As the current state of the oil industry portrays an optimistic outlook, what can Nigeria learn from the famous story of Noah who did not wait for the rain to build his ark?
The accelerated pace of the global shift from crude oil to renewable and clean energy-powered technologies, such as solar and electric cars, has mounted concerns over the future of Nigeria’s oil-dependent economy. Recently, some industry leaders and technologically advanced nations have shown serious commitment for a shift from fossil fuel to clean and renewable energy. For instance, in July 2017, Volvo announced that it would only make fully electric or hybrid cars from 2019, while France and Britain announced that they will end sales of petrol and diesel vehicles by 2040 as part of an ambitious plan to meet the Paris climate targets. This is imperative, especially, considering the falling costs of producing electric cars and increasing campaign against the impacts of fossil fuel to the ecosystem. Soon, the entire global community will adopt the clean energy source, not only for being kinder and gentler to the planet but for the cost advantage of clean energy.
Nothing is static again, everything is changing globally and unimaginable things are being invented to change the status quo. In her famous article ‘The Future Without Oil’, the Booker Prize-winning novelist Margaret Atwood says “It’s not climate change, it’s everything change”; a clear indication of the capacity of clean energy technologies to replace fossil fuel such as crude oil and accelerate global sustainable development. Such a revelation from Margaret Atwood is a warning for Nigeria, and indeed Africa and other developing economies, to prepare for a future where oil could be irrelevant and may no longer be precious.
As an oil-dependent economy, the over-arching question is: How can Nigeria prepare for the global shift from crude oil to clean energy?
The Missing Link
The failure of Nigeria in building strong economic vitality with adequate jobs could be traceable to the ‘Dutch disease’ – a term used to refer to a decline in economic diversification such as in the manufacturing or agriculture sectors as a result of increase in the economic development of natural resources. Nigeria has over-depended on crude oil with little investment in other productive sectors that have the potential to create more jobs, attract foreign direct investments, and increase exports. This has plunged the country into economic recession, where lots of jobs have been lost, and thus, leaving the country with minimal revenue to fall back on due to the volatility in the international oil market.
Even during the oil boom, when the country accumulated more revenue from series of oil windfalls, Nigeria failed to save for a rainy day. The accumulated revenue from oil proceeds were not judiciously utilised to build infrastructure and improve the living standard of people due to fiscal recklessness by irresponsible leaders.
What Nigeria Peers Are Doing
While Nigeria has failed to make responsible use of the oil boom revenue, other oil producing countries have largely invested in infrastructure and paved the way for diversified economic activities. According to the Minister of State for Petroleum Resources, Dr Ibe Kachikwu, “The future is not encouraging at all. Our peers are leaving us behind. Saudi Arabia is floating bonds, UAE is investing in infrastructure. People are moving from oil. Electric cars are taking over, alternatively energy like solar is taking over… Countries that are smart enough invested in infrastructure all over the world”.
While the economy wallows in recession, due to depleted foreign exchange reserves in Nigeria’s coffers and the arguable mono-economy of oil export, other crude-oil-rich countries like UAE, Norway, Saudi Arabia and Qatar have less to worry about. They strategically planned for the future fall of oil by increasing their savings in their Sovereign Wealth Funds (SWF) for economic stability, should oil run out or become replaced by another resource. Fiscal responsibility and accountability have provided savings for future generations.
What Nigeria Needs to Do Now
Nigeria has wandered in the development wilderness for 57 years in search of the path to the promised land of economic vitality flowing with jobs, infrastructure, and good standard of living. However, all is not lost. The good news is that, there are still greater opportunities for a renewed effort to build an economy that will survive the future should oil run out or be replaced by another resource.
- Economic diversification and export mix
Nigeria should begin to shift focus from crude oil to other sectors, such as agriculture, mining, manufacturing, ICT and build the capacity of other sectors to compete globally. Diversification to several sectors of the economy will not only help the nation to mobilise more revenue against the volatility of oil price, but generate more jobs for the economy. Nigeria can learn from Norway and Dubai; countries that have diversified their economies to other vibrant sectors. For example, Dubai has successfully expanded non-oil sectors such tourism and communications that have attracted foreign investors.
A private sector-driven economic activities is also what Nigeria needs as a ‘shock absorber’ to the volatility of oil revenue. Government should, therefore, support the non-oil private sector to enable them to contribute towards sustainable development where decent jobs will be available for both the present and future generations. Such support could be in the form of boosting human capital development, incentivisation through a refined tax regime, and building the technological capacity of Medium and Small Scale Enterprises (MSMEs) to effectively compete in the global market and generate revenue for the country. We can learn from the seventh largest world economy by GDP, India, where Small Scale Industry shared 95 percent of all establishments, 40 percent of output, 45 percent of employment and 35 percent of exports.
- Improved savings policy and fiscal responsibility
Despite low crude oil price and current economic recession, it is time for the Nigeria to start saving for a rainy future and to mobilise ‘stabilisation funds’ to guarantee a sustainable future without oil. In anticipation of future oil price fall and volatility in the international oil market, Nigeria should maintain more funds in the Sovereign Wealth Fund to meet the foreign exchange quotation (that expresses the amount of foreign currency required to buy or sell one unit of the domestic currency of its currency). Other ways to mobilise funds in Nigeria include purchasing of foreign-denominated low risk debt certificates like Eurobonds, and attracting foreign direct investment – through enhanced policies protecting investors as well as the local economy - to increase inflow of foreign currencies.
Fiscal recklessness has contributed immensely to the decimation of the Nigerian economy of today. Going forward, responsible mobilisation and management of foreign exchange reserves and funds generated as oil proceeds are essential to maintain ample liquidity against any future collapse of crude oil, Nigeria’s source of revenue. We should not ‘eat our future today’ to suffer tomorrow, rather we should avoid any ill-motivated quest to share the funds made for future savings.
- Bridge the infrastructural gap
Infrastructure is the backbone and propeller of every modern economy, and smart countries invest heavily in their infrastructure. Massive government investments in infrastructure such as good transportation network, effective communication system, and in renewable energy technologies are essential for the ease of economic activities and to improve the quality of life. Such investments are never a waste of resources; rather it creates multiplier effects – a situation whereby huge government expenditure triggers massive economic activities and output in the country. Decisive steps taken in relation to this by the Lagos State Government, for instance, has caused Lagos to be the cynosure for achievement within the economy today.
- Improvement in the taxation system
Now that oil revenue has fallen, responsible and innovative tax systems directed to mobilise adequate revenue and control tax evasion will save the nation from the looming threats of the global shift to non-fossil fuel energy.
While tax drives are crucial for enforcement and acquisition of financial benefits to the government, tax education is equally vital to minimise the deployment of resources that could have been put to other use. Tax education could commence through age-appropriate curricula at schools, continued through religious and other non-governmental associations and culminate in policy-maker constant review and involvement; ending a culture of tax evasion driven by ignorance.
This is a clarion call for the leadership of Nigeria and all other concerned stakeholders to build a sustainable future, robust enough to survive the impending future with or without crude oil.