Mobilising for a Future without Oil

By Chijioke Nwaozuzu

In 2009, Margaret Atwood wrote a piece titled ‘The Future without Oil’ for a German Newspaper, Die Zeit. In that famous article, she said “it’s not climate change, it’s everything change”. That piece which is as relevant today as ever, presents us a picture of a possible future of an earth in which fossil fuel is no more; and thus prompts us to ask ourselves this pertinent question –what do we wish to create for ourselves today and for our future generations?

For years, Nigeria and some other African countries have depended on crude oil revenue for running their economies. While it is not a crime to benefit from natural resources such as oil, overdependence on a mono-product for satisfying immediate needs without thinking of the future presents potentials of catastrophic consequences – as is evident today.

African countries, like other resource-rich jurisdictions have had a series of windfalls in oil revenue, yet with minimal impact on ordinary citizens, owing to the fiscal recklessness exhibited by governments during periods of oil boom.

In Nigeria, for instance, petroleum accounted for about 90 percent of foreign revenue over a long period, yet only contributed about 14 percent to national Gross Domestic Product (GDP). Overreliance on crude oil as a major export revenue earner beclouded the development of some other productive sectors, which even contribute more to the GDP as shown in figure 1.

Sectoral Contribution to Nigerian GDP

Furthermore, the over-reliance on crude oil, whose price is prone to the vagaries of and volatility in the international oil market, exposes African nations to uncertainties in revenues, especially in periods of burst – as is the case today, leaving most of the economies with minimal revenues to fall back on.

While the current oil glut is biting export-dependent African nations hard, other crude oil rich countries who had strategic plans for the future – like Norway, Saudi Arabia, Qatar, etc., have less to worry about, because they all made provisions for the uncertain future. Such futuristic strategy is what differentiates them from their African counterparts, only some of which engaged in saving part of their resource revenues for the future generation, in what is called Sovereign Wealth Funds (SWF).

Today some of these stabilisation funds from oil revenues are running into billions of dollars, which would provide economic stability for those economies in the future, should oil run out or is replaced by another resource.

Even though some African nations have made efforts at averting the potential uncertainties inherent in the commodities market (as a result of the boom-bust cycle) by establishing the Excess Crude Account (as is the case with Nigeria) or Sovereign Wealth Funds, it has only achieved mixed success in creating the framework for savings during high oil price regimes.

Where successes were recorded in savings, it helped to smoothen government finances and budgets, and attracted international agencies, such as the International Monetary Fund (IMF) to back fiscal reforms (as in Nigeria), yet it did not prove a good mechanism for ring-fencing savings, as it did not have a legal provision for the sharing of revenue amongst government tiers. This, in itself, was a major flaw in the savings programmes, as they were not directed toward the future, but for immediate sharing among the levels of government. As a consequence, there were large-scale thefts, funds misapplication, and mismanagement, as is the case of Nigeria.

The aftermath of the above failure in Nigeria was the initiation of the Sovereign Wealth Act in 2011, intended to invest oil earnings during windfall periods into infrastructure development, as well as providing funds (stabilisation funds) for the future generation. Nigeria’s performance in the SWF as at 2015. Even with this, the fund has been beleaguered by issues of the lack of transparency and unaccountability in its management. This is not peculiar to Nigeria, as some other African countries (like Libya) have had their share of funds mismanagement. In spite of this absurdity, there should be a renewed effort on the part of the government at providing for a future without oil.

The oil sector creates only a handful of job (about 1 percent) in Nigeria, and the instability of revenue from oil could impact the overall growth of the economy (through changes in government spending), the position of fiscal and external reserves, and employment. Diversification here implies the development of the non-oil sectors (e.g. agriculture, manufacturing, services, etc.) and the reduction of oil dependency, as well as the creation of a non-oil economy that has the potential to sustain a high level of government revenue and the establishment of more jobs.

It is imperative for the governments of oil dependent economies to begin to diversify their economic base in order to reduce exposure to the inherent volatility and uncertainties that characterise the international crude oil market; improve private sector employment opportunities; drive up productivity; and strategically establish the non-oil sector of the economy, which in the future would act as a ‘safety net’ when revenue from oil may become insignificant.

To diversify the economy and thus reduce over-reliance on oil revenues, there is urgent need for national development plans geared towards boosting human capital development, rapid and consistent industrial expansion with the capacity to employ skilled labour, as well as mobilising the services sectors, which has the capacity to boost revenue for the countries.

