Obinna Chima writes on the need for Nigeria’s policy makers to prepare the economy for a post-crude oil era
A 2017 study that was published by Stanford University suggested that fossil-fuelled cars would vanish within eight years â€“ and citizens will have no choice but to invest in electric vehicles or similar technologies.
This, according to the report, would bebecause the cost of electric vehicles â€“ including cars, buses, and trucks â€“ will ultimately decrease, resulting in the collapse of the petroleum industry.
Led by Stanford University economist, Tony Seba, the report had caused spasms of anxiety within the oil industry, when it was released.
Entitled â€œRethinking Transportation 2020-2030,â€ it had detailed how people will ultimately switch to self-driving electric vehicles, stating that they would be ten times cheaper to maintain than cars that run on fuels.
According to the report, in less than a decade, it would become very difficult for consumers to find petrol stations, spares or mechanics knowledgeable enough to fix combustion engines. His ultimate premise was that modern-day car dealerships would disappear by 2024 as the long-term price of oil.
Clearly, while the advent of electric cars may not be embraced in Africa in the coming years as estimated by Seba, this innovation coupled with shale oil as well as other technologies in crude oil production is going to disrupt the sector.
Indeed, it is going to have an attendant effect on the demand for crude oil from Nigeria and other oil producing economies.
In Nigeria, oil accounts for almost 90 per cent of the countryâ€™s export and 95 per cent of revenues, respectively.
In fact, when the economy slipped into recession in 2016, it was because of the collapse in crude oil revenue and an increase in oil production saw the country exiting recession. But the oil industry contributes little in direct employment relative to its contribution to government revenues.
The foregoing therefore was the reason why experts that spoke at the Nigeria Economic Outlook Conference (NEOC) 2018, stressed the need for government to genuinely pursue its much talked about drive for economic diversification.
No doubt, the countryâ€™s abysmal low tax base, as well as the internally generated revenue are all because of laziness on the part of the countryâ€™s political leaders since the discovery of oil.
In addition, the political tension and civil arrest in the country have in most cases by traced to the fight for share of the revenue accruing from oil revenue.
Nigeria has been projected to be the worldâ€™s third most populous country by 2050, according to the United Nations Department of Economic and Social Affairs. With that, the country would have a median age of 22, making Nigeria the third most populous country in the world, after India and China
Also, there have been outstanding and rapid developments in the field of robotics, leading to the emergence of robots that can replace human in many manufacturing process.
As a result, the manufacturing activities that were typically outsourced to developing countries in the past due to high labour cost.
To the President of Times Economics, an economic consulting firm and the organiser of the NEOC, Dr. Ogho Okiti, there need for policymakers in the country to start preparing for a Nigeria that is not driven by activities in the global crude oil market.
He noted that for five decades, Nigeriaâ€™s relationship with the global economy was shaped by the sale crude oil and the attraction of investment to the sector.
Okiti, however, pointed out that in the last decade, two important features have continued to threaten the allure to the countryâ€™s oil sector.
â€œFirst, we have seen and continue to see, very aggressive development of alternative sources of energy.
â€œSecondly, we have also seen the development of technology that made previously inaccessible crude oil available at reasonable cost.
â€œCombined, the implication is that today, the world thinks more about when there would be a peak in the oil demand, compared to about 20 years ago, when the thought was about whether the world would run out of oil,â€ Okiti explained.
These, he also noted would have severe implications for the Nigerian economy and its future relationship with the global economy.
â€œIf development continues at this pace, the manufacturing route to prosperity which was once open to Asian tigers, could be closed to Nigeria.
â€œThe shift towards nationalisation as seen in United States and the Brexit referendum has also influenced hostility towards international trade and migration,â€ he warned.
Human Capital Development
To the founder and chief executive of the Computer Warehouse Group (CWG), Mr. Austin Okere, there is need for increased investment in human capital to drive activities in the country, especially the non-oil sector of the economy.
Okere noted that the issue about crude oil is that it dominates so many other sectors and makes it difficult for policymakers to take their eyes away from it.
â€œCrude oil prices would go up and down and nothing is going to hold it stable. There are other areas such as media, entertainment, agriculture, that we can develop and even export.
â€œI think we should start looking at the fourth industrial revolution and how we can leapfrog on it. But I think we shouldnâ€™t be too fixated on crude oil prices,â€ he added.
Also, the chief executive, Rise Network, Mrs. Toyosi Akerele-Ogunsiji, urged Nigerians to disregard the notion that the country is an oil-rich economy, saying that countries are not adjudged to be rich because of what they have, but because of their know-how.
She expressed disappointment that since the discovery oil in the country several decades ago, it has remained only at the stage of primaey production with no value addition.
â€œAt the end of the day, oil will not refine itself, you need the human capital of those countries to be able to refine the oil.
â€œIf you really appraise the parameters you measure to know whether countries are successful or not, Nigeria does not feature in any of it. But the challenge is the amount of energy we spend discussing issues around oil. There is need for the country to prepare for a post-oil economy.
â€œWe need to start thinking about how to move on from a country that is so oil dependent to a country where we can begin to create wealth. The truth is that economies that consume are superior to economies that produce,â€ she argued.
On his part, the chief economist at Macroafricaintel Investment LLC, Dr. Rafiq Raji, noted that less demand for crude oil as a result of electric car and other innovations in crude oil production means that any supply management by the organisation of petroleum exporting countries (OPEC) in the future may not succeed.
â€œOur vulnerability extends to the fact that we are not preparing for that future. The best we have been able to do is to talk about how agriculture can help us.
â€œNow, if developed economies can produce goods with less human needs and in a cheaper manner, that means there is nothing we can do to be competitive,â€ he explained.
The Minister of Finance, Kemi Adeosun, recently pointed out that the federal government was no longer bothered by fluctuations in the price of crude oil.
According to Adeosun, the federal government has learnt to live with a low crude oil price.
â€œWe have gotten to a point where we donâ€™t care whether oil prices will be sustained at the level that they have recently risen to.
â€œWe have been able to balance our budget at $45-$46 per barrel and weâ€™ve got to learn to live comfortably at that level,â€™â€™ she said.
She said the governmentâ€™s diversificationefforts include pushing for agricultural expansion to reduce a heavy food-import bill and boost exports. Adeosun while noting that the government was seeking to plug an infrastructure gap of $25 billion, said â€œthe infrastructure gap is significant, it is far bigger than anybody had imagined, in power, in roads, in rail.â€
For Raji, there is need to increasingly encourage activities in the non-oil sector, especially as regards to innovation, as well as make sure there is adequate policy around credit.
â€œWhen you donâ€™t resolve some of the structural challenges, like power for instance, there is not much that can be done.
Unless we resolve some of these constraints, we are not going to extract wealth from the real sector,â€ he advised.
Also, Okere pointed out that the biggest employers of labour in the country presently are the entrepreneurs, stressing the need for capacity building and other incentives that would encourage business owners.
â€œMany of them can do better if they are empowered with technology and inclusiveness. The human capital development is extremely important, because that is where the wealth is.
â€œPower is the fundamental for industrialisation. Another thing that very important is broadband,â€ he added.
The foregoing shows that there is an urgent need for the country to fast-track its transition to a post oil economy. Government at all levels need to start thinking and encouraging creativity and innovation. All over the world, there are resource rich countries that are not dependent on commodities and have been able to transform their economies. What the country requires today is to enhance its investment in infrastructure, education and manpower development, which would in turn drive competitiveness.