammadu Buhari assumed office last May 29. Buhari’s first mission was how to salvage the economy. Experts believe he has taken the remarkable steps towads preparing Nigeria for life without oil. They ask that diversification be pursued with vigour. Assistant Editor EMEKA UGWUANYI reports.

DESPITE raking in $1 trillion  from oil production in the past 57 years, Nigeria has little to show for the huge earnings. Reason: its leaders have not been able to provide basic infrastructure for the citizeny. Neither have they been able to raise power output beyond 4,500 megawatts (mw) for the estimated 170 million population. To worsen matters, unemployment has reached unprecedented level and the population of the poor continues to soar. For more than four decades, successive administrations failed to look beyond oil – the nation’s  major revenue earner.

Since he mounted the saddle last  May 29, President Muhammadu Buhari has not hidden his plan to diversify the economy. To him the bazaar in the oil and gas sub-sector is over. His administration, he pledged, will enact policies to diversify the economy to agriculture, manufacturing and mining, among others.

The President blamed abandonment of other sectors and the over-dependence of past administrations on oil as the country’s problems. He has demonstrated his commitment be relying on non-oil sectors to fund the N6.08 trillion budget.

Executive Director/Chief Executive Officer of the Nigerian Export Promotion Council (NEPC) Segun Awolowo confirmed the diversification programme in a presentation to African Development Bank (AfDB) officials on development of the non-oil export in Abidjan, Cote d’Ivoire. Awolowo said NEPC has designed a ‘Zero Oil Plan’ to achieve the feat.

The initiative, according him, is NEPC’s strategic alignment with the administration to grow the non-oil sector and non-oil export.

He said the “revolutionary” plan in export promotion would answer  the questions on what would Nigeria sell? Who would be the buyers? How much will it earn?  Like most oil exporting economies, Nigeria has been hard-hit by the tumbling prices of oil at the international market. Falling from over $100 per barrel in the third quarter of 2014, the Nigerian grade Brent Crude crashed to $27 a barrel in the first quarter of this year. The result: a sharp fall in government revenue.

The reduction in revenue allocation to the three tiers of government has led to the irregular payment of salaries by many states. So, the President may be laying the foundation for economic diversification, infrastructure investment and social spending, with the implantation of the 2016 Appropriation Act.

The programme, Awolowo said, will boost domestic production capacity and mitigate the impact of oil price shocks in future. He said the President told a delegation of manufacturers last year that “Nigeria must begin to behave as if we have no more oil.”

He went on: “For years Nigeria has imported thousands of goods worth over $50 billion a year, which we pay for mainly with crude oil proceeds of over $70 billion each year. Our fears have now materialised, in the past two years, crude oil prices have fallen by 60 per cent and Nigeria’s earnings have likewise fallen by at least $35 billion, inevitably leaving a financial hole in the economy.

“The pressing question now is how to fill this funding gap. And the answer is simple: Nigeria must find new things (not oil) to export quickly, in large commercial scale. If Nigeria broadens and grows its export basket, a positive chain reaction ricochets throughout the economy.

“The logic follows – when you grow exports, national output (agriculture, industry, solid minerals) will also grow; local businesses will grow; supporting infrastructure will expand; and jobs and investments will definitely follow. The overall macro impacts will result in growing foreign reserves (from export forex) and a more resilient economy.

“We are not the only nation in history to have ever faced this challenge. When India, the second largest country in the world, faced similar hardships under its founding father, Jawaharlal Nehru, his clarion call was simple: ‘India must export or perish’”.

“Nehru’s mantra changed the thrust of his country’s economic policy, and today, India exports over $300 billion of non-oil goods yearly. More importantly, India made sure that no single product, not even oil (if it has it) would hold the people to ransom. Other countries have similarly done well in exports. For instance, Brazil does over $200 billion of non-oil exports and Malaysia over $250 billion. Despite our population of 170 million people and being the seventh most populous country in the world, we make only $5 billion in non-oil exports.

“The questions to ask are: What happened to our proud history in palm oil, cocoa, groundnuts and cotton? We were the toast of the world. Where are these products now? Only three of the top 20 exporters in the world depend heavily on oil exports, and today, even those three are fast diversifying.”

According to Awolowo, Brazil rakes in $17 billion from soybeans; Saudi Arabia, $30 billion from petrochemicals and Bangladesh, $5 billion from T-shirts.

He said in 1980, China and Nigeria each accounted for one per cent of global world exports. “So, in a sense then, we were equals.”

