Hydrocarbon as a predominant source of energy supply for the global economy has been at the center-stage for over half a century now. In recent months due to a plethora of geopolitical and economic factors the price of crude oil hit an all time high. Reaching $55 a barrel in October 2004. Analysts at the investment-banking firm of Morgan Stanley forecast that prices could surpass the $80 mark by the end of this year.
As the seventh largest exporter of this lucrative raw material Nigeria has been having a field day. This single product is the pivotal wheel on which the economy and politics of the country revolves. Already Nigeria’s export revenue has surpassed $20 billion this year, just as foreign reserves have ballooned to over $13 billion. But in the face of this price euphoria the country is still saddled with countless social and economic problems chiefly amongst which is the embarrassing cost of imported fuel amidst widespread poverty.
Already airlines operating in Nigeria have announced an imminent cancellation of flights due to acute shortage of aviation fuel. The Nigerian Labor Congress (NLC) threatens to embark on an indefinite industrial action beginning November 17th to protest the removal of fuel subsidy.
Could you imagine what would have been (or would be) of Nigeria without its crude oil revenue? Chad or Niger would seem like paradise. Current estimates of proven reserves are put at over 30 billion barrels. The government is pursuing an ambitious policy of increasing crude reserves to 40 billion barrels in the next 2 – 3 years and totally eradicating gas flaring by 2005. These targets are plausible and seem quite achievable given the recent major discoveries in the deep offshore region in Gulf of Guinea – mainly Bonga and Agbemi fields by multinational corporations.
…How Long More?
Crucial signposts to rising global energy consumption are the industrial growth spurt being experienced by China and India. Consumption pattern is also on the upswing in newly democratic countries of East and Central Europe, as well as the European Union and US itself. All this bode well for OPEC and Nigeria in the long term. However experience shows that it is impossible to predict or maintain stable crude prices for a prolonged period. Chances are that the higher prices go, the more incentives other countries have to drill for new fields or find alternative sources of energy. Solar energy and natural gas as new and cleaner sources of energy will gradually continue to erode the role of crude oil.
At the current production rate of 2.3 million barrels per day, Nigeria’s proven oil reserve would probably last a maximum of 25 years. Assuming proven reserves increase to 60 – 80 billion barrels in the next 10 -15 years production could last 40 to 50 years at most, which is still a remote possibility. Even at that, come to think of it, 50 years is not too far away, considering that it has been well over 50 years since the end of second world war (WW II).
It is safe to expect that in the lifetime of the current under 20 and 30 generation, Nigeria might run out of oil – "the goose that lays the golden egg". What would then be of the body polity? Nigeria loosing its oil wealth before ever achieving a remarkable stride toward industrializing, sufficiently diversifying its economy or creating a viable socio-economic platform for sustainable growth would portend serious trouble of unimaginable proportion. It would mark a truly "crude awakening".
For starters, projections already show that by 2025, Nigeria would be one of the ten most populous countries on earth with Lagos boasting more inhabitants than all but 3 cities in the world. In 2001, President Obasanjo called Lagos an urban jungle and rightly so. Historical evidence shows that Nigeria’s per capita income (and standard of living) has deteriorated precipitously over the last 2 decades to less than $300 dollars today.
In real terms, per capita oil revenue has fallen from an all time high of over $500 in 1980 to less than $300 today. By world standard Nigeria has the second lowest per capita oil revenue amongst OPEC members besides Indonesia and is listed amongst the poorest developing countries in the world with one of the lowest quality of life index by the United Nations, despite its remarkable oil revenue. Nigeria has the dubious reputation of being the country that has least prudently managed its oil wealth.
If these figures were plotted on a chart, you need not be an econometrician to decipher that the country has been on a downward spiral since the last 20 years, even in the face of global economic prosperity. So much so that, it makes you wonder whether Africa is caused. Would the curve ever reverse course? If so at what point would that happen to avert an imminent chaos?
