NIGERIA AND THE POST OIL ECONOMY. I believe there is a wide consensus in Nigeria on the need for us to transition to a post-oil economy, by which is meant an economy with a significantly reduced dependence on crude oil revenues. In such an economy a major decline in oil revenues, for instance, will have some impact on the economy and the nation’s fiscal health, but not in a manner that becomes a national crisis. It means that in such an economy, oil may continue to be important but will no longer occupy its preeminent and suffocatingly dominant place in our national accounts. It will be a diversified economy where agriculture, solid minerals, manufacturing, and services are, at least, as important to the economy and government revenues as oil rents. There is nothing wrong with oil if a country’s development is balanced, that is if the other sectors of the economy make significant contributions to the country’s revenues, expenditure and employment profiles. Taken together, the various sectors should enable the country to rely more on internally generated revenue, especially taxation. The United States, Canada, Brazil, and United Kingdom are not discussing a transition to a post-oil economy; they are not complaining. They are important oil producers, but their economies are relatively diversified. The potential for oil revenues to distort an economy and society is huge. In Nigeria for instance, three states account for 80% of the oil production. Oil accounts for 90% of export and 95% of government revenues, respectively. The oil industry contributes little in direct employment relative to its contribution to government revenues. The technology used on oil production is almost entirely foreign. The oil industry operates as a virtual enclave; an enclave of affluence by mostly foreign firms, which contribute 94% of total oil production. Politically, oil money is easy money, as governments do not need to go to the people for revenues in the form of taxation. Thus internally generated revenue sources, especially taxation, are neglected and contribute very little to government revenues. And, a source of the crisis in the Nigerian society and politics is the question of revenue allocation among the federating states with the bulk of the revenues going to the small number of states contributing the most to government revenues. The tensions generated by this imbalance would be less if the sources of government revenues were diverse, both in content and in geography. So what needs to be done for Nigeria to transition to a post-oil economy? And how can political will emerge and be sustained in order for that transition to be enduring and beneficial to our people and our country? I will situate my presentation within the context of our experiences with the oil economy and what preceded it. Nigeria’s Oil Economy From colonial times, to the discovery of oil in Oloibiri in 1956 and the end of civil war in 1970, the mainstay of the Nigerian economy was agriculture. The export proceeds of agricultural produce accounted for the bulk of government revenues. The most important agricultural produce were groundnuts, cocoa, palm oil and rubber. The federal system, which we inherited at independence, was such that allowed the regions to retain the autonomy to raise revenues, promote development, and conduct their affairs as they saw fit, while engaging in healthy competition with others. However, the emergence of military rule and the intervening civil war led to the splintering and weakening of the federating units and centralisation of resources and concentration of power at the federal level. The increasing significance of oil in the revenue profile of the country was a major driving force for these. The central government, awash with cash, proceeded to assume an increasingly dominant role in the economy and society. It assumed more responsibilities for infrastructure provisioning, educational and social services expansion and international relations and diplomacy, especially on the African continent. These included not just such capital-intensive industries as steel and petrochemicals factories, but brick making factories and bakeries as well. And, as we know, these enterprises hardly made any money. Rather they were being subsidised by the budget. As the government’s role expanded, the private sector was crowded out and private initiative, innovation and creativity suffered. The excessive dependence on oil revenues led to the collapse of the agriculture-based economy. It also exposed the Nigerian economy to volatile market swings, booms and bursts. And it brought with it enormous social consequences, such as wealth without labour, generations of youth accustomed to aspiring to be employed by others, rather than thinking of creating jobs for themselves and others. It also led to the neglect of the internally generated revenue (IGR), especially taxation. Today only Lagos State is able to generate up to 50% of its revenues from IGR, thereby reducing its dependence on allocations from Abuja. For as long as oil money flowed, it seemed like everything was fine. But by the mid-1980s our economy virtually collapsed and we are still grappling with the consequences of that shock, including the continuing decline in the value of our national currency, the Naira, high inflation rate, high unemployment, crime, violence and other social vices. But perhaps the most destructive impact of our dependence on oil is the corruption it has fostered, even at the very heart of our economic lifeline. There is indeed little transparency and accountability in our oil industry as various investigative reports have shown. A recent report by Oil Tracking Initiative highlights the persistent discrepancies in figures provided by the CBN, Joint Organizations Data Initiative (JODI), OPEC and Nigeria Extractive Industries Transparency Initiative relating to Nigeria’s oil production, export, revenues, and remittances to government treasury. However, there has been no serious attempt to reconcile those. For instance, oil production figures from 2007-2012 show significant differences among these data sources, with OPEC figures tending to be roughly 12% less than those of the CBN. Also while JODI indicates that Nigeria exported 4.1 million barrels of oil in that period, the figure from the CBN is 3.4 million barrels, a difference of roughly 20%. And according to the Nigerian Extractive Industries Transparency Initiative, what the Nigerian government said it had received from oil companies as royalty payment in the period 2006 – 2011 is $440m less than what the oil companies said they had paid in. And I am sure you are aware of the running squabbles between the National Assembly and the NNPC (and other revenue agencies) over discrepancies in figures of revenues generated and remitted to government. Indeed the sector is characterised by underreporting of