When the Oil Runs Out

When the Oil Runs Out

Ameena Indimi

A few months ago, when the present administration was extolling the virtues of clamping down on imports as one of the incremental and imperative ways of restoring sanity and stability to the Nigerian economy, many (including this author) looked at this new policy rather dubiously and suspiciously as the merits of such arguments were not justified to growing global trends. Globalization required open borders and free trade in order for all to reap the benefits. It required the free flow of products from one market to the other with as few obstacles as possible. Protectionist or Mercantile market policies simply did not work, and we are not about to prove an exception to this rule. With a shrinking global market, competition was imperative to maintain quality control and innovation to ensure that products being spurned out of Nigeria were up to spec.

This is not the time to close off our borders by creating a false safe for Nigerian products. Economic growth these days is driven by exports, and in order to have a strong foothold in the international market, Nigerian products have to be able to compete with foreign products in a free market. If Nigerians don’t want to buy made in Nigeria products, given the choice, it would be rather naïve to expect others to. Healthy competition, drives entrepreneurs to invest in R & D thereby driving them to produce more innovative products with mass appeal at lower competitive prices. If Nigerian products can be released to the market without, any substitutes or alternatives hence competition, we will be creating lazy capitalists as we will be simply handing the market to those that should be fighting tooth and nail to gain market share based on the merit of their products.

Even though all the doubts have not been entirely erased, even the harshest Obj critic has to concede a minor victory to this administration, as Nigerians are beginning to invest in the economy, even if with trepidation. Most Nigerians have never had confidence in the economic investment climate, even less in the Naira (Obj’s Nigerians in diaspora have even less faith in the Naira than us, it would seem) but we seem to be making a fruitous turn about, but one has to wonder will that be enough to turn around the economy.

Having spent the last 4 years wooing ghost investors that don’t seem to want to come, citing economic (currency) and political instability, amongst other forces, it is commendable that this administration is beginning to see that if Mohammed cannot come to the mountain, it is about time we brought the mountain to Mohammed. Promoting investor confidence will be no easy feat, but now that Nigerians are beginning to see that it might not be the worst idea to invest, the government should grab onto the wave of these new investors and ride it to full tide. There is immense wealth sitting in offshore accounts belonging to Nigerians, collecting interest and creating jobs and wealth for citizens of other countries, Now, only if we can pursue these prospective investors with half as much zeal and ardor as we have been pursuing other nationals, Nigeria will be great again.

For the past two decades, we have been relying heavily on proceeds from crude sales, so much so that we have abandoned other alternative sources of income, because we prefer the easy money, and unfortunately, we have not come about to seeing the wasted opportunities. Even Saudi Arabia, with its vast reserves, is investing in its economy (They are one of the major Foreign Direct Investors in other economies of the world), their shelves are now full of made in Saudi products. We are so busy spending what we have made today on non-value adding ventures that we have not had the time to think about what will happen when the oil wells run dry, as they very well will, it may not be tomorrow, next year, or twenty years from now, but it will still run out.

Even with our vast resources, and incredible discoveries of gas, as Nigeria is fast becoming more of a gas country than an oil one, we are still not prudently managing our resources. With most countries pursuing zero flaring policies, our country flares about 2.8 billion cubic meters of gas a day, which can be easily converted into over a million barrels of liquids that can be exported. Which is rather ludicrous considering we produce a little over 2 million barrels of oil a day, and liquefied gas does not fall under OPEC quotas and restrictions. Our esteemed lawmakers have still not seen the light in conserving our resources, and so are concentrating their efforts else where.

While it is true that Government has no place in private industry, Government has always been an indispensable ally to capitalism as it can be a great facilitator to entrepreneurs. Present day Nigeria is no exception. If our government will create worth-wile partnership with Nigerian business men and women, Then their might be hope for the economy.

