Economy

Help! Crude oil is dying! – THISDAY Newspapers

SimonKolawolelive By Simon-Kolawole, Email: simon.kolawole@thisdaylive.com, sms: 0805 500 1961

SIMONKOLAWOLELIVE! BY SIMON KOLAWOLE

Do you remember when your mechanic advised you not to buy a car with automatic transmission? If you recall, he said manual cars were the best — easier and cheaper to maintain. What he didn’t tell you was that technology had injured him and left him behind. He had thought the world was going to run on manual transmission forever and did not sharpen his skills to adapt to the new reality. The world had become more sophisticated. His fear was that if you bought an automatic car and everybody else started doing so, he would soon be out of job. If he was wise, he would have started improving and adapting his skills to the new reality. He wanted the world to wait for him.

On that note, I want us to discuss, today, the situation Nigeria is about to find itself. Last week, the UK government announced that it would ban petrol and diesel cars from 2030. Several countries are taking action against the use of fossil fuels and opting for green energy. In place of engines powered by petrol and diesel, they are opting for electric cars and reusable fuels. France, Germany, Ireland and the Netherlands have set their own deadlines at 2040. Norway, ironically an oil-producing country, is targeting 2025 — just five years away. China, Japan, South Korea, Iceland, Denmark, Sweden, Spain, Portugal and Canada are all targeting zero-emission in the next dozen years.

While we are at, the National Bureau of Statistics (NBS) on Saturday released Nigeria’s GDP figures for the third quarter of 2020. We are now officially in a recession. You know the biggest contributor to our misfortune? You guessed right: the oil sector. With oil production reduced as a result of quota cuts by OPEC+, and further worsened by the COVID-19 pandemic that shrank global crude consumption, the sector contracted by 13.98 percent. That, in summary, shows how desperately our fortune as a nation is tied to crude oil. It is not as if things are about to get better as the advanced world starts adopting measures to reduce reliance on crude oil for their energy needs.

But in my dear Nigeria, we are still stuck in the crude age. Like the mechanic, we are telling ourselves that there are no viable alternatives to crude oil. We are telling ourselves that even if the advanced world cuts down on fossil fuels, the developing nations would be late to the party and a market would still be there for us — forgetting that more countries are discovering oil and producing for local consumption, thereby reducing the volume of their imports. Even if the world continues to guzzle oil endlessly, another danger is the glut. With more countries producing oil, the market will be flooded and oversupply is not good for the price. More countries will become self-sufficient.

What does this mean for Nigeria? It is so very simple. We don’t need any economist to explain this to us. We know the technical details: if consumption of petrol and diesel drops, then the need for crude oil is highly likely to drop. We also know the economic implications: if the demand for crude oil drops, oil prices will inevitably dip and Nigeria’s FX revenue will fall since crude oil export is the main thing that brings in the dollars. In which case, as our FX earnings fall, naira will fall: devaluation is the natural consequence. Government will habitually struggle to meet its expenditure needs. We will be in danger of stockpiling unpaid salaries, abandoned projects and debts. That is a high possibility.

This is alarmist, you say. But I am not saying anything new. In fact, 2030 is already here. Look at the state of things since COVID-19 infected global economy and hit the demand for oil, crashing the prices. That is a foretaste of what global demand will look like when cars powered by fossil fuels are gone and/or there is an oil glut. Oil that once sold for $147/barrel (I’m not lying — it happened in July 2008) and went for an average of $100 from 2010 to 2014 is now being peddled at $40 or so by Nigeria. And this does not tell the full story. With Nigeria practically hawking the oil and begging for buyers, we are selling at a discount. Remember, also, that it costs us up to $20 to produce a barrel!

Unfortunately, we are not behaving as if we are aware of the dangers ahead. We carry on as if we have trillions of dollars stashed somewhere and we can keep spending recklessly, especially on wasteful expenditure. We think all the talk about the bleak future of oil is some extended exaggeration, meant to intimidate the faint-hearted. There is nothing in our collective behaviour to suggest that we are aware that this oil thing may reach a plateau. We also do not appear to be aware that oil companies are cutting back on new investments and this has grave implications for the future. We just keep going on and on and on and on, unbothered by any care in the world.

Do we sincerely think crude oil will sell for $100 again? Maybe, but we shouldn’t be too sure. Do we sincerely think that in the next 10 years, crude oil consumption will keep soaring and global demand will remain high? Maybe, but we shouldn’t be too sure. Do we sincerely think that the bans on petrol-powered vehicles will not impact oil prices? Maybe, but we shouldn’t be too sure. Do we sincerely think Nigeria can survive — economically and without social unrest — the falling revenue? Do we sincerely think Nigeria is a rich country that should be able to subsidise petrol and electricity, double minimum wage and still have plenty to spare for infrastructure? Then we are dreaming.

The good news is that we can live and prosper without oil revenue, contrary to all the things we have been telling ourselves for decades. Some of the richest countries in the world are not into oil — they use their brains, their intellectual property, to rake in the billions from exports. This may be a long shot for Nigeria given the state of our education sector and the lack of infrastructure that can inspire innovation and industry, but there is still good news: we can begin to think seriously, plan intelligently and devotedly implement policies that will help us develop export products to earn the needed FX to keep us alive in international trade so that 2030 does not meet us stark naked.

