Framework for Utilizing Petroleum Wealth for Sustainable Development
-Dr. Timothy Okon
The 13th Edition of Emmanuel Egbogah Legacy lecture series was recently held at the Emerald Energy Institute auditorium, University of Port Harcourt, in Rivers State.
The Emmanuel Egbogah Foundation (EFF) which was established in 2019 to honour the legacy of renowned Petroleum Engineer, Dr. Emmanuel Egbogah organised the annual lecture series which attracted crème de la crème of the academia and the energy industry.
The Keynote speaker was Managing Partner of TENO Energy Resources limited, Dr. Timothy Okon and erstwhile Group General Manager Corporate Strategy of Nigerian National Petroleum Corporation (NNPC).
Delivering his keynote address, Dr. Okon was worried about the slow progress in oil and gas industry compared with elsewhere in the world. “We used to talk about the future of monetizing gas, particular prospects for development of micro petrochemical plants and fertilizer schemes. There is severe under development in oil and gas sector and if Nigeria does not process its energy resources and continues to depend on oil and gas as income strategy without strategic action, it will not yield result but deception. If you don’t match your prognosis and formulations with strategic action, you would end up being a laughingstock of the world.”
For over thirty years, Nigeria has been emphasizing on power. Sometimes it reveals 4000 megawatts (MW) but unfortunately, it is still 4000 MW of electricity. This however unveils the country underachievement. Looking at sustainable development, it could be couch in terms of development efforts that enhance inclusion. It has equity built in it for purpose of the future. The Niger Delta is widely recognised as the most polluted oil producing regions in the world. How the country got there should not be a mystery to anyone. Our developmental efforts show clear signs of unsustainability.
Sustainable Development
In the Unitarianism principle, the past is the key to the future. “There is a saying in Iceland that going into the future you must walk backwards.” This is a principle used in achieving sustainability.
There is an issue of governance sustainability which is a key part of sustainability with regards to inclusiveness and the well being of society.
A nation cannot be a sustainable entity with security issues and loss of lives hence sustainability ensures a strong, healthy and just society.
Sustainability Goals
Nigeria failed the MDG roles spectacularly and the country is on the verge of doing same with SDG, if it does not reframes its thinking and understanding of how government should function and affect societal needs.
People underestimate environmental problems in the country especially in the Niger Delta where there is soot with environmental challenges. Looking at how toxic petroleum is, if care is not taken life cannot be sustained.
Understanding the implication of the environment is paramount.
How Can Petroleum Impact?
In 2015, when the oil price collapsed it was an issue. Of all the tradable commodities in the world, the entire value of those traded does not cover petroleum in other words the revenue that comes from petroleum even though the price was about $30 per barrel, was much more than all those commodities combined. Petroleum affects economic impact when introduced in an underdeveloped economy. The impact is huge.
There was a time Nigeria made huge money in oil and the country did not know how to spend it. This influenced certain mindset and created a culture of irresponsible utilization of resources that ought to be managed. Many have referred to oil as a resource curse.
The importance of petroleum cannot be understated. It has a huge impact and affects economies to an extent that it creates economic distortions. The distortions lead to poverty.
Resource Wealth and Poverty
The techniques of managing a depleting resource and other essentials are the same because they are not renewable.
The absence of interest by most littoral states about fishing in Nigeria is amazing. The country can also make good fortune in fishery with a workable blueprint framework as part of resource wealth although it has overwhelmingly centralized structure. It should be considered as national priority and resources.
Theories of Economic Development
In Nigeria, there are two of these theories that affect the country. Looking backwards from the colonial setting, the agreement had been to produce the cash crops, export it and bring back as imported finished goods. This structure is persistent to extraction which is called a dependency model.
There is neoliberal theory which is essentially referred to as the Washington Consensus and consists of ten policies. Such as: removal of subsidies, exchange floating rates, privatisation among others. Such policies can be followed at one’s peril, because the economic prescriptions hardly have basis on an economy that has nothing to produce. For instance, “if you devalue your currency, you are basically trying to make what you produce competitive internationally. What do you produce? Surprisingly, Nigeria has just only one product which is oil. How did we get there?” What we do is to ship the crude which is complex hydrocarbons. This is the dependency theory.
Recent interventions have shown that Washington Consensus is not suitable for an economy like Nigeria.
The Mercantile Theory which Asian tigers such as South Korea, Taiwan have adopted and developed. They have focused on that strategy and do not open their markets as dumping grounds for all sorts of products that are shipped until they have developed the capacity to compete. You cannot be in the game and following policies that are never competitive.
There has to be a national will where the focus is on growing what is produced in the country. In the past years in northern Nigeria, there was groundnut pyramid with processed products. There are other derivatives such as peanuts that could be used for commercial benefits which are shipped to other countries. It is a framework for economic development. It is not all about consumption, and once the oil money runs out, there will be trouble. “We have been running in trouble lately, because there is no enough money to service debt and import implements.”
Nigeria should be like other countries that export goods and services; it will be beneficial for future development.
Mercantilism deals with protection sector intervention whereby there is competitiveness within the country without monopolies. South Korea, for example manufactures Daewoo, Samsung and others. There is an internal competition. This is what China, Taiwan, Indonesia and many of the Asian tigers have done.
What is the Framework for Sustainable Development?
Government finances should be well managed to avoid over printing of money. Money printed is chasing dollars against naira leading to excess liquidity in terms of inflated contracts.