volumes, oil theft, pipeline vandalism, illegal bunkering (stealing of crude along the transport, storage or export routes by a network of people and vessel handlers), illegal refineries, corrupt individuals, community leaders, politicians, industry workers and so on. There are even discrepancies regarding the number of oil fields allocated between 2011 and 2013. As of April 2013, the Department of Petroleum Resources placed the total number of oil blocks in Nigeria at 388, out of which 173 have been awarded – 90 to indigenous companies and 83 to the international oil companies (IOC). The remaining 215 are yet to be awarded. But according to Deep Prospects Concession Maps 2011, 89 oil fields are owned by IOCs; local and independent operators own 51 fields, while 114 are yet to be allocated. It is no surprise that we are ranked among the worst countries in resource governance (40th out of 58 countries with a score of 42 out of 100). Our four refineries constantly under-perform, so the country imports approximately 85% of refined products to satisfy local demand and has paid subsidies to fuel importers for decades. In 2012 alone, fuel importers were paid $8.2bn to subsidise the pump price of petrol. This amount is more than the combined allocation to education, health and agriculture in the 2013 budget. This misguided policy and misplaced priority ensure that we are not investing in human capital development and the productive sectors of the economy. Thus we lag behind in human development index. For instance, 70% of our population live below the poverty line compared to 21.4% for Brazil, 40.5% for Angola and 0% for Norway, to mention a few comparable oil producing countries. Nigeria Beyond Oil Taken together, these features of our oil economy justify the urgency of a shift to a post-oil economy. The consequences of not making such a transition were already known by the time Nigeria became an oil producing country. To me, the transition to a post oil economy is not rocket science. We do not have to reinvent the wheel. Examples abound of how to get out of or at least reduce dependence on oil or other natural resources or to build an economy without a base of natural resource endowment in the first place. Singapore, UAE, Japan, U.S. and Canada are prime examples. Indeed some of these countries are resource rich, including being large oil producers (e.g. U.S and Canada, UK), but they never really allowed themselves to become dependent on oil (or other resources export) revenues to the detriment of the other sectors of their economies. We simply need to get people busy, working, thinking, creating, and building things. It is what we do with our oil wealth or what we allow it to do to us that is the issue. We should use oil revenues now to build for the post-oil period: infrastructure, education and training, security and peace-building. We must privatise non-competitive public enterprises, improve justice delivery, provide sensible, clear and predictable regulations and incentives for private investors, enforce property rights, enthrone the rule of law, tackle corruption and promote accountability. These, in my view, should be done now to prepare for the post-oil economy. In fact we do not even need to brand it a post-oil economy. Our economy can generate huge revenues from oil while also generating huge revenues from other sources, including manufacturing and services. That is how it is in the more advanced economies: Britain, US, Norway, and emerging powerhouse, Brazil, to mention a few. The US is a net importer of oil so it tends to escape many people that it is the third largest oil producer in the world and is projected to become the largest in a few years’ time. Yet, the US is also the leading industrial power in the world and the world’s leader in scientific and technological innovation. After 55 years of oil production and export we should be producing technology that assists in oil exploration and exploitation. We should be refining our petroleum to satisfy domestic demand and for export markets. We should be a leader in the production of petrochemicals and petroleum derivatives including plastics, polymer, fertiliser, motor oils, and other allied products. We should be able to provide the incentives and regulatory framework for massive private sector investments in solid minerals’ exploitation, a sector in which our government has identified 34 such minerals in commercial quantities. We should be the leader in cassava, cocoa, palm oil and rubber exports and agro-allied industry. Up to 85% of our land is arable so we can be a leader in agriculture. And we should provide the necessary infrastructure and incentives to attract manufacturing investment and jobs into our country. Ultimately, if we do not industrialise, especially in these areas where we have comparative advantage, we will remain a backwater economy whatever the quantity of primary produce we export. We should be doing all of these things by now, but it requires the political will to change. Nigeria has been on the wrong track for far too long. It is time for experienced leaders to change our course toward the economic powerhouse we know we should be. A post-oil economy for Nigeria, therefore, will require: A smaller, leaner federal government with reduced responsibilities; A tax- focused revenue base; A true federal system which allows the component states to keep their resources, but allows the federal government taxing powers; A diverse revenue base rather than the dependence on a single natural resource, oil; Autonomy for component states and localities to determine their wage structures. There is no reason for the governor of Lagos State to earn the same salary as the Governor of Kogi, or for a teacher in Mubi to earn the same as one in Abuja or Port Harcourt, given the widely varying costs of living and revenue generating capacities across the country. Let us begin to think about change and dream big dreams. Let me also point out that we really cannot move beyond oil without cleaning up the environmental mess created so far by oil exploration in the affected communities. A recent study by the United Nations captured the magnitude of the problem and estimated that it would cost over a trillion dollars to remediate. If we try to move beyond oil without addressing that challenge, the host communities will be unable to move with us and such unwholesome practices will be transferred to solid minerals’ exploitation. We must insist that the oil companies and other companies clean their mess. And we must make pollution a very costly proposition for them. Their activities must comply with internationally acceptable standards. The clean-up itself will create thousands of immediate jobs for people in the locality as well. -Admin..Amir Salisu Jr.
Posted on: Sat, 19 Oct 2013 23:10:17 +0000
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