Economic Confidential, June, 2009

FEATURES

Crude oil and Nigeria’s failed development

By Moses Braimah

By the year 2010 Nigeria will be 50 years old as an independent nation. Compared to other countries that are within the same age bracket, same high population, but with far less per capita income, it is clear that we have not made the type of development politically and economically our founding fathers had hoped for.

So many fundamental developmental challenges like weak electoral system, poor infrastructural base, corruption, insecurity and uninspiring leadership in most sectors have continued to plague our progress.

Many of our leaders do not realize that nature knows no pause and development, and attaches her curse on all inaction (Johann Wolfgang von Goethe). Also, that the growth and development of people is the highest calling of leadership (Harvey S. Firestone).

It is a shame that despite the huge financial resources from crude oil which we have ‘undeservedly’ earned over the years we have not been able to build our nation due to primitive accumulation of wealth and serial corruption, maladministration and mismanagement of our collective wealth.

Prof. John Beddington, UK Chief Scientist, warned recently that, “By 2030 the demand for resources will create a crisis with dire consequences. Demand for food and energy will jump 50% by 2030 and for fresh water by 30%, as the (global) population tops 8.3 billion.”

As a nation, do we realize this? Our over reliability on income from crude oil export whose other diverse opportunities have not been well exploited to develop the economy is a big shame.

Crude oil and gas exports accounts for more than 98% of our export earnings and about 83% of federal government revenue, as well as over 40% of GDP. It also provides 95% of foreign exchange earnings, and about 65% of government budgetary revenues.

It is on record that Nigeria has about 159 oil fields and 1,481 oil wells. Proven reserve is over 31 billion barrels, majority of which are in the Niger Delta. The story is the same with natural gas. Its reserves are well over 100 trillion cubic feet. Majority of this gas is flared off and it is estimated that Nigeria losses 18.2 million dollars daily, though, it is reported that concerted effort is being made to stop the flares.

Nigeria’s total petroleum refining capacity is 445 million barrels per day (70,700,000 cubic metre per day) from its four major oil refineries only about 30% of installed capacity its been utilized whenever any one of them ever works. 

For over 15 years now, Nigeria remains one of the world’s biggest importers of refined petroleum products. Several billions of naira is spent annually on subsidies which has become another source of fraud, where large amount of money is salted away through either over invoicing or deliberate application of voodoo calculation in the arrival of what the actual subsidy per litre is.

With the increasing and unbearable cost of subsidy, we are now faced with the new government policy of deregulation after several years of playing the ostrich. Inconsistency of policy laddened with mafia-like corruption and conspiracy has plagued the development of this sector.

I can still remember one of the policy thrust of Obasanjo was for Nigeria to refine, at least, 50% of her crude oil export. For some funny reason, this path was not pursued as anticipated. Imagine if this policy had been pursued vigorously the kind of impact it would make in the economy. At the last count, we would have nothing less than the 50 mega refineries with petrochemical companies that would provide thousands of jobs directly and indirectly, Nigeria would earn at least 10 times what we presently get from exported crude oil. Fuel scarcity would become alien to this clime, smuggling to neighbouring countries would disappear and tax returns to different levels of government from this source would increase in the same proportion. Its impact even in other allied or related businesses like the telecoms would be overwhelming.   

The global financial and economic downturn, planned deregulation of the downstream sector and the current low price of crude oil, presents us with the best opportunity to initiate plans like this. All kinds of incentives which may include some form of counterpart funding amounting to a maximum of 30% and a minimum of 5%, depending on capacity, and agreed deadline for the completion of any such refineries, approved engineering design and technologies, etc., can form the framework for whatever additional incentives to prospective investors.

But the question is, ‘must we develop be like this?’ 

Like Jonathan Porritt, Chair Sustainable Development Commission, while announcing ‘Prosperity Without Growth’ report said, “Fundamentally transforming the foundations of the economy is the biggest contribution we can make towards building a sustainable future. The current economic crisis may be painful, but it will be nothing compared with the crisis we will face if we continue to grow in a way that threatens the life-support systems on which we rely.”

The issue of power generating capacity and distribution currently, to say the least, is embarrassing. We have no reason not to be the main source of power and energy supply in sub-sahara Africa, if we take the amount of gas, water, sun, wind, human and financial resources available to us. With a well thought out plan, political and financial commitment, Nigeria can easily generate 50 to 60, 000 megawatts of electricity in 7 years through Public Private Partnerships (PPP) and vigorous promotion of alternative energy sources. Clean energies from solar and wind can go a long way to power homes and facilities in our remote and rural areas. Even the use of inverters and energy saving equipment can also be encouraged and given special rating and recognition by Standard Organisation of Nigeria. Putting in place a visionary and professionally managed Nigeria Electricity Regulatory Commission is important. 

As for nuclear power generation, caution is the word. The last thing I would want us to delve into, at this stage of our development, is the politics of nuclear power either for peaceful purpose or otherwise. The reported negotiation of MoU by the Nigerian-Iran Joint Commission on nuclear power for peaceful purposes is one of those false steps that send wrong signals to the global community. I hope the National Atomic Energy Commission and the Nigeria Nuclear Regulatory Authority are on top of their game. Iran, Pakistan, North Korea with nuclear power in whatever mix is a dangerous cocktail.

A revived agricultural sector can easily stimulate the development of the country. The N200 million agriculture fund at 9% interest rate is good, but I would prefer a second level where about 4 or 6 other crops like rice, cassava, soya, millet, etc. are provided special as funds to ensure sustainable food security and as sources of foreign exchange. The N10 Billion Rice Fund is a good initiative but the information on its implementation and progress made is very scarce. 

The setting up of the Infrastructure Concession Regulatory Commission is also a good initiative, but the out come of their activities in about 3 to 5 years time will show if we are on the right part. One of the biggest challenge to our development is infrastructural decay and under-development. There is need to build new ones and expand old ones to support growing population and demands.

Credible political system and visionary leadership are the pivot or fulcrum for our development. The various political parties must internalize it in the process of electing their leaders and representatives for various electoral positions. If not it would be almost impossible to bequeath any credible process to the nation.  We must invest in our democracy and creatively reject mediocrity. We have too many mediocre in positions of authority. Systems that make them to thrive in leadership positions needs to be re-worked.

There is need to encourage our banks and other financial institutions to be more responsive to this course. Small and medium scale industries funding needs to be revived, there are very few success stories out there when one looks at the opportunities. Tax system must be reformed and automated. Creative ways must be developed to, not only ensure that the formal sector pay accurate taxes promptly, but the informal should also be encouraged to join the train.

Government and other managers of the economy must realise that resources like culture, language, music, arts, repackaged Nollywood and institutions of higher learning are good sources of income and employment, if well developed.

We have more than enough in material and human resources to develop and make Nigeria a great country, even if crude oil dries up today. Visionary and committed leaderships in politics and business are all we need. Let us do away with mediocrity which currently dominates most sphere of our public life.

The global economic meltdown should not be seen in the negative light, rather as a catalyst for positive change. It should be translated into the wake-up call we need for a major change in our aspirations to develop our country. I believe!

Braimah is a Development Communication expert based in Lagos