BusinessDay’s columnist and chief economist Nonso Obikili’s recent article titled “Are we a post-oil state?” is very insightful. He detailed Nigeria’s government revenue history, the introduction of crude oil income into the revenue mix and the relationship with Nigeria’s gross domestic product (GDP) over the decades. Obikili cited a recent paper by Sarah Burns and Olly Owen of the University of Oxford. The researchers were motivated by, “frustration at the paucity of data available on critical issues centring on Nigeria’s real level of focal reliance on oil, usually assumed to be overwhelming.”
In their paper, “Nigeria: no longer an oil state?” they declared that, “While there is much speculation about Nigeria’s probably post-oil future, it is, in fact, a present reality. In 2015, for the first time since 1971, Nigeria’s public finances had already earned more from non-oil sources than from oil revenues.” They concluded that Nigeria is a post-oil state “in the narrow sense that public finances have transitioned from oil-dominant to non-oil dominant…so Nigeria is not just becoming, but has become a post-oil economy.”
These are valued insights, salient points that would help stimulate fresh thinking about the relationship between oil, the economy, and the Nigerian state. Unfortunately, the language used in the Oxford paper could prevent readers from fully appreciating the important points they make.
For purposes here, I will separate the “state” from the “economy” and conclude that Nigeria is still very much an “oil state” but not yet an “oil economy”.
In fact, I believe that reforms in the oil sector over the past 10 years will soon yield fruit and the oil sector will help industrialise the country. It is true that oil contributes a deceasing percentage of GDP. This is mostly due to GDP rebasing carried out the in 2014. Nigeria is an ‘oil state’: oil contributes a large portion of export earnings (more than 70 percent).
The Nigeria state could be described as a rent-seeking state, dependent on oil exports. This is ironically confirmed by the authors when they stated that “core institutions and policies lag behind as they remain structured around assumptions that oil in central. Most of the government institutions bear the marks of turn-of-the-century oil-fuelled distributive and developmental thinking.”
This is actually a description of an oil state! They further stated that, “capital formation and wealth accumulation across both the private and public sectors assumes the offstage presence of a huge and commercially attractive resource endowment which covers up underperformance, forgives a range of policy and implementation sins and allows “non-earned” income streams to displace more methodical means of development.”
To become an oil economy, the oil sector has to contribute more to GDP and catalyse industrialisation. One link from oil to GDP is refining. The Nigerian Petroleum Policy (2017) emphasises the importance of oil refining: Nigeria is the only member of the Organisation of Petroleum Exporting Countries (OPEC) without effective oil refining capacity.
Capacity utilisation of Nigeria’s refineries dropped to 14 percent in 2014 against a global average of capacity utilisation of 90 percent. One of the objectives of the NPP is to create value for the Nigerian economy by processing oil into important products for other industries. Research carried out at the London School of Economics (LSE) estimated the impact of refining capacities on economic growth and institutional quality. The empirical results showed that increased economic growth is statistically significant and positively correlated with an expansion of oil refining.
The Nigerian Oil and Gas Industry Content Development Act (2010) was passed into law to help transition the country from an oil state to an oil economy. It was estimated that approximately $300 billion was spent by the petroleum industry on imported goods and services with little contribution to GDP between1980-2010.
The oil and gas industry is characterised by capital flight and virtually/non-existent local industry input/patronage. So “Nigerian content” is defined in the Act as “…the quantum of composite value added to or created in the Nigerian economy by a systematic development of capacity and capabilities through the deliberate utilisation of Nigerian human, material resources and services in the Nigerian Oil and Gas industry.” The NOGICD Act is thus a federal government policy intervention, aimed at (1) the internalisation of inputs into the industry (2) transforming the petroleum sector from an “enclave” sector, to a sector with backward and forward linkages to the rest of the Nigerian economy. To create an oil economy from an oil state.
UYIOSA OMOREGIE
