Clarke: Nigeria’s Success Depends on Execution of Reforms

01 Apr 2013

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Dr. Duncan Clarke

An economist and President, African Institute of Petroleum (AIP), Dr. Duncan Clarke, told Kunle Aderinokun in Johannesburg, South Africa, that if the reforms in different sectors of the economy continue, and drive favourable investment climate and long-term investment in oil and gas, Nigeria will be successful.

You wrote a book on the future of Africa, what motivated you and do you think Africa is emerging?
The economics of Africa has been the foundation of our thinking and business and I began my work in the academic world, in economics of Africa. Having been to 47 African countries for different reasons involved in oil and gas also, it occurred to me that it was time to take a look at Africa’s history.

The book looked at the economic evolution of Africa, its short to long term economic circles over a period of time. We also tried to understand why Africa is where it is now and what you will find is that Africa has seen some very difficult period in economic growth. It’s been backward for nearly 1,800 years. It started to grow at a very low rate and went through a rough period in the early seventies.

Recently, it has seen some growth with high commodity prices and better investment coming in. But the African economy is a bit sort of a misnomer because with about 55 countries you different indices and policies. Nonetheless, there is a rising GDP and GDP per capital level and that is the truth about the continent but not in every part. There are areas where you are experiencing low growth like North Africa. There is a weakening growth happening in East Africa as we speak and South Africa, which is the largest economy in Africa is doing a GDP growth of only 2 per cent.

So why you can say there is a growth in Africa I will caution against this. We have had comments about Africa rising, it’s going to be the last frontier and drive the global economy. That is meaningless in terms of the empirical actual record. But that does not mean that there hasn’t been growth and some improvement, capital development and the influx of new capital. There has been some opportunity in mining and oil and gas and some wider spectrum of industries. That is what the book try to explain.

Behind the evolutionary story, the cyclical growth that I have just explained, there is another phenomenon which is that the continent as a whole is shifting in a long-term paradigm from some kind of medieval economies to a practical capitalist and more modern economy with modern institutions, industries and structures. I think that is the big drama for Africa in the 21st  century. However, this shift in paradigm will not be smooth, simple or follow all the forecast.

Let’s talk about Nigeria. As an economist, who studies and analyses countries around the world what is your opinion of the Nigerian economy?

Well my opinion doesn’t matter, what matter is the track record and the track record demonstrates unequivocally that its GDP growth rate has improved. Whether it makes 6 or 7 per cent is a question of statistics. One of the problems of Nigeria is and it is a problem across Africa is that the statistical data bases are weak. In Nigeria’s case the GDP had been based in the past on the 1990 base. I am sure you are aware of the plan of rebasing the GDP? That does not change conditions on the ground over night because you have a number. It won’t change some perceptions about the scale of the economy, about its ranking within Africa and against other countries around the world. The rebasing is a kind of a microeconomic dimension. But the prognosis appears to be that there have been a number of reforms in Nigeria, but not enough obviously because these things are not easy to do.

Nonetheless, if they continue and can engender a favourable investment climate, encourage growth in foreign direct investment, and ensure a stable long-term investment in oil and gas, you are on the road to success. To ensure this, the Petroleum Industry Bill (PIB) should be considered on time. The question for Nigeria really is if the legislation is in the interest of the Nigerian people. My view and this is the view of the African Institute of Petroleum is that the unlocking of natural capital in Africa whether it is oil and gas or mining, the process must be done in a competitive open market basis. When you have resource tilting towards nationalism, excess government intervention and  uncompetitive environment, it diminishes the economic circle. I will caution against any political decision because we have seen that in many African countries. What it will do is that it will make Africa uncompetitive against countries in Latin America and Asia and investment capital will go to those areas. That is the dilemma that countries always face. An extreme example is what is happening in Venezuela where basically nationalism is causing so much damage to the country’s oil industry.

The PIB in Nigeria is an all-important bill that will spore growth in the oil and gas industry and the economy at large but we have seen that there is a drag in making the bill a reality. From what you have been observing, as the president of the African Institute of Petroleum, what solution do you proffer as a way forward?