While this administration has recorded some minor successes in economic recovery, one of its often overlooked achievement, is in relentlessly pursuing a policy of increasing indigenous Nigerian participation in upstream oil production. As part of the Marginal field initiative, the government has been auctioning off marginal fields that have remained dormant in the hands of the oil multi-nationals for a period of thirty years or more to indigenous Nigerian Companies in order to increase Nigerian content in the oil industry. They have been diligently working with these indigenous companies to ensure that they get all the available expertise and counsel to ensure a hitch free transition, and the government should be applauded for their laudable effort. But unfortunately that is where it stops. In a world where creativity and innovation are the rules of the game of most viable economies, ours seems to be lacking in that. We lack the vision and the zeal of captains of industry, the foresight to be able to see into the future to marry our short term goals to our long term goals into perfect synergy, along with the insight to fully appreciate all the different dimensions of our actions and decisions.

While the government is working overtime to increase Nigerian content in all the stratospheres of the economy, they are overlooking the opportunities that they are creating. For example, the tax regime on these Indigenous companies are so crippling that they sometimes render the economics of investing in oil blocks worthless. The present tax structure, is that for the first five years of production, these companies will pay 65% of their revenue in taxes, and 85% of their proceeds after the grace period expires. While this might very well conform to the industry as set by other countries, Nigeria is sitting on a goldmine of investment opportunities.

For example these new crop of oil barons, along with their oil blocks, have been empowered with the financial muscle to attract as much investment to Nigeria as they want. A lot of countries have been giving tax concessions to entrepreneurs, in-order to promote re-investment in their countries. Multi millionaires of yesterday used to invest in prime real estate at home and abroad with their profits, spending on lavish vacations for their families’, making retained earning/Capital gains investment a mirage that remained firmly in economic and business text books. Right now what we need is a monumental attitude change in our business communities. The government has to engineer and foster a reinvestment culture in the business environ, and one of the most effective ways of doing that is by acceding huge tax concessions to these new companies with the condition that they invest all the concession under an umbrella of a new economic program. We have to look for means to diversify our economy, without giving our economy away to the foreigners, but by finding ways to encourage Nigerians to invest locally.

The government could work with entrepreneurs to identify key areas of economic growth and investment opportunities. These new indigenous companies could form a consortium of a syndicate of investors. This new syndicate will have an increased asset base from the merging of various companies, thereby increasing its borrowing power. With the help of the government in securing bank guarantees from local Nigerian banks to back the foreign bank loans, what we will have is the industrialization of the country, with all the new industries belonging firmly in Nigerian hands. One of the gospels of good business is using Other People’s Money along with diversification. Today, one can take a relationship to a bank and get backing based on that relationship, integrity and respect.

The Koreans did it, albeit a bit differently. When Park Chung Hee came to the helm of the Korean government in 1960, one of the first things he did was arrest all the business men in the country that had their hands caught in the till, he tried them for embezzlement and fund misappropriation. The courts convicted them all. He gave them a choice of either serving jail time, or bringing back all their illegal fortunes back from offshore accounts and investing it in a carefully drawn out economic blue print. Mr. Lee had no interest in controlling the wealth, he gave them all full amnesty and just told them how to invest the money, and helped in guaranteeing all additional loans. That was how the powerful Chaebols were put in place and how 40 Families came to control some 650 strong Chaebols.

Before World war II, the Japanese saw the Keiretsu (Then Zaibatsu’s) as powerful cartels that had too much control in the society and economy, so much so that they were trying to dilute their powers by writing into existence anti-trust laws to break down these strong Monopolies. But after the war, the government realized that they could use these Keiretsu to build the economy. The Japanese had always had a strong saving culture (They save about 40-60% of their earnings), so they already had formidable financial institutions in place, so the government drew up an economic blue print and incorporated it into the already existing Keiretsu system. The government subsequently pumped a lot of aid and built the keiretsu around specific banking institutions, allowing the banks to acquire shares in the Keiretsu’s, forming an interlocking interest, so that financial backing was available to these new business superpowers to expand either vertically or horizontally into related fields of industry. The Government also encouraged these new keiretsu to back smaller business by serving as venture capitