Having imported N18 trillion ($43.5 billion) more than it exported over the past five years in petroleum products, experts have decried Nigeria’s political class’ failure to diversify the economy over the last six decades of oil production, not even in the oil industry.
According to the Organisation of Petroleum Exporting Countries (OPEC), Nigeria spent $264.57 billion importing petroleum products during the five-year period 2015 to 2020, which means that Nigeria’s petroleum products imports exceeded its exports by $43.56 billion during the period.
Baring his mind on the issue, professor and senior special adviser on industrialization to the president, African Development Bank, Oyelaran-Oyeyinka, said the Covid-19 pandemic exposed the dangers of such dependence in ways never experienced in the past. According to him, the yoke of Nigeria’s colonial past of being a supplier of raw materials rather than a processor of commodities resulted in a country of a net exporter of crude petroleum and importer of products mired in the perennial debate about “fuel subsidy”.
Oyeyinka said the legacy of oil-dependence also translated to a Nigerian production ecosystem dominated by foreign oil multinationals whose sole purpose is to explore, extract, and export resources with zero value-addition in situ. He said relying on oil has done little to stimulate growth in the rest of the economy. “The manufacturing sector’s contribution to GDP has stagnated at below 10 percent for decades. The country has achieved neither an agricultural (green) nor an industrial revolution,” he added.
“Oil-dependence sets in motion a strong exclusionary effect on other sectors leading to the underdevelopment of manufacturing capacity for industrial exports, and export of processed agricultural goods. This pathology of dependence is significant and troubling. It has resulted in severe perennial fiscal contraction and other economic challenges including unemployment, inflation, and payments imbalance manifesting in foreign exchange shortages,” he stated.
Pitching Nigeria’s stagnancy with other oil-producing countries, Oyeyinka said “Nigeria shipped $33.5 billion worth of goods in 2020. The biggest export is crude oil, a commodity that represents three-quarters (75.4 per cent) of its total exported goods by value. With a population of 206 million people, the total export value translates to roughly $160 for every person. Comparing Nigeria with Malaysia, he said, in 1990, Malaysia’s export was 32.8 billion.
“Nigeria is where Malaysia’s export capability was 30 years ago. That country, with a population of 33 million people, exported goods worth $234 billion in 2020, which translates to roughly $7,100 for every resident. In other words, Malaysia progressed; it did so through a strong Vertical Diversification from its modest agricultural base (rubber and oil palm) by investing explicitly in high-tech sectors capabilities, especially electronics. It did not neglect its agriculture but rather through horizontal diversification, industrialized its agricultural sector. Malaysia’s biggest export products by value in 2020 were electronic integrated circuits, refined petroleum oils, palm oil, vulcanized rubber clothing or accessories, and solar power diodes or semi-conductors. Petroleum oil’s contribution to Malaysia’s export declined over time.
“On the other hand,” according to Oyeyinka, “Nigeria’s pathology of oil dependence became entrenched over time. Nigeria’s oil exports in 2019 were 94.1 per cent of total exports, oil rents amounted to 9 percent of GDP. The poorly diversified structure of the Nigerian economy reveals constrained export revenue of the country. The oil and gas sector makes only a small contribution to GDP despite generating the majority of export earnings. By nature, the Oil and Gas sector is a high technology and capital-intensive industry relative to agribusiness and other low/medium manufacturing sectors (textiles, garments, leather processing, consumer goods, etc.), employing relatively few people. The oil sector is an enclave, geographically delimited.
“Disturbingly, decades after oil discovery, the country does not produce the materials and equipment used in the exploration and production; the sector, therefore, has limited horizontal inter-connection to the domestic economy. There is minimal domestic manufacturing input in the oil sector, especially in oil product refining,” he said.
“Oil abundance is not by itself a curse or a blessing. What determines the development trajectory of such a treasure include the nature of a country’s political economy, policies, and the institutional context within which the country operates. Oil in Nigeria became a curse for four reasons among others.
“First, politicians expend oil revenue to extend patronage and entrench cronyism as the next election, not the next generation is their mission. Second, as oil revenue services a patronage system, the state has no incentive to please citizens and less so to invest in say tax administration. This is why Nigeria has the lowest tax to GDP ratio (6 percent) in the world. The average for Africa is 17 percent. The third is the voracity effect/cost of government: politicians living and spending oil revenue lavishly while the majority of the citizens languish in poverty. Last, there is a lack of long-term vision for economic development and economic diversification. In sum, rent seeking policies have resulted in resource curse that fuel corruption and citizens’ grievance, triggering of civil conflict, ethnic fractionalization particularly in the context of dysfunctional institutions.
Despite repeated promises to diversify the economy, there is nothing on ground to suggest any serious thinking along that direction. Yet, apart from the few people involved in the oil and gas sector, which is about the only industry that still thrives today despite its own challenges, most other industries that provide sources of livelihood are in comatose.
Two stakeholders in the Nigerian agribusiness sector, who craved anonymity, expressed unease to this medium that they are worried that Nigeria continues to neglect cash crops like cocoa, oil palm and groundnuts, which for years constituted the mainstay of the country’s economy.
In the early 1960s, Nigeria’s palm oil production accounted for 43 per cent of the world production, but now accounts for less than seven per cent of global output, with most of the production coming from dispersed smallholders.
NATIONAL ECONOMY can confirm that Indonesia currently earns more revenue from the export of palm oil than Nigeria does from the export of crude oil.