However, by 2011, China accounted for 11 per cent of global exports (all non-oil), while Nigeria was less than 0.4 per cent. Like the Chinese, the only way to strengthen the naira is through increased productivity and capacity as well as focus on export.

The NEPC chief said the proposed zero oil plan targets a long-term goal of earning over $100 billion from non-oil exports (20 per cent of today’s Gross Domestic Product (GDP). When compared to  ratios of other emerging markets, this is reasonable.

According to him, China’s is 24 per cent, Brazil, 12 per cent; South Africa, 31 per cent and Malaysia, 76 per cent. Nigeria’s long-term goal is to grow non-oil exports from S$5 billion today, to $18 billion by 2019, and $30 billion in non-oil exports by 2025.

“The zero oil plan identifies 21 priority countries as markets for local products and 11 strategic export products with high financial value to replace oil including petrochemicals, palm oil, cocoa, soybeans, rubber, to name a few,”  he said.

Why Nigeria should

look beyond oil

At the 10th anniversary of Bell Oil and Gas Limited in 2012, former Group Managing Director of the Nigerian National Petroleum Corporation (NNPC) Funso Kupolokun said Nigeria earned over $800 billion from oil in the last 50 years with little to show for it.

Nigeria’s earnings from oil export in 2011, according to the Energy Information Administration (EIA), the statistical arm of the United States’ Department of Energy, reached a peak of $99 billion, well above $70 billion in 2010.  The EIA also noted that the nation’s oil export revenues for 2012 and 2013 were $94 billion and $84 billion and $77 billion in 2014. It identified Nigeria as the fourth highest earner in oil exports in 2014 in the 12-member Organisation of Petroleum Exporting Countries (OPEC), coming after Saudi Arabia that earned $246 billion, Iraq ($87 billion) and Kuwait ($81 billion).

At the Wole Soyinka Centre’s Annual Media Lecture in Kaduna last year, Governor Nasir El-Rufai stated the need for the country to look beyond oil. His reason:  some of the nation’s traditional customers including the United States (U.S.) have become self-sufficient following the discovery and exploitation of shale oil and gas, while others have developed alternatives thus reducing their reliance on Nigeria’s ‘light, sweet crude oil.’

According to El-Ruffai, Nigeria has another chance to anchor its oil sector reform agenda on projected realities.

“And we must do that in the knowledge that the world is not waiting for us, that while we dallied new suppliers have come into the global oil business and buyers have more choice.  Nigeria has to look at developing and earning substantial incomes from other sectors of the economy outside the energy sector”, he added.

With developments in the oil industry, Nigeria cannot continue to rely on oil revenue.  Technology has made oil-consuming countries to become net oil exporters. Nigeria’s major crude oil importer, the U.S., has with hydraulic fracking technology been able to extract oil and gas from shale, reducing its demand for conventional oil and gas.

This has made the U.S.self-sufficient in crude oil, making it to import less than one per cent of Nigeria’s crude, Nigerian Liquefied Natural Gas (NLNG) Limited Managing Director Babs Omotowa, said.

China, which ranks  as the biggest importer of Nigeria’s crude, has huge deposits of shale oil and gas. By the time it begins exploitation of the resource, it will dump Nigeria’s oil.

Besides, with advanced technology, oil has been found in many countries in Africa, and competition for market share is intense.

Iran, a major oil producer is also back with the lifting of sanctions on it. South Africa is also considering the development of its shale reserves.

Oil sector analysts have foreclosed the rise of oil price to the $100 per barrel anytime soon.

Even, the world’s largest oil producers are diversifying their economies. For instance, Saudi Arabia, the world’s largest oil producer with an output of over 11 million barrels per day, has begun to focus on petrochemical products to earn revenue.

Besides the shrinking market and revenue, internal security issues such as the Boko Haram insurgency in Northeast and militancy, pipeline vandalism and oil theft in the Niger Delta (all of which have significantly reduced oil production and proceeds), as well as widespread corruption in the public sector, are additional reasons for the government to diversify the economy.

A fallout of the falling oil revenue is seen in government’s inability to meet its funding obligations in the oil and gas joint venture projects it operates with some local and international oil companies.

The refineries are dysfunctional and past administrations failed to utilise oil windfalls when prices averaged at $100 and $145 per barrel.  Other oil producing countries invested part of proceeds from their oil boom periods in other sectors and also saved in their Sovereign Wealth Funds (SWFs), according to  Managing Director of Seplat Petroleum Development Company Mr. Austin Avuru.

