Creating Wealth After Oil, By Dr. Rafiq Raji

As the sun begins to set on this decade, it is apropos to reflect on how we have fared as a country. At the beginning, our economy boomed, growing at 11.3 percent in 2010. For three years thereafter, growth slowed to about 5 percent. In 2014, it accelerated to 6.3 percent on the back of the crude oil market boom. Afterwards, growth halved to 3 percent in 2015, and worst still, the economy contracted by 1.6 percent a year after. Most estimates put last year’s growth at about 1 percent. And the most optimistic forecasts put 2018-19 GDP growth at about 2-3 percent. What went wrong? Because surely, that level growth is inadequate for a population growing at about 3-4 percent; depending on the estimate you rely on. The decline in crude oil prices from the pre-2014 highs of above $100 to below $50 from late 2015 and most of 2016, before recently recovering to above $60 has been attributed for the slowdown; an anomaly for an economy for which oil accounts for only 10 percent of output.

There were other factors. Gains from the oil boom were not saved or invested as much as they could have been. A significant portion was simply pilfered by the politicians and officials of the day. Even so, a recession could have been avoided if the Muhammadu Buhari administration hit the ground running. It did not. Ministers were not appointed for months. The administration’s first budget took forever to present and pass amid wrangling between the executive and legislature. Consequently, confidence suffered. The government got lucky, however. Oil producers’ cartel OPEC, in partnership with Russia and other major oil producers, decided to cut supply to boost prices. It worked, with oil prices now likely sustainably above $60 a barrel this year, and on at least one occasion in January, it breached the $70 mark.

But would Nigeria, and indeed any other oil producer that decides to leave the fate of its people in the hands of the elements, be lucky the next time oil prices tank? Because one thing is sure, what goes up must come down. And in the case of oil, that would likely be sooner rather than later. Apart from cheaper shale oil in America, the producers of which are perhaps the greatest beneficiaries of current buoyant prices, there is the threat of lesser need for fossil fuels in the near (and not distant) future. Advances in electric vehicles, especially with regard to cheaper, better and longer-lasting batteries, mean what the world would desire more of soon, would not be oil but electricity. And now, there are numerous cheaper and greener alternatives to producing power than from fossil fuels.

Incidentally, the green-based power stations can increasingly now be built faster. For instance, Jinko Solar, the leading Chinese solar power EPC provider, touts its ability to build a 1GW solar power station in less than 12 months. For Africa, there could be the argument that a continent longsuffering from acute power shortages (that is, if available at all) would hardly be a place for electric vehicles vehicles to thrive. What about solar-powered cars then? And they already exist, by the way. Besides, the immediate risk for African countries is not so much that their streets would all of a sudden be filled with electric vehicles, as much as it would be that the replacement of fossil-fuelled vehicles with electric ones in advanced but currently oil-importing countries portend a cash drought for oil exporters. And even as oil is not likely to be totally out of demand for a while, it would certainly not be considered as valuable, leading to price forecasts for oil in the twenties. With most oil producers requiring at least $40 oil to balance their budgets, such an eventuality would cause them a lot of inconvenience indeed. So what should an oil producer like Nigeria do? Should it choose to be fatalistic again or instead take its destiny in its own hands? These were the questions pondered at a panel I was on at the recently held “2018 Nigeria Economic Outlook Confence” (NEOC18) in Lagos.

Assume No Government

My primary argument was that in light of the antecedents of the authorities, any such thinking must assume an indifferent government. That raised eyebrows; one co-panelist wondered aloud how any meaningful progress could be achieved without the active involvement of government. Although her point was valid, my rebuttal was that any meaningful progress in regard of wealth creation that discountenances oil in this country has been from well-meaning private business people. I particularly like to refer to the case of Andela, the Lagos-based technology talent provider. It probably would never have gotten off the ground if its founders looked to government. Yaba, a suburb in Lagos, where the country’s “Silicon Valley” is situated, grew organically, via the collaborative efforts of well-meaning individuals. It was not until the chief executives of Facebook and Google paid visits to the tech hub before it began to dawn on the authorities how valuable “Yaba Valley” could become. In my view, it is this kind of organic and totally private-sector driven initiatives that would be the source of wealth for the future and inevitable zero-oil economy that Nigeria (and indeed other oil producers) is surely to become.

Change Your Mindset

Some oil producers are already putting their plans to action. Note my choice of words: they are acting on their plans, not just making them. For the vision of wealth creation after oil to be realised, two key foundation blocks would be key: power and broadband. I highlighted these in a previous article titled, “Are we thinking about the digital future?” Incidentally, one of the panelists at the NEOC18 event also zeroed in on these two basic elements. On the back of these, many so-called intangibles of value can be produced. These refer to non-physical things that are of immense value and yet require little or no physical infrastructure; brainy stuff. And in the Nigerian case, these are services that could be the job-creating kind. Because currently, manufacturing, which is supposedly more job-creating in the economic sense, has not proven to be so in our country. Services, which constitute about half of Nigeria’s output, produces 14 percent of jobs in the country at the moment, whereas industry, which is about a quarter of GDP, is responsible for only 7 percent of employment. As far as jobs are concerned, agriculture (29 percent of GDP) produces the most jobs, employing about 32 million people, 47 percent of the employed Nigerian population of 69 million. Bear in mind, there is about 16 million in the 85 million labour force that does less than 20 hours of work or nothing. For the job economy to absorb more, faster, wealth would have to be created from new places and new ideas. And fast. To achieve this, a change of mindset by everyone would be required.

At the top of that, in my view, is one where you ask yourself: How can I create wealth assuming the government is useless? When you genuinely think about the problem that way, it is amazing how creative you could be. No power supply? How about a solar solution? Most already rely more on standby-generators to run their businesses anyway. One church close by to Lagos, I gather, generates about 15MW of electricity for its operations. How do you think it came about that reckoning? With that worry out of the way, is it thriving? An engineering graduate worries about stagnation in an environment where he or she would end up being no more than an instruments reader? Why not develop a proficiency in design? It does not require any major hardware; just a computer, the relevant software, brain matter, and willpower. And how would the person get the training? That is available for free on the internet; the American “MIT OpenCourseWare” initiative (See link viz. is one example. Setting up an information technology hardware manufacturing plant is difficult? How about you build software instead? A Nigerian civil engineer graduate might never build anything of significance throughout an entire career. But what is to stop the same person from designing complex buildings to be constructed anywhere in the world? All that would be required are – you guessed them already – brain matter, computer, software and a sheer will to succeed.

Today, any individual can develop his or her brain matter by harvesting the more than abundant knowledge and opportunities accessible on the Internet. Thereafter, he or she could provide world-class solutions to problems anywhere in the world. You do not have to be rich before you do something to wean yourself of self-interested “helpers”. And if not government, who will build those basic foundation blocks like power and broadband for all these to materialise easily? A coalition of wealthy Nigerians could. One well-known entrepreneur, Tony Elumelu of the UBA fame, is training and funding entrepreneurs. Another, and one of the panelists at the NEOC18 I referred to earlier, is also starting a similar venture. Mr. Austin Okere, the founder of CWG Plc, one of the leading technology solutions provider in Nigeria, has set up a leadership programme to train entrepeneurs and facilitate financing for their ventures. If more successful people take on our myriad challenges, we would slowly but surely make progress.

Dr. Rafiq Raji is managing director & chief economist at Macroafricaintel Investment LLC, an Africa-focused macro research & investment consultancy based in Lagos, Nigeria. He is also an adjunct researcher at the NTU-SBF Centre for African Studies at Nanyang Business School, Singapore.Twitter: @DrRafiqRaji


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