There is one common denominator for the years 2008, 2015 and 2020. In and around those years, the price of crude oil (Nigeria’s major revenue generator) on the international market fell due to global economic slowdown of sorts; and whenever that has happened, there has been a clarion call in Nigeria: ‘Let us diversify the economy.’
There seems to be a catch 22 around that, because whenever the price of oil rises again, except for recent effort by the Buhari administration to develop the agriculture industry, the call to diversify has petered into mere lip service and oblivion, until another drop in the price of crude oil.
A major jolt on the Nigerian economy whenever an oil price shock occurs is on Nigeria’s foreign reserves, which tends to be in danger because Nigeria is largely an import dependent country, with the importation of energy products such as premium motor spirit, diesel, kerosene, jet fuel, to name a few, gulping as much as 40 percent of the country’s importation bill, with substantial foreign exchange implications.
That trend has become a fiscal culture because Nigeria currently refines practically less than 2 percent of her fuel demand and imports more than 98% of the rest. Since the downstream sector of Nigeria is that weak/under-developed, it makes economic sense to state that strengthening the downstream sector to the extent that 40 percent of Nigeria’s import bill would be saved would be one of the most impactful diversifications on the Nigerian economy.
On average, on a monthly basis, Nigeria consumes 1.5 billion liters of premium motor spirit (PMS). The price of gasoline ranges from 2 cents per liter in Venezuela to $2.13 in Hong Kong. But considering some of the moderate markets where Nigerian importers are most likely to shop for PMS, the price is likely to hover around 30 cents. That translates to $5 billion monthly or $167 million daily. That alone is bleeding the economy, strangling it to asphyxiation.
Nigeria’s four refineries are not the hope; they have failed to produce nearly enough to meet Nigeria’s daily demand. Modular refineries are neither the solution, as their capacity is minuscule to meet Nigeria’s demand.
With the Dangote Refinery promised to come on board by early 2022 to produce more than 100 million liters of PMS daily, not only will Nigeria save the above whooping sum, but the country will have virtually the entire West African sub region, in whose market Nigeria’s Dangote will benefit from trade creation, in economics parlance.
The shock usually experienced whenever there is economic downturn will be minimized because there will be ready market for Nigeria in Dangote Refinery. That does not include diesel, kerosene, jet fuel, natural gas, and scores of other petrochemical products that are derived from crude oil.
Aside from Ghana and La Cote d’Ivoire, which also produce energy products in limited quantity, the West African sub region is waiting for Nigeria’s Dangote.
And that market will continue to grow. Africa’s population is among the fastest growing and youngest in the world. One-in-two people added to the world population between today and 2040 are set to be African, and the continent will become the world’s most populous region in the next 10 years, overtaking China and India.
More than half a billion people will be added to Africa’s urban population by 2040, much higher than the growth seen in China’s urban population in the two decades of China’s economic and energy boom.
Growing urban populations mean rapid growth in energy demand for industrial production, cooling and mobility. With the growing appetite for modern energy sources, Africa also emerges as a major force in global oil and gas markets. The projected growth in energy demand is higher than that of China and second only to that of India as the size of the car fleet more than doubles.
Pundits reckon that in spite of the increase in production of renewable energy in developed countries, fossil fuel will still be the major source of energy for decades to come.
Despite the existence of four refineries Nigeria had built between the 1970s and 80s, a working Dangote Refinery may be Nigeria’s most impactful diversification, as it promises to stop the subsidy bleed, save foreign exchange, and earn more revenue via royalty and taxes.
The federal government needs to do everything to incentivize Dangote Refinery for quick entry. That would be one of the quickest gains and one of the most impactful of diversifications Nigeria so craves.