According to him, Norway has a GDP of $512 billion and SWF of $893 billion; Qatar with GDP of $203 billion has SWF of $256 billion and Saudi Arabia with GDP of $748 billion has SWF of $762 billion. These countries, he said, withstood the low oil price regime because of their impressive GDP and SWF, but Nigeria had SWF of $500 million, which The Nation learnt has just grown above $1 billion.

Achieving sustainable

diversification

To oil and gas industry operators, the industry is only a catalyst for the development of other sectors. Because of the volatility of oil prices, producer-countries always channel proceeds from oil at periods of high price to other sectors while saving  for when things won’t be rosy. With this planning, they can withstand price slump and invest during low oil price regime to reap the dividends when price goes up again.

The operators noted them, the oil and gas industry has never been a huge employer anywhere in the world, adding that but when the hydrocarbon is processed in-country, it adds value. Hence, oil producing countries have refineries and petrochemical plants.

To the Group Chief Executive of, Oildata Group Mr. Emeka Ene, Nigeria should review its dependence on oil.

He said: “Looking beyond oil as a country, we need to look at cluster development. What happens is that people are striking in different directions uncoordinated. Manufacturing, agriculture and trade constitute over 60 per cent of our GDP.

“We can leverage expertise in the oil industry to be able to push through regional development, with industrial parks, free trade zones that are emerging across the country in a coordinated manner, such that we decide that all our wellheads are produced  in-country.

“How do we do that? Companies that will make up that will come from these different industrial parks in the country; they will form a supply chain that will deliver value within the next one to two years.

“It makes sense that now that we go beyond oil but it must be coordinated. It is not just let everybody go back to the farm. That will not put food on the table. A lot of investments need to be made in a coordinated effort and the oil industry can help lead that effort.

“Even within the oil industry, secondary processing is important. The Niger Delta energy corridor is a concept that has been talked about and is being promoted. It is a way to transform the Niger Delta into a secondary processing zone where oil is not simply extracted and evacuated from the country but it goes through levels of processing. It will capture over 40 per cent of oil value locally.

“We don’t have enough people  who can provide the number of jobs this will create because it will eliminate or crash the  unemployment rate as the raw materials are processed locally. But if all we do is to extract oil, send it offshore, we will continue to have the same cycle perpetuating itself for the next 20-50 years.”

Petroleum Association of Nigeria (PETAN) Chairman Bank Anthony-Okoroafor, said oil lays the golden egg for other sector’s development. He, however, noted that earning from oil is just about $15-20 billion a year, and the other sectors have about $500 billion.

He said: “So, the local content policy should be spread across sectors – oil and non-oil. That is the only way the country will gain, and ensure this generation and future generations will have employment. That is the only sure way to create substantial local entrepreneurs.

“When PETAN advocates local content, we don’t only talk about oil and gas but also other sectors of the economy, which have potential earnings in excess of $450 billion. For instance, with agriculture, insurance and other sectors, we have so much to benefit as a country if we work together to ensure we empower proven Nigerian entrepreneurs and companies.”

Why diversification

should be supported

Drumming support for Buhari’s commitment to move the economy away from oil, the Dean of Schools at the Educational Advancement Centre (EAC), Gbenga Adebambo drew an analogy between Malaysia and Nigeria which gained independence almost the same time. He said it was regrettable that while Malaysia has over time become a robust economy, Nigeria has consistently struggled to rid itself of corruption and the consequences of a mono-economy. Nigeria, he noted, emerged in the first decade of its   independence as a leading exporter of many major agricultural commodities.

Adebambo said: “Agriculture was the pride of the nation as it became the leading exporter of palm kernel, and the largest producer and exporter of palm oil. Nigeria also dominated the world also as the second largest producer of cocoa in the world. Nigeria has lost its place among agricultural exporters.

“It is poignant that the groundnut pyramids in the North has become a myth to the present generation; but the basic truth is that the situation is still redeemable if we go back to the drawing board to redesign and diversify the economy towards maximising the potential in agriculture and other sectors.”

He noted that after many years of war, corruption and abject poverty, the Malaysian government embarked upon a critical redesigning to reduce the Asian country’s dependence on commodity exports (mainly rubber and tin), which put the country at the mercy of fluctuating prices as oil does Nigeria.

The Malaysian government was also aware that demand for natural rubber was bound to fall as the production and use of synthetic rubber expanded. The government was able to see beyond the proceeds from rubber and developed alternative sources of employment.

Today, Malaysia’s capital city, Kuala Lumpur, hosts the tallest building in Southeast Asia (Petronas Twin Towers). It has become one of the most industrialised cities and fastest-growing  metropolitan region in Southeast Asia, serving as a tourist attraction and foreign exchange earner for the country.