Economic diversification in Nigeria took a centre stage last week at an oil and gas conference which took place in Lagos, with a good number of the speakers agreeing that it is now more compelling than before for the country to diversify its economy. Otherwise, the country might experience worse recession than it has had should the prices of crude oil slip to below $30 per barrel.
Much as diversification is good, because it would help gross domestic product grow, there is one basic thing that can currently make it happen and that is active investment in crude oil exploration and production from which comes the associated gas which some are say should be the fulcrum around which the diversification exercise should revolve.
Unfortunately these same critical sources on which the diversification could be leveraged are at the moment not being given the necessary attention by the government. In the last 10 years or more, there has not been any exploration and appraisal activities in the upstream sector of the petroleum industry. Most of the current investment inflows into the sector have been for production, which is not good for the economy. This situation must be reversed if diversification is to make any meaning to the country.
Power generation and distribution, real estate and attracting both domestic and foreign investments should be integral to the diversification effort through an enabling business environment.
Nigeria needs to be able to develop its real estate sector with a growing population, attract $125 billion in domestic investments and $60 billion in foreign investment annually” Andrew Nevin, advisory partner and chief economist PricewaterhouseCoopers, (PwC) said.
There has been no investment in exploration and appraisal activities in the last 10 years, which is leading to decline in oil reserves discovery. Most of the current investment inflows into the sector have been for production, which is not good for the economy.
The government should heed the warning of Odein Ajumogobia, Nigeria’s former minister of state for petroleum, that there is an increasing oil and gas consumption threat to Nigeria, which requires pragmatic action on part of government to reverse the lack of development in the upstream sector due to lack of clarity in policy. Nigeria he said might go the way of Indonesia, which was a net exporter turned into net importer of crude oil.
Our long honeymoon is over. If we continue the way we are going, Nigeria might become a net importer of crude oil. With its population growing at 3.6 percent per year, if nothing is done about reserves replacement and production we will soon go the way of Indonesia” Ajumogobia said.
Other issues that the country must contend and which may impede diversification include lack of human capacity developing due to a failing education system, ease of doing business and electricity.
If the country must have to diversify, the educational system needs attention. If the educational system collapses, there is no hope for diversification. We need human capacity to develop the oil and gas assets that Nigeria is endowed with.
Nigeria can easily diversify into agriculture because of its multiple value chain developments and the fact that these developments will rob-off on other sectors of the economy. Other areas are the service sector, manufacturing, unlocking the infrastructure, which will have huge impact on employment and boost household spending.
To move from a rental economy to one that is more productive, Nigeria also needs disciplined leadership. She must invest; put money aside for the rainy day. Nigeria and Norway started out at the same production capacity of 2.4 million barrels, decades ago, but Norway today has a sovereign wealth fund of $1 trillion and Nigeria struggled to save $1.5 billion” Austin Avuru, managing director and CEO at Seplat Petroleum Development Plc said.
All these can only be achieved if the government put a halt to incessant policy summersault which the country is often associated with.
