Climate Change is not just one of the greatest social challenges of our time, it is also turning into one of its greatest political and economic challenges. Most countries are becoming more mindful of the effect of climate change on the environment and these considerations are increasingly driving their economic and investment decisions. The quest for a greener economy motivated the 2015 Paris Agreement and is part of the domestic and foreign policies of some of the world’s major economic blocks. For example, the Biden administration in the United States and the European Union have pledged carbon neutrality by the year 2050. To achieve this, these countries are investing heavily in renewable energies and other technologies that help reduce Co2 emissions. These same countries and several others have also pledged to halt funding for fossil fuel projects abroad. Most multilateral financial institutions have followed suit, pledging to scale back on investment in fossil fuels.
Nigeria on the other hand is in the unique position of having the largest oil and gas reserves in sub-Saharan Africa and relies on its sale for close to 90% of its export earnings. Therefore, with the oil industry facing a bleak future, Nigeria is at a crossroads. Currently, the government as well as the private sector have tried to go in the opposite direction to the rest of the world and continue to pursue aggressive investments in the oil and gas sector. For instance, whilst Shell and other Multinational oil and gas companies are dumping their assets in the country, the Nigerian private sector are picking up these assets at a rapid pace. Recently, the Vice President penned an Op-ed, pleading the case for resource rich countries like Nigeria and the need for a more just global energy transition strategy. The Minister of State for Petroleum Resources in a similar vein, advocates for the establishment of an African energy bank to help finance the continent’s oil and gas sector to help fight the lack of liquidity in the sector.
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Taking into consideration the fact that Nigeria’s entire economy is dependent on the survival of the oil and gas industry, it is no surprise (and rightfully so) that Nigeria continues to battle to prolong the glory days of the oil and gas industry. What has been more worrisome is the refusal to innovate to meet the challenge of an apparently changing global environment.This is evident from the policy inertia from government and in some cases, complacency from the private sector. The country appears to ignore the developments from across the world and continues to bet on the long-term sustainability of oil and gas industry. However, this a very risky game. If there are any lessons from history, this appears to be a battle that the country won’t win. Nigeria, therefore, cannot afford to put all its eggs in the oil basket, we need an alternative plan. The only viable option open to the country is to commence the painful but urgent process of weaning her economy from its addiction to oil.
The situation would have been completely different if the country had pursued the diversification of the economy as pledged by several administrations in the past. Past administrations, including the present onehad championed the diversification of the economy without any success. The failure of the country’s diversification plan (if it can be called one)is not surprising as such pronouncements were never followed with any concrete plans, timelines, or measurable indicators. However, this is not the time to cry over spilt milk. The country has the unique opportunity to try again.If the risk that the country presently faces is properly managed, it may well provide pleasant opportunities.
So we should see this as another opportunity to diversify our economy as we wean the country from its dependence on oil. It is therefore imperative that Nigeria positions as a destination for the huge financing available for green projects. To do this effectively, certain policy and legal reforms need to be undertaken to catalyze private sector investments including encouraging Public-Private Partnerships (PPP) in green infrastructure.
There is no doubt that the quest for Nigeria’s green infrastructure program will be driven by the private sector, asPPPs have become a dominating organizational idea of the 21st century. PPPs have been flexible and adaptable to build roads, bridges, hospitals, airports, prisons, and all manner of infrastructure and a tool for public sector reforms. It has contributed to legal and institutional reforms, public procurement restructuring and even, public sector accounting development.
A strategy that might work is for the government to borrow cheaply to construct the asset and then concession to private sector operators to maintain the asset. The private sector will also be responsible for repaying the loans used in developing the asset. This VFM model will ensure that financing costs are low and the operations and maintenance of the asset is done in a more efficient manner to be a win win for all stakeholders.
Dr. Nwangwu has two decades of transactional experience, spanning legal practice, financial services and the academia in Nigeria and the United Kingdom.