In blessing, Nigeria is blessed. But decades of oil booms, usually mildly punctuated by busts, turned us into a bunch of lazy, rent-seeking community. We are paying the price finally. Sustained low oil prices have exposed us badly and we are just managing to hang in there. For decades, we abandoned, or toyed with, all the things we should have done to transform the economy, to hone our skills, to develop the human capital, to build the necessary infrastructure, to add value to our agriculture, to industrialise, to become a major exporter of manufactured goods, etc. We told ourselves oil is all the oxygen we need. Oil is the solution to all problems. Now we are where we are.

I am not unaware of the fact that various governments, over the years, have been emphasising the need to diversify the sources of public revenues. There have been policies and plans and programmes. However, we cannot, in all conscience, give ourselves a pass mark. Each time we appear to be serious with developing productive sectors, we end up shooting ourselves in foot with reversals, summersaults and poor thinking. We can say we have made progress in cement and rice but we have not even scratched the surface of what we have and what we can do to free Nigeria from the slavery of crude oil. We are ever planning but prayerfully waiting for the next oil boom.

As a reminder, we made roughly $12 billion from exporting our almighty oil in 2019. That accounted for over 90 percent of our FX earnings and 50 percent of government revenue for the whole year. By contrast, Indonesia earned $10 billion from exporting palm oil alone in 2019 — and that was just about 6 percent of its export earnings. The country earned over $183 billion from exporting animal/vegetable fats, oils, waxes, machinery, footwear, iron, steel, vehicles, gems, precious metals as well as mineral fuels. We are here worshipping crude oil. We have no idea of how we are going to finance our budgets if oil prices remain low. Well, we will borrow. But how do we pay back?

Ultimately, we need to come to the realisation that crude oil is dying. It may never die; in fact, it will never die; but what value are we going to be getting from it in another 10-20 years? The crude oil glory is fading. We need help to stop living in denial. We have to stop behaving like the manual mechanic who wants to adjust reality to suit his fossilised skills. Let’s accept the fact that the world is moving on. Let’s begin to have reasonable discussions around how every tier of government can see the bigger picture. A country that is spending 97 percent of its revenue to service debts is in intensive care unit. A country that is fervently praying for a spike in the price of just one commodity in order to break even is living on borrowed time. It’s time to start taking ourselves more seriously.

AND FOUR OTHER THINGS…
YOUTH ARISE
On Saturday, I gave the keynote speech at the Citizens Conference organised by the Millennials Active Citizenship Advocacy Africa (MACAA), a youth-led CSO working assiduously to build the Nigerian youth for today and tomorrow. It was quite gratifying sharing platform with great minds such as Hon Bolaji Abdullahi, Hon Shina Peller, Mr Seyi Awolowo and Mr Deyemi Okanlawon. My key word was that despite the tough situation the youth have found themselves, they have to make lemonade from the lemon if they are to turn their ideas into opportunities. We generally agreed that we cannot “entrepreneur our way out of underdevelopment” (as Mr Seun Awogbenle, the convener, put it). Government, at all levels, MUST provide the right environment for enterprise. Fact.

FGN VS CNN
The Federal Government of Nigeria is locking horns with CNN over the report on the Lekki shootings of October 20, with Alhaji Lai Mohammed, the minister of information, threatening sanctions against the American cable TV network. I find this embarrassing but, well, it is Lai Mohammed. Although CNN did not allege or prove massacre of #EndSARS protesters in the report, it said that the troops used live bullets and also shot into the crowd. The Nigerian army insists its soldiers used blank bullets and only shot into the air. On Saturday, the army added a twist by saying it went to Lekki with live bullets as well. We must get to the root of this matter by all means. Definitely.

UMAHI AND 2023
The defection of Governor David Umahi of Ebonyi state to the All Progressives Congress (APC) is generating ripples. The Peoples Democratic Party (PDP), his former home, is furious. I have a different opinion. If the south-east politicians are keen on having a realistic shot at the presidency in 2023, they need to broaden their strategy — and that means not putting all their eggs in one basket. Having said that, I think APC remains a disliked party in the south-east and I doubt Umahi’s defection would change the situation significantly. Nevertheless, south-east leaders who really desire that the zone should produce the next president need to think outside the box. Strategic.

BANDITS AND RAPISTS
North-western Nigeria has been in the firm grip of bandits and kidnappers (otherwise known as “Fulani herdsmen” or “jihadists” when they strike in southern Nigeria) for the past few weeks. Abuja-Kaduna road has been under siege. Young girls were kidnapped and molested in Katsina; their parents only secured their release after paying a ransom. University students were kidnapped. Even police officers were kidnapped. It is even reported that farmers now pay a “fee” to bandits before they can harvest their produce. I have no way of knowing what the federal government is doing to secure Nigerians, but whatever it is, my conclusion is that it is not working. Terrifying.

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