To realise these goals would require a stable economic environment devoid of high inflationary trends, a business resulted in unconscionable massive agricultural land grab across the continent. Gradually in agriculture, we are at the risk of repeating what has happened in the pharmaceutical sector. There, R&D priorities are set by the Big Pharma, with huge investments in medicines for the rich and diseases of the affluent as opposed to the needs of the poor and vulnerable. With Africa’s agriculture in the hands of agro-TNCs, R&D agenda in agriculture will be far removed from Africa’s priorities and needs in agro-biodiversity and the sustainability of traditional agricultural knowledge and practices. That is not a viable pathway for the continent. environment that is strengthened and liberalised such as would encourage trade and foreign direct investment, a deepened financial sector, as well as an expanded and fortified educational system. These will impact and support private sector-driven economic activities, especially in the non-oil sectors, thereby providing job today and for the future.

Africa’s factor endowment in TK-driven agriculture sustains ‘the culture in agriculture’ as Africa’s way of life. The communal and cultural components of agriculture in Africa are the reason African agriculture resists being reduced to mere production line of industrial monoculture. Africa can lead the search for how best to integrate its agricultural traditions into a sustainable and winning business model. That would include selective and dynamic adaptation of technologies such as those relating to climate change adaptation and mitigation, not to mention irrigation (only four per cent of Africa’s agriculture benefits from irrigation technology) and the use of new ICTs for global market optimisation of Africa’s niche and value-added in crop diversity and organic production. Not only would ICT bridge the gap between farmers and sophisticated brokers in the global value chain, it would open untapped legitimate branding through trademarking options, geographical indications and other custom market options. Although it may feel like the genie is out of the bottle, African may yet resist being screwed by the global supply/value chain. Through internal selfsustaining investments in its areas of factor endowment, it may still avoid developmental havocs of advanced economies by rethinking the prospects of agriculture for the continent’s future in a constructive manner in relation to the self-serving and conventional prescriptions of western development experts.

Oguamanam is Full Professor, Faculty of Law, University of Ottawa.

There is no doubt that complete diversification of the economy from the oil to non-oil sectors is a difficult task, however timely implementation of adequate policies will help in its achievement. Lessons of such policies and diversification efforts could be learnt from countries like Indonesia, Malaysia and Mexico, which have been able to implement diversification of their economies from oil, with huge successes recorded. These countries did not only create favourable business and economic environments, but also focused on quality upgrading, as well as encouraging their firms to develop export markets.

• Fiscal Responsibility

In the case of Nigeria, over the years government revenues or finances have been handled with a high level of fiscal irresponsibility by government officials, characterised by the misuse and mismanagement of revenues from crude oil exports, thereby jeopardising the infrastructural development goals of the nation. Today, the era of fiscal irresponsibility has to be jettisoned, and addressed as a misnomer of the past, in order to garner ample revenue for driving sustainable development initiatives for the future.

Furthermore, the government should, as a matter of importance, strengthen the agencies responsible for the management of the Sovereign Wealth Fund, to insulate it from political pressures and interests.

• Improvement in the Taxation System

The objective of a good tax system is to guarantee long-term fiscal stability of government programmes and policies. Thus, an appropriate tax administration is necessary to ensure that tax payers comply with the provisions of tax laws and that the funds derived therefrom are paid into the government coffers. Over the years, however, tax systems in developing countries have had mixed results.

It has been estimated by the Global Financial Integrity that outflows from developing countries due to tax avoidance/evasion and illicit financial flows amounts to about $1 trillion each year. This is especially rife in countries with weak tax collection institutions/ systems. Therefore, countries should develop strategies for tightening every loophole to ensure appropriate tax collection, since such revenue could boost government finances needed for funding developmental projects.

Chijioke Nwaozuzu, a downstream petroleum economics and policy expert can be reached on cnwaozuzu@gmail.com

Access Bank has unveiled several discounts and mouth-watering freebies on its retail products and services to celebrate its customers in this season of love.

The Valentine season campaign, tagged ‘Love is More,’ will run from Feb. 1 to March 11, 2023.

Mr Robert Giles, Senior Retail Advisor, Retail Banking, Access Bank, said at the campaign’s debut that the initiative was introduced to demonstrate love and appreciation for its customers.

“Valentine season provides us with another opportunity to demonstrate our love and appreciation for our customers for the years of loyalty and support for the bank.

“We are using this opportunity to thank our customers for their commitment to Access Bank.

“We value our customers and non-customers who rely on our services and products to conduct seamless banking activities, and