FRESH news that cargoes of Nigerian crude oil are on the high seas, seeking buyers, is a prophecy foretold coming to pass. Oil, as a major revenue earner, many have long warned, has a dim future, given developments in the global economy and this reality is gaining credence by the day. Unless rhetoric on export diversification and alternative revenue sources gives way to concrete action and tangible results, fiscal ruin lies around the corner.
Recent daily reports of oil price gains delight major oil producers around the world, but are bitter-sweet to the Nigerian palate. Oil prices rose for the eighth consecutive week by early last week, with the Brent oil benchmark (comparable to our Bonny Light) reaching $86 per barrel on Wednesday, mirroring tension in the Middle East and disruptive policies by the US president, Donald Trump. While more from oil revenues have offered some respite to the federal and state governments to meet part of their salary and pension obligations, and inevitably, more money to loot and to oil their political machinery, it is a tenuous lifeline.
Agency reports of 58 unsold cargoes of Nigerian crude with few takers signal the country’s arrival at the rim of fiscal Armageddon. The era when Bonny Light was coveted and mostly sold through contracts is gone. The United States refiners, once the largest buyers of Nigerian crude, first reduced their patronage and then, stopped altogether in 2015, returning since then in fits, according to data from the US Energy Information Administration. China, India, Japan and Peru among others that filled the gap, benefitting from a global production boom, have refused to tie themselves to any single producer. The new normal was confirmed in the Nigerian National Petroleum Corporation Crude Oil Export Destination Report in March 2017, indicating that these four temporarily halted crude imports from Nigeria in that period.
The twist in the tale is that these former customers now also buy crude from our ex-chief customer, the USA. We landed at this juncture from a combination of new technologies that turned the US from net importer to net exporter; oil finds in existing and new producers; reduction in demand from China; and emergence of alternative energy sources.
The US emerged last month as the world’s largest crude oil producer with 11 million barrels per day, displacing Russia from that perch and having overtaken Saudi Arabia in February, according to estimates by the US Energy Department. This, a CNN report notes, reflects just how much the US shale oil boom “has reshaped the global energy landscape” and doubled the US oil output in a decade. Technology enabled American producers to exploit hitherto costly-to-extract crude cheaper and obviate the continued need to ban crude oil exports from the US, imposed in the 1970s. With a lifting of the ban in 2015, the US crude began to compete with OPEC members and Russia for markets, apart from reducing American refiners’ reliance on imported crude.
Besides, Nigeria failed to properly read the tea leaves when new comers, even in Africa, began to enter the crude oil production market. Ghana led and is now pumping over 100,000 bpd; new finds were reported in Sudan, Sierra Leone, Uganda, Tanzania, Niger Republic and Mali, while gas reserves have been located in upper West Africa, East and Central Africa, the Centre for Strategic and International Studies reported in a 2015 paper. Kazakhstan, Angola and Russia among others expanded output while Iran returned to the market when sanctions were lifted in 2016.
Ending the folly of relying on crude is urgent or we face the possibility that the next recession might be more destructive. Despite some marginal improvement in some non-oil export sectors, oil revenues maintained its lead of 83 per cent of export earnings in Q2 of 2018, data from the National Bureau of Statistics show. Major drivers of the non-oil sector GDP growth identified by the NBS like construction, ICT, agriculture and transportation – should be encouraged through investment-friendly policies.
Transforming the economy through such policies should be the pre-occupation of government with a single-minded pursuit of Foreign Direct Investment for the railways, ports, aviation, and tourism, agro-processing, steel and mining industries. Severing government ownership from the downstream oil sector will enable FDI to radically transform the petroleum refining and petrochemicals industry and free public funds for investment in education, health, roads, water supply and sanitation.
Nigeria should, like others, exploit all her potential, natural and human. Israel has turned the desert into economically fertile plains; major oil producing countries like Saudi Arabia and Qatar are diversifying; the Saudis are refining more and the Qataris are seeking to rival the United Arab Emirates that has become a global trade and tourism hub, while Britain, birthplace of industrialisation, now relies on its services sector that contributes 80 per cent to its GDP.
Our governments at the federal and state levels should harness our human capital and promote human ingenuity as a major magnet for foreign exchange, through massive investment in quality education and skills acquisition, accompanied by promoting private sector-led growth.
Policies should be driven by the single-minded objectives of creating jobs, enhancing production, diversifying exports and revenue sources and harnessing and maximising resources. We can no longer afford empty aspirations of diversification when oil cargoes are unsold: privatisation and liberalisation are some low-hanging fruits that we should opt for today to avoid financial perdition.
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