Nigeria: An Opportunity Lost?  By Jeremy Weate

 

There’s a time lag between the attitude of Nigerian government officials and contemporary global realities that potential investors continually face that is leading many to turn to other less pompous prospects elsewhere.  The prevailing belief among the gatekeepers in Abuja still tends to be, “they should be happy to come, we are the giant of Africa.”  While the lion is busy boasting in the midst of flames and carnage, those same investors are increasingly tempted to safer and more reliable markets.

Nowhere is this attitude more prevalent than in the energy sector.  Nigeria has singularly failed to update its arcane and opaque legal framework with an integrated Petroleum Industry Act.  Obasanjo, even though he was both President and Minister of Petroleum didn’t manage it.  Yar’Adua and his well-intentioned minister Rilwan Lukman didn’t manage it, and President Jonathan and Diezani Alison-Madueke have yet to crack the nut.  Without clear terms of commercial engagement to offer International Oil Companies (IOCs)(most obviously, a stable tax regime) for the remaining deep offshore prospects, the government has been unable to conduct a new bid round since 2007.  International observers predict that Nigeria’s oil production will fall sharply in three year’s time unless new exploration and investment begins very soon.  As the price of Brent Crude has fallen from over US$100 per barrel to just over US$80 in the past few weeks, the nation’s finances as always remain exposed to commodity price shocks.  Again, renewed instability and shut-ins in the Niger Delta in the past few months have led to revenue earnings from crude oil exports falling by N46billion between May and April this year.  This perfect storm of declining international prices and local production issues suggest the shrinkage in government revenue will continue in the coming months.

Those who have seen the latest draft of the Petroleum Industry Bill suggest that most if not all transparency and accountability provisions have been deleted, while throughout all the drafts, one form of institutional complexity was offered in place of another (for instance, earlier drafts of the PIB proposed three regulatory agencies to replace the Department of Petroleum Resources).  There is therefore the risk that even if the PIB becomes law this year, it will do little or nothing to simplify and improve sector governance or challenge the massive commercial leakages up and downstream.  Thanks to the international auditing firm, KPMG, National Assembly Ad Hoc Committee and NEITI (Nigeria Extractive Industry Transparency Initiative) reports, we now know that corruption has reached monumental levels in the sector, with luxury jewellers importing fuel, illegal oil bunkering at an all time high and a transparent metering system apparently an impossible fantasy. Whenever they come, new investments may end up being bought at the cost of a reconstituted status quo that delivers no additional benefits to the citizens of Nigeria, at the same time shoring up discretionary activity between IOCs and their counterparts in government. Just as previous bid rounds in Nigeria were opaque and contentious, executive power without adequate checks and balances threatens a repetition of history.  Given the tensions in the country as evidenced by serious instability in the North, renewed discontent in the Niger Delta as well as the near game-changing mass demonstrations of “Occupy Nigeria” in January this year, members of the National Assembly should realise that a non-transparent inequitable status quo will leave social volatility built in to the system.  Future attempts to remove the fuel subsidy may reawaken the Occupy movement, which might best be characterised as in pause position at the moment, rather than dead in the water. In the current situation of intensified volatility, a reawakened Occupy movement might prove less containable than the previous one. IOCs lobbying for the softest possible legislation ought to consider that their under-the-radar actions are ultimately counter-productive.  Nigerians are wide-awake now, equipped with rapid-response social media tools and are watching events in the oil sector closely.

In the time it has taken for Nigeria to fail to update its oil and gas legislation, natural resource reserves have opened up across the continent in the past few years, with commercial hydrocarbon deposits in Ghana, Mozambique, Uganda and Kenya all offering safer and more reliable places to do business.  The Brazilian mining giant Vale is investing billions of dollars in mining in Mozambique alone, while the huge gas reserves in the Rovuma Basin off the coast of Northern Mozambique promises to be the pre-eminent source of liquefied natural gas (LNG) in Asian markets.  Beyond the African continent, countries such as Iraq are planning on exploiting up to 12 million barrels per day in the next few years (which would make it the number one producer in the world).  Added to this is the rise of “fracking” in the US (where previously untapped reserves are accessed through a technique of using underground explosions), in line with the country’s desire to become energy sufficient in the next five years.  It is not clear that the Nigerian government has a scenario plan for declining demand from one of its major customers in the context of growing supply in the medium term.

Of course, on-going inefficiency in the oil and gas sector in Nigeria represents a huge opportunity to develop more labour intensive sectors beyond the thriving commercial Lagos hub; agriculture and agricultural processing in the Middle-Belt and certain northern states and downstream petroleum processing in the Niger Delta. There are also significant opportunities in the labour-hungry mining sector across the country, specifically for gold, iron ore, copper, bitumen and dimension stone. Instead of seizing the moment, we see a continuation of the same old predatory stance, evidenced by a hostile business environment that threatens multiple-taxation, unpredictable regulatory decision-making and offers no infrastructure in return.  There is perhaps no better case study than the decline of the rubber industry in Rivers State, which should be compared and contrasted with the rubber industry elsewhere on the continent.  The Li Group, which produces millions of rubber slippers for global markets from its state-of-the-art factory on the Hadeja Road in Kano, buys its rubber by the lorry load from Cameroun.  Both Dunlop and Michelin stopped manufacturing tyres in Nigeria years ago, thanks to the abrupt reduction in tariffs on imports.  Factories, which could be employing thousands of people in the Niger Delta, now stand idle, while the trees in the state-owned rubber plantation grow old and unproductive.

In the midst of increased competition between nations to attract investors and a global financial sector that lurches from turmoil to fiasco making investment decisions increasingly challenging, the attitude of government officials around the world is changing fast.  In marked contrast, Africa’s lion roars occasionally, then falls asleep again.  It is almost too late in the day for Nigeria to play catch up, and it seems there is little enthusiasm globally to consider the country too big to fail.  If the time lag between government-driven attitudes and commercial realities isn’t closed soon, Nigeria will become an also-ran, an African country that stared a possible renaissance in the face and then decided not to bother.

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