As a matter of priority encourage the diversification of Nigeria’s economy. It is the only viable way to survive the current environment of global economic uncertainty. It is crucial that President Goodluck Jonathan and his economic team do not believe, like most Nigerians, that oil provides an endless source of revenue. It is also important they do not believe that oil is the beginning and the end of economic sustainability. The most dangerous advice the President and his economic advisers may heed is the advice that the United States and the rest of the world will perpetually depend on foreign oil supplies for their energy needs. A few years ago in Abuja, the OPEC Secretary, General HE Abdalla S. El-Badri, suggested that the United States will perpetually depend on oil for their energy needs. He stated that the “global debate on finding alternatives to oil would not yield results because of the strategic importance of oil.” Back then I wrote on African Analyst and on Sweet Crude that the scribe’s optimism was unfounded. Recent events continue to point to the fact that his optimism about the future of oil is in fact misguided: the era of the United States depending on foreign oil may soon come to an end.
Society gave oil value by inventing combustible engines that operate on oil energy. Finite oil reserves necessitate human ingenuity to find energy alternatives to oil dependence. This is why the diversification of Nigeria’s economy is an imperative for long-term economic sustainability. Yet, Nigerian leaders play the proverbial ostrich with their heads in the sand.
The need to diversify Nigeria’s economy begins with the United States as the largest single buyer of Nigerian oil. The United States buys 40% of Nigeria’s oil. Yet Nigeria is the fifth supplier of America’s oil. But the deep economic recession has forced a debate in the United States on how to cope with oil dependence. Recently, President Obama vowed to expand oil drilling in Alaska and to explore for new oil sources off the Atlantic coast – two measures for which many Americans have been clamoring for years. I am sure that President Goodluck Jonathan and his advisors understand the economic ramifications of boosting drilling in Alaska to mitigate America’s oil requirements. Yet, for many Nigerians, it is important to put things in perspective. If President Obama’s determination to expand drilling in Alaska becomes a reality, America’s need for foreign oil will be drastically reduced.
So, many people now agree that diversification is the only realistic solution to a better Nigerian economy. But it raises a number of questions. What is diversification? I don’t think we have a good grasp on the concept. But we will know when it is achieved. The most conspicuous outcome of diversification is that Nigeria will not depend on oil for 95% of its GDP. It also means that, with a more robust and diversified economy, Nigeria will join the ranks of more economically diverse and industrialized nations like the US, China, Japan and India.
In hindsight, if Nigeria had continued on its economic path before the oil boom, the race to win the future through innovation and a diversified economy would have been a lot easier. Prior to the explosion of the oil industry, Nigeria had a thriving mining and agricultural sector. In the 1950s, Nigeria was a major exporter of coal and tin. Even as late as the 1970s, Nigeria was also a major exporter of agricultural products like palm oil and groundnut. But Nigeria’s mining and agricultural industries failed as oil started flowing. Diversification may mean a revival of these industries. But the global economy has grown into a very complex and sophisticated web. A mere reviving of the mining and agricultural sectors may not be enough for Nigeria, but it is a start.
Why did these industries fail in the first place?
Nigeria’s agriculture and mining industry failed because it relied on foreign equipment for support. If these industries are to be revived as a means of achieving economic diversification, they must not be sustained by foreign innovation and technology. The only sensible and durable way to sustain these industries is Nigerian innovation. In fact, local innovation in support of local industries is the new direction of the global economy. China leads the pack with wind turbines, high speed rails and solar panels. If Nigeria does not find a way to join this trend, its sweet crude may not be enough to sustain the economy. This is one way in which Nigeria is being impacted by this new global economic trend.
Yet, it is the direction of America’s innovation that is more troubling. President Obama has repeatedly stated that the key to winning the future is better American innovation. With sky rocketing oil prices, Americans agree that the focus of America’s innovation should be on finding alternative energy sources. Car manufacturers are currently making more fuel efficient cars. For instance, Ford Motor Company has a line of cars that are currently on the US Government’s list of most fuel efficient cars. Additionally, Toyota is making hybrid cars and trucks that get 48 miles a gallon in the city and 51 miles a gallon on the highway. This direction of American innovation is a direct threat to any economy, such as Nigeria’s, that depends solely on oil production.
In conclusion, if the new global economic trend in which countries are innovating to avoid foreign dependency continues, Nigeria will be adversely impacted. The number one reason is because it is not innovating to support diversification. But the most troubling reason is that countries like the United State, who buys 40% of Nigeria’s oil, will reach a point of innovation where they no longer require foreign oil for their energy needs. The days of Nigeria throwing oil at every economic problem will then come to an end. read more