There should be creation of financial buffers to manage the country’s resources which is a significant step to the right direction hence; the last few years were financial disasters for Nigeria.
Why are financial buffers important?
When oil became a political weapon in the early 1970s, the Organisation Economic Cooperation and Development (OECD) and IAEA were set up; they were interested in making sure they created a buffer against when oil prices went up in creating inflation and destabilized economies. Clearly, “if you are resource rich, you need to create financial buffers. If you are resource poor, there is also need to store your energy source somewhere, so that you are not subjected to either blackmail or to an external threat.” Some of those externalities should be well managed. Nigeria has not managed its externalities well.
There was a time in Nigeria where two littoral states governors wrote to President Jonathan that there is need to exhaust money in the Excess Crude Account. The letter was sent to the Minister of Petroleum Resources and Group Managing Director (GMD) of NNPC and eventually it landed in my office.
Initially, there was a meeting at the National Economic Council (NEC) advancing the course that the country must save money for a rainy day. But the letter from one of the governors was that the rainy day was already here.
What happened to the fund was quite understandable and also the negative impact it has brought to the country. It’s however important to note that there is need to create financial buffers.
Avoiding Economic Populism
There’s so much around economic populism which is part of subsidy regime. From 2008 to 2018, ten years of subsidy, Nigeria had spent $63.8 billion.
The Nigerian Constitution has a clear framework and energy drives economic growth.
The National Economic Council (NEC) during the era of President Obasanjo and former Governor of the Central Bank of Nigeria, Chukwuma Soludo, came up with NEEDS, SEEDS and LEADS. It was supposed to be a three tier system, but everything that has been done ever since then has undermined fundamentals that there must be a connection whether you prefer the top down or bottom up approach. Either you built from the bottom or top down approach. There has to be a connection.
Our framework must be that when NEC is meeting, it should be serviced by a secretariat with credible people who can handle issues and proffer solutions.
For Nigeria to be the 20th largest economy it has to displace another country and you are not going to be number 20 without displacing someone and nobody is sitting down and waiting for Nigeria. It entails that the country has to step up its game in terms of workable economy policies to achieve its objectives.
There has to be fair understanding in creating fiscal buffers, avoiding economic populism with revenue diversification that can fit into workable framework. What the local government does should also be in tandem.
Moving from factor driven economy to investment and innovation, for instance the growth in the telecommunication industry is enormous. Today, that sector of the economy is the fastest growing and in 2007 it was about 1% but presently, it’s 7% which is seven times.
When President Jonathan’s pleading was completely ignored and money in the Excess Crude Account was tampered, by the time oil price hit autumn, there was disaster.
With regards to economic populism, from 2006 to 2018, Nigeria squandered $63.8 billion for subsidies and the sad thing is like lighting a match on the bundle of dollars because nobody can see what is being imported. All went to the exhaust.
Why are we trying to build a new standard gauge for railways and not using the previous one which was used to move crops to export goods? What a standard gauge does is essentially to remove bends and curves. There is need for intervention.
Privatization policy ought to be well conducted and revisited because some of those privatized companies are no longer in operation. Another aspect is resource diversification, not depending on only one resource as national wealth.
Energy should not be solely based on oil. Looking at the solar map of Nigeria, what is important is that there is no one solution to energy and the country cannot afford to subsidise a particular energy preference. They should be able to compete while the beneficiaries of any of those energy sources would actually demand whether they are winners or losers. The country cannot afford to create a basis for which certain energy sources are preferred. There has to be competition in renewable energy.
Some people have clamoured for solar energy but it has to compete financially. The solution for Nigeria is simple, renewable energy, solar maybe in the north, hydro where we have the river system in the middle belt.
The Linkage of Hydrocarbons to Agriculture
Agriculture makes up 45% of Nigeria’s GDP unfortunately; there is no significant processing of agricultural products. The same way oil is not being processed. Just few of Nigerian agricultural products go beyond first step stage of harvesting and preservation.
The key things about mercantile economy is import substitution for instance in cement, Dangote has thrived unlike in the past that there were some cement companies in the country that did not see the light of the day. The rise of Dangote cement has declined import whereas Nigeria is self-sufficient.
He is doing the same with petroleum and obviously steel will follow.
For the past thirty years there had been stalemate in Ajaokuta and people have been watching the scenario. There is need to develop natural resources, for instance, the value of bauxite is only 12% of the value of aluminum and the biggest value is in processing. If you take the price of oxide and aluminum by the time it is processed it will be the same with crude oil but might not be same proportion.
In the Petroleum Industry Act (PIA), Nigeria has attempted to address some of the problems of sustainability, sustainable development, gas infrastructure fund, environmental remediation fund, decommissioning and abandonment fund. There is Community Development Trust Fund.
Leadership of a country matters
With regards to China’s leadership, it is built on character, commitment, courage and capability. This is what the economic transformation of China is built on. Despite framework leaders make a difference.
Leaders make the sort of changes that are needed, Nigeria should replicate this gesture. We are a well resourced country and God has blessed the country.
From Obasanjo days, Nigeria GDP growth continued to decline to the present administration and went from number one in Africa with GDP of 406 to 275 billion US dollars.
Intelligent way of using economic frameworks will create value for Nigeria. Petroleum is hazardous but many countries have mastered it and are using it for the progress of their countries and Nigeria must do the same.
Source: EEF