A mono-product economy overly dependent on the export of a single raw material through the last 30 years can hardly sustain itself much longer, especially against the backdrop of a rapidly rising population and deteroriating life-standard, political instability, social unrest, diseases, crime wave and corruption. At around 2,5 percent growth rate, the number of Nigerians could easily top 200 million in 25 years and 300 million by 2050. At a critical juncture when the mainstay of the economy would have probably been depleted. To put this in perspective; could you imagine that at independence 44 years ago, Nigeria’s population was less than 50 million people? Today it is over 120 million.
It is logical to imagine that given the wealth of resources and natural endowment of the country some other raw material or cash crop could emerge as an alternate source of foreign exchange; say natural gas or solid minerals. An analysis of the current effort of the government would indicate to you that all hands are on deck to seek a new source of export revenue – however, creating any long-term alternate source of revenue short of manufactured and value added products would simply be foolhardy. The country would still remain under the vagaries of incessant price fluctuation in the world market. Managing an ever-larger population with meager and unstable revenue stream wouldn’t only be a tall order but could ultimately spell disaster for the country.
The ecological repercussion of current oil exploration and production activities on the country is still early to imagine and can hardly be fully ameliorated. Scientific evidence suggests an increase in seismic activities, pollution and diseases in areas of unrestrained and prolonged oil exploration and gas flaring. The means of livelihood and subsistence of indigenous dwellers in such regions are already in jeopardy with no discernable alternatives. Therefore, the continued lack of viable economic opportunities in these localities is bound to spur the likes of Mujahid Asari Dokubo to take up arms and foment instability.
A school of thought amongst policy makers would prefer to wish away this problems or simply ignore such prognostications and refer to similar unfulfilled dire predictions by doomsday scientist, like the "Club of Rome" – a group of scientists and think-thank that predicted all sorts of catastrophes such as the depletion of ozone layer and global warming, drying up of drinkable water or global population explosion by the end of 20th century and here we are in the 21st century.
Most Nigerian politicians who after all don’t expect to be alive in the next 40 to 50 years would prefer to leave this issue to future leaders to tackle, not necessarily because they don’t care but probably due to the nerve racking effort involved in tackling issues of such magnitude.
Nigeria is not on track to attain the UN millennium development goal for poverty reduction and improving life standard for its inhabitants. Over the long haul:
- Nigeria would need to step up action in the reform process to engender a sustained 3%-5% growth rate to reduce the excruciating level of poverty from 70% of the percentage of population (surviving on $1) per day (PPP).
- Recently released statistics by the World Bank showed that over 80% of oil revenue accrues to 1% of the population. That is such a skewed income distribution pattern that would surely exacerbate heightened social tension if not addressed.
- Nigeria has to drastically improve its growth rate to bring per capita income up to a reasonable standard of $3000 – $5000. It has to rave up the share of non-oil export revenue from the current 15% to at least 50% – 70% over the long-term horizon.
- Nigeria would need to tackle epileptic power supply to galvanize the industrial sector and stimulate budding Small and Medium Enterprises (SME). Access to long-term investment capital, social amenities and basic healthcare would need to be more widespread and dependable.
- Most of all, the supply of qualitative and increased volume of housing stock has to accelerate to forestall Lagos and other major cities from becoming "urban jungles".
The purpose is not to scare the hell out of anyone, but to draw close attention to the grim realities of the future facing Nigerian without petro-dollars. It is quite possible that Nigeria might avert some of these dire consequences if serious measures are set in motion today. Such as creating an enabling environment for a viable financial and industrial sector and sustainable progress, an economic structure that is humane, founded on equal opportunity, shared values, free enterprise and the rule of law.
A system devoid of unnecessary religious sentiments and ethnic bickering. An economy not dependent on export of raw materials or importation of basic consumer products. Then only can the country maintain its sanctity and allow peace and progress to rein, without the endless allegations of marginalization, otherwise, Nigeria could be in for a real " Rude Awakening", mark my words.
Chamberlain is the Founder & President of New Era Capital Corp. and MyCompleteFinance.com, a New York based financial services group. He was previously a Financial Advisor in the Global Private Client Group, of Merrill Lynch.