By Samuel Kanu
A slump in oil demand from COVID-19 and an oil price war has led to a significant slash in oil prices. So once again we find ourselves reflecting on lessons Nigeria should have learned on the importance of diversification away from oil dependency. However, this time, the economic outlook is grimmer and the future of oil bleaker, as the global economy faces unprecedented challenges. To understand the need for diversification, we can look at three areas.
Diversification for economic recovery post COVID-19
Increase investments in driving and enabling sectors to improve our capacity for local and international production and job creation. To soften the COVID-19 impact on Nigeria’s economy, quick investments in driver sectors like agriculture, manufacturing, and trade are needed. These significantly contribute to job creation and GDP but have not received enough investment for development. Additionally, sectors like finance and infrastructure which enable the productivity of other sectors have been ignored as businesses struggle with power supply, access to finance, and internet connectivity. These might not be new suggestions, but the urgency to actually do them is greater.
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Focus on the resources above ground, not below
We must focus on developing our workforce by taking a new approach to improve education and empowering women. Women makeup half of the population but still have limited access to education and finance.
Past measures to replace lost oil revenue have aimed at increasing tax coverage, and while this a lauded response, the high rate of unemployment and underemployment reduces living standards and limits revenue generation from taxes. Empowering the workforce and providing access to high-value employment will not only support economic recovery but also provide a larger and richer pool of tax-paying citizens, and unlike natural resources, human resources do not lose value but will keep strengthening the economy in the long-term.
Beware of borrowed time
While Nigeria’s oil reserves deplete, there might be a global push to go greener. Results from COVID-19 lockdowns have clearly illustrated how much human and industrial activities affect our planet. For the first time in 30 years, communities in Punjab, India, could see the Himalayas from over 100 miles away and China’s carbon emission fell by 25 per cent, all due to reduced pollution. Hence, while there are concerns that low oil prices will make fossil fuels more competitive compared to renewable energy, in the long-term, the oil and gas industry are recording a change in consumer behaviour and government regulations that leads to increased demand for sustainability.
For example, environmental experts have suggested that in return for public bailouts, the oil and airline industries must provide firm commitments to renewable energy, similar to bailout terms for the automotive industry after the 2008 crisis. While this change will not translate to the end of oil demand, it signals an increased move to renewable energy replacement; thus, we must take quick and extreme measures to diversify our economy and ensure that we transition from a key oil player to a sustainable economy built on our people and capacity.
