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Botswana or Gabon: Nigeria’s oil, gas pathway to prosperity is closing

Oil and gas
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Botswana and Gabon present Nigeria with two examples of how a country can either decide to deliberately leverage its natural resources to create shared prosperity for citizens or sit back and watch them descend into poverty.

One of the world’s poorest countries at independence in 1966, Botwana, a Southern African country of 2.30 million people rapidly became one of the world’s development success stories.

Botswana is heavily dependent on its diamond resources, which according to the World Bank, is responsible for 25 percent of the country’s gross domestic product (GDP), approximately 85 percent of exports earnings and about one-third of the government’s revenues.

To avoid the common pitfalls associated with discovery of natural resources called ‘resource curse’ or the ‘Dutch disease’, Botswana deliberately pursued clear objectives: steered the country away from external debt, stabilise growth and encourage economic diversification. To achieve this, the country designed economic policies that avoided excessive expenditure during boom periods, accumulated international reserves, and ran budget surpluses earmarked for stability spending during leaner periods.

Gabon a Central African country is categorised as an upper-middle-income country of 2.03 million people. The fifth largest oil producer in Africa, it has had strong economic growth over the past decade, driven by its production of oil and manganese.

The oil sector has accounted for 80 percent of exports, 45 percent of GDP and 60 percent of fiscal revenue on average over the past five years. However, the country is facing a decline in its oil reserves; the Gabonese government has based a new economic strategy on diversification.

But, the poor quality of Gabon’s business climate is a major barrier to the diversification of its economy. Gabon ranked 167 out of 190 countries in the 2018 Doing Business report. The government’s strategy for the promotion of non-oil sectors has so far been based on the granting of specific incentives to foreign investors.

The population of both countries (a little above 4 million) put together is less than the population of Lagos State, Nigeria. So, it is easy to argue that the relatively smaller population of these countries is an advantage in terms of governance.

Both countries have a little over two million people yet the story of natural resource governance in each is different. This means a smaller population does not necessarily translate into better natural resource governance. Institutionalised savings, reinvestment and provision of social goods (education, healthcare) from natural resource revenue, such as oil are two factors that create wealth for both present and future generations.

Nigeria, Africa’s largest crude oil producer has lessons to learn from both countries as it faces a closing window of opportunity with regards reforming the oil sector to attract more investment.

Africa’s most populous nation’s oil reserves have remained stagnant at 37 billion barrels for decades. At an average of 1.70 million barrels a day, Nigeria has less than 50 years of oil production left. And there has been no fresh investment in the sector and no new oil discoveries.

A Premium Times Centre for Investigative Journalism (PTCIJ) report showed that Nigeria earned $109.37 billion, approximately N15.274 trillion, as excess crude money between 2004 and 2018. According to the report, the fund reached its peak with a real inflow of $18.16 billion in 2008.

Excess crude money is the difference between the budget benchmark and actual crude oil price. Crude oil benchmark for the 2019 budget is $60 per barrel. So, if oil price goes above this amount the difference goes to the excess crude account (ECA).

Unfortunately, Nigeria has failed to transform decades of oil earnings into sustainable development, despite being the largest producer and exporter of petroleum in Africa and one of the ten largest producers in the world.

 

STEPHEN ONYEKWELU

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