What Nigeria seems to be trying to do with the PIB is to consolidate all her past history of regulations, controls, decrees, legal edit and discretionary decisions that had been held in a range of institutions from Presidency to DPR to NNPC and others and come up with a formula that makes a long-term sense for the allocation authority and decision makers in the award of acreage and bid rounds and so on and also serve as the bases for deepwater, marginal fields, onshore, offshore everything. That is laudatory but it’s taking a very long time, five years may be, we might see it this year, and we might not. There is no clarity as to when it’s going to emerge and what exact form. And that is the process that will come out of the political laundry of Abuja; If its negotiable in the land of no tomorrow

Ideally, in our own view, it’s an overcomplicated reform. There are some many different institutions and structures that have been proposed. The simplest model that you find in worldwide best practice for the organisation of the industry really come down to a ministry that has got the policy on behalf of government; that is an agency that is an authority and is autonomous, separate from the ministry, established by law and separate from the national oil company, that is looking after allocation of acreages, bid rounds, its marketing, awards and obligations of companies and contracts. Then a national oil company such as NNPC that is commercialised, that operates on an independent autonomous financial balance sheet that will allow it to re-invest, allow it to go international when there are opportunities as you see with Petrobas, Petronas, and so on. That kind of a combination is our view ideal.

You might also reasonably argue that given Nigeria’s very large gas resources- 190tcf plus, that you could have additional institution that will manage the gas. That model is recommended and operated in Mozambique, Mali and in different forms; they are seeking to put it in place in Ghana and to some degree expected in Uganda; and they have it South Africa, you know Petro SA, Petroleum NGC in South Africa. I think, lets pick a model, rather than having institutional complexity.

We don’t know what’s going to come out of PIB, frankly. I’m sure, what we know is that there has been tremendous discussion, a lot of different points of view but the less complex the better, the more competitive, the better. Competitive, being against other opportunities not just in Africa, but worldwide. This is what we are seeing in Paris, London, Houston, Tokyo, Beijing and even in Africa. There are bid rounds and acreage offerings every week worldwide, and increasingly more and more in Africa.

In an open competitive market, as far as any national oil company is concerned, they need to be as commercial as possible and act in partnership with other private and international oil companies.

So you are saying in essence that the Nigerian government should not make the PIB a big deal because recently there was rancour in the senate over the PIB. Are you saying that we should rather make it simple rather than making a big deal of it?

What I am saying is that there are models that have worked that would not be bad looking at and that complex institutions and structure is problem. If you look at Brazil, its Petrobras is quite international, it has international portfolio and there is the AMP, which is the licensing body and then you have the ministry. You have a similar body in Columbia and Indonesia. These are some of the methodologies that we can look at and are willing to recommend because they have worked.

What is Global Pacific and Partners about? What do you do?
Our company is a private advisory company with a focus on the developing world of Africa, Asia, the Middle East, with a mix of strategy briefings, high level management conferences and a private practice on a client relation bases for either government or private companies.

What did you see in Africa that you think that Africa should be part of your brief?
Quite simple, I and almost everybody in our company were born in Africa, I grew up here, I started doing economics and professional work in Southern Africa and Eastern Africa, Western Africa, Northern African, right across and we deal with everybody across the continent in oil and gas matters and every other matter.

We have a long advisory practice in Africa and dealing with institutions from the African Development Bank (AfDB), to the ECA, multilateral, bilateral, for government and for private companies. It is just our natural home and we also have a lot of wider global experience in Asia and the Middle East. We have been involved in Asia since early 1980, Latin America from the early 1990s.
In terms of economics, it’s been a long time as a matter of fact, it’s been a 40-year track record.

On the conference side we are having our 20th anniversary in Cape Town South Africa in the last week of November this year. We have also, across Africa, been active with acreage and asset marketing for government and we have done this for several governments in Africa.

Bio data
With 30 years in global oil and gas, and Founder of Global Pacific & Partners as a leading private Advisory firm in worldwide petroleum, Duncan Clarke has acted as advisor to numerous companies and Governments in Africa, Asia, Latin America, MidEast, Europe, and North America. He is author of foundation research on the world industry from the early 1980s, covering strategy, competitors, countries, National Oil Companies and in/on Africa, Asia, Latin America, Australasia, and the MidEast. He conducts annual Strategy Briefings worldwide on Governments, National Oil Companies and corporate oil in Africa, Asia, Latin America, MidEast, and Europe - available in our World Strategy Online. He leads fir firm’s Africa Advisory Practice on business strategy in Sub-Saharan Africa. Duncan Clarke is author of The Battle For Barrels: Peak Oil Myths & World Oil Futures (Profile Books, London, 2007) and Empires Of Oil: Corporate Oil In Barbarian Worlds (Profile Books, London, Sept 2007), and Africa: Crude Continent: The Struggle for Africa’s Oil Prize (Profile Books, Sept 2010). He graduated in 1975 with Ph.D (Economics) from University of St. Andrews, Scotland.

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