Nigeria’s economic diversification will fail if oil sector collapses

Stakeholders in the oil and gas industry have cautioned that the much sought after diversification of Nigeria’s economy will fail if oil and gas sector is allowed to collapse for lack of investment, policy somersaults and an unfavourable business environment.

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.

Experts with deep knowledge of matter said this on Tuesday, during a panel session at the ongoing annual conference of the International Society of Petroleum Engineers, holding in Lagos, with topic, “Emerging Economic Diversification Era in Nigeria: Challenges, Policy Frameworks and Prospects for the Oil and Gas Industry.”

Odein Ajumogobia, Nigeria’s former minister of state for petroleum, delivering the keynote address warned 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 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.

Some of the factors that impede diversification include lack of human capacity developing due to a failing education system, ease of doing business and electricity.

Wumi Iledare, professor of petroleum economics and policy research said “if we 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, Ademola Adeyemi-Bero, chief executive officer and managing director at First Exploration and Production Development Company Limited suggested.

To move from a rental economy to one that is more productive, Nigeria needs disciplined leadership. “You 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.

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 investement and $60 billion in foreign investment annually” Andrew Nevin, advisory partner and chief economist PricewaterhouseCoopers, (PwC) said.

Amy Jadesimi, managing director at LADOL, a logistics company disagreed with the received wisdom about what an enabling business environment. Jadesimi stated that some investors who insist on enabling business environment often believe in zero risks and high returns.

“We should get the local private to work in Nigeria. Government still constitutes 99 percent of the capital market in Nigeria. We need a level playing ground, we need simple practical solutions and despite all the challenges Nigeria is one of the most valuable markets in the world” Jadesimi said.