Nigeria will need more than oil to lift economy

Nigeria will get another chance this year to lay the building blocks of a long-touted transition away from oil and finally set the economy on the path to robust growth.

There is a consensus among development economists and analysts that Africa’s largest economy is due for a new growth driver after several years of gorging itself on petrodollars.

“As the world shifts its attention to non-fossil energy sources, it is important that Nigeria gets its non-oil economic strategy right,” analysts at FBNQuest said.

A non-oil economic strategy is simply a growth strategy that is not dependent on oil and it could mean either of several things, according to economists polled in a BusinessDay survey.

It could mean an investment-led growth whereby the government goes on an energetic pursuit of private capital to plug the gaps in infrastructure and several sectors of the economy. This would mean that the several challenges confronting the ease of business in the country are tackled once and for all, according to Muda Yusuf, former director-general of Lagos Chamber of Commerce and Industry (LCCI).

“If there were any doubts before, it is now well known that the government alone cannot create jobs for our fast-growing population and reduce poverty because it doesn’t have the resources,” Yusuf told BusinessDay.

“It is time we tried a more viable approach which is to allow the private sector to play the lead role while the government creates an enabling environment rather than compete with or stifle the private sector,” Yusuf said. The private sector is the primary source of jobs the world over, even in Nigeria.

The quarterly job creation reports by the National Bureau of Statistics (NBS) show that public sector jobs accounted for a miserly 2 percent between 2009 and 2015, while private-sector jobs – a combination of formal and informal jobs accounted for 98 percent.

In 2016, the last year the NBS published the reports, public sector jobs were shrinking, which meant that rather than create new jobs, existing ones were lost. In the first quarter, public sector jobs were negative -3,038 as against the 79,465 jobs created in formal (21,477 jobs) and informal jobs (61,026 jobs).

The lack of jobs makes the government’s poverty reduction goal a pipe-dream.

Another non-oil export strategy could be an export-led growth whereby the manufacturing sector is empowered to tap the export market in the way Vietnam did with good success.

Nigeria’s power challenges, inconsistent policies, and low adult literacy make this option difficult, according to Bongo Adi, an economist.

“From its imports, you know a country that is serious about an export-led strategy, they import more of raw materials but that is not the case with Nigeria,” Adi said.

Among Nigeria’s top imports in the last 10 years are refined petroleum products and food. That has however started to change slightly in recent times with imports of machinery and equipment increasing but still not enough to suggest a booming manufacturing sector.

Another strategy Nigeria can adopt is one where investments are channeled towards human capital like education and health.

The amount spent on fuel subsidy would have a better impact if education and health were subsidised.

The World Bank is of the view that increased investment in human capital translates to higher economic prosperity.

“With the current COVID-19 pandemic, it is even more important to understand why countries should invest in human capital (HC) and protect hard-won gains from being eroded,” the World Bank economists said in a report.

Donald Johnston, secretary-general of the Organisation for Economic Co-operation and Development could not agree more.

“Knowledge, skills, and competencies constitute a vital asset in supporting economic growth and reducing social inequality in OECD countries,” Johnston said in a report.

“This asset, which is often referred to as human capital, has been identified as one key factor in combating high and persistent unemployment and the problems of low pay and poverty.

“As we move into “knowledge-based” economies the importance of human capital becomes even more significant than ever,” Johnston said.

Nigeria’s huge population, 200 million, means it has an advantage if it takes the counsel of the World Bank and OECD.

Slowly but surely: The end of oil-led growth

From poor crude oil production in 2021 to big oil companies excluding Nigeria from their 2022 spending plan, the challenges in Nigeria’s oil sector further intensify the need for increased attention to the non-oil sector, findings have shown.

The oil sector of Africa’s largest economy marked its sixth consecutive period of contraction in the third quarter of 2021, thanks to poor crude oil production capacity.

The sector failed to ride on the gains of higher crude prices, the international Brent crude price rose to a three-year high in October 2021, to exit recession as it contracted by 10.73 percent year-on-year in the third quarter of 2021, as analysed from the National Bureau of Statistics (NBS) data.

While many oil companies with a presence in Nigeria have recovered from the 2020 crisis with bumper cash flows in 2021 and are making plans to boost their capital spending next year, Africa’s top crude producing nation is not their top investment destination.

Preferring to be identified as energy companies, five Western majors – British Petroleum, Chevron, ExxonMobil, Shell, and TotalEnergies, are overlooking Nigeria and moving forward with spending capital expenditure in Libya, Ivory Coast, Kazakhstan, Guyana, Brazil, Singapore, among others, as obtained from their Capex outlook for 2022.

Exxon management, for example, reiterated that Capex in 2021 will come in at the lower end of its $16 billion – $19 billion range, but the board would soon approve a $20 billion – $25 billion annual Capex programme from 2022 onward.

Last week, Royal Dutch Shell yet again halted crude shipments from the 200,000 barrels per day Forcados export terminal after a malfunctioning barge obstructed tanker path. This comes only a month after the company restored flow from its Bonny Island facility.

According to Simon Anderson, director, performance improvement sub-Saharan Africa at Wood Mackenzie, the significant drop in investment by these IOCs in Nigeria goes beyond capital discipline alone.

With policy uncertainties and security challenges weighing on the minds of foreign investors, experts say Nigeria is punching below its weight in terms of attracting the right kind of investments in its energy sector.

Read also: Oil workers face job loss on IOCs’ divestment

“Nigeria may drop further in status as Africa’s biggest producer if the government does not urgently address the situation,” Abiodun Adesanya, CEO of Lagos-based oil consultancy, Degeconek, told S&P Global Platts. “Already, the country has fallen behind Libya in terms of output.”

While the oil sector continues to be a major source of the Federal Government’s revenue and export, the contribution of the oil sector to the economy (7.5%) has continually shrunk.

“Due to weaker crude oil production linked to operational and maintenance issues as well as reduced investment in the sector, the oil sector remained in depression,” Ayo Ebo, head, retail investment, Chapel Hill Denham said.

Nigeria has had an incessant report of production shortening and declaration of force majeure at major export terminals that have realised production losses for Nigeria, according to Seun Arambada, investment research associate, Meristem Securities.

The country’s crude oil production has been languishing at only two-thirds of its full capacity this year, especially many of its large oil fields in the Niger Delta.

“So while we can produce more oil by OPEC quota, production losses arising from the factors mentioned earlier capped oil prices, this explains why we are experiencing a deficit,” Arambada said.

Meanwhile, a recent report- Opportunities in the Export Market, by the Nigerian Export Promotion Council (NEPC), highlighted 22 products, divided into two categories that can help Nigeria to meet its non-oil ambitions.

According to the Abuja-based institution, if the 22 products are considered a priority it could earn Nigeria $30 billion in non-oil exports and 20 percent of GDP by 2025, as well as half a million additional jobs created annually.

Nigeria’s non-oil exports currently average about $5billion per annum and accounted for 8 percent of national GDP in 2020 (with the exemption of transhipment from Nigeria to other West African countries).

The first category of the products as listed by NEPC includes petrochemicals and methanol, gold, nitrogenous fertilisers and ammonia, hides and leather, and cash crops such as soybeans, cotton, palm oil, rubber, and cocoa.

According to the institution, the export target for this category is approximately $28bn or around 7 percent of global trade.

“Over the past decade, the Dangote Group, Nigerian Sovereign Investment Authority (NSIA) and Indorama have all developed interests in petrochemicals, fertilisers, and ammonia capacity. Indorama is ahead of the group, exporting fertiliser from its Eleme plants. Dangote Fertiliser commissioned its three million tons per annum facility in Lekki this year,” FBNquest said.

The second category under the NEPC’s plan comprises cement and clinker, fresh and processed tomato, banana, plantains, cashew, sesame seeds, cassava, oranges, spices, ginger, shea butter, and cowpea.

To promote the zero-oil plan, the NEPC is focusing on quick interventions such as providing shared processing facilities for businesses exporting agricultural produce, decongesting the Apapa ports, cold room facilities for those seeking to export perishable items such as vegetables and developing field-to-export transport corridors which would match infrastructural investments to key goals by Nigeria’s federal government.

“Ultimately, a lot depends on the country’s ability to achieve these targets and successfully diversify its revenue streams from oil,” research analysts at the asset management arm of FBN Holdings said.

Africa’s most populous nation recently launched a medium-term economic plan, (National Development Plan 2021 – 2025) the NDP. The Plan succeeds the Vision 20:2020 introduced in 2009 and the Economic Recovery and Growth Plan (ERGP) introduced in 2017 both of which expired in 2020. The NDP is also a bridge for the country’s long-term plan currently being developed, that is, Nigeria Agenda 2050.

The vision as stated in the NDP is “to make Nigeria a country that has unlocked its potential in all sectors of the economy for a sustainable, holistic, and inclusive national development”.

The six broad objectives of the plan include economic diversification, investment in infrastructure, security and good governance, educated and healthy population, poverty alleviation, and economic and social development across states.