In the world we live in today, energy and economic diversification is not only an option for resource rich nations, but a necessity. The underlying importance of ensuring energy security while developing other viable sources of foreign exchange receipts for economic development cannot be stressed enough. However, equal if not more significant weight should be given to the further development of Nigeria’s highly resourceful non-oil sector.
Just when we were beginning to assess the effect of the United States shale-oil production on global energy markets, the warning signs are beginning to appear sooner rather than later. According to the US Department of Energy, due to the discovery of shale oil, US exports from Algeria, Nigeria and Angola dropped significantly in 2012 by 41% from 2011. In February 2013, Nigeria’s crude oil export to the US dropped to 194,000 barrels a day and the Energy Information Association (EIA) described it as the lowest in more than 18 years.
As things stand, the US is still pivotal to Nigeria’s relevance in the receipt of proceeds from crude oil sales being our biggest buyer and any significant reduction in demand will send oil prices crashing down again as we noticed in 2008. As Ms. Alison-Madueke highlighted while speaking in the UK last month, “Shale oil has been identified as one of the most serious threats for African producers, those producers could lose 25% of their oil revenue as they are edged out of the U.S”. Based on the way the oil market operates, this is quite inevitable if one assesses the implication of the discovery of shale-oil in the US.
According to the EIA, after the United States at 33% in 2011, India is the biggest buyer of Nigerian crude. However, as we have seen over the years, more countries are now stepping up their oil exploration activities due to energy security and innumerable accrued benefits. Jubilant Energy NV and Cairn India have recently announced their success in their oil exploration activities in the densely population country and I am sure this news might worry the stake holders in the Nigerian government. One might argue about the significance of the proven reserves or the commercial viability of the current recoverable crude, but we have seen in many cases with oil discoveries that they initially get discovered in patches before major discoveries are achieved.
The impact of this trend is significant most especially its future implication. The Nigerian government is highly reliant on earnings from crude oil exports for domestic spending and reduction in demand from its two major buyers could potentially lead to a sharp decrease in government revenue. Unlike natural gas contracts, most crude oil contracts are traded on the spot market hence security of demand is low. More so, we might be facing a crash in crude oil prices which could lead to another conflict on output quota among fellow OPEC countries.
To nip this problem in the bud, we have to step up our bid to becoming less reliant on crude oil revenues. As hard as this might seem, we have seen from various media briefings from government officials that they are aware of this development and they know what needs to be done to address these issues. The non-oil sector is a major driver of the Nigerian economy and it is more relevant to the man on the street. Already, the agricultural sector is the biggest employer of labour in the country and we have still not given this sector the much needed investment and attention it craves to take it back to its glory days.
We remember vividly how buoyant and engaging our international trade in agricultural produce was decades ago with northern Nigeria at the forefront. We also know the story of how Indonesia surpassed us as the number one producer of oil palm in the world after dominating the international market for a while. However, things are still not looking too dim in that area as at 2011, we were still ranked as the third- largest producer of oil palm in the world.
While I agree that no sector can single-handedly match the money-spinning potentials in the oil sector in the short-run, a combination of key non-oil sectors can rival the oil sector and provide more visible and significant benefits to the Nigerian economy. Besides the agricultural sector, we are can see the massive impact the rise of the telecommunications industry had on foreign investment and employment.
The power sector is still relatively unexploited if one considers what might have been if a model similar to that of the telecommunications sector had been applied. As a natural monopoly, we are still waiting on how the unbundling policies of the Nigeria Electricity Regulatory Commission will materialise as it is important to get this sector to where it is meant to be on generation and distribution.
We have seen the damaging effect the epileptic nature of Nigeria’s power sector has had on another key non-oil sector- manufacturing. Rising operating cost was one of the key reasons a lot of manufacturing companies were put out of business and once again contributed to a rise in unemployment and economic hardship. Without quoting precise figures, the impact of an effective and robust manufacturing sector will no doubt impact positively on our alarming unemployment rate.
The prospect of fully reviving Nigeria’s railway industry will no doubt help the economy considering the effect the now defunct Nigeria Railway Corporation had on reducing unemployment in the labour force. It is however good to see some investment decisions made in this area by the government in the past 5 years.
While it is obvious that these issues have been identified by the government, the massive reduction in crude oil importation by the US will continue as it plans to become a net exporter of natural gas in coming years. This is a clear statement of intent on where its priorities lie going forward. India as well will step up its search for crude oil and attempt to be self-sufficient in oil supply. Hence, now is the time to intensify plans for the inevitable and put in more time and resources in developing the country’s non-oil sector for job creation, poverty alleviation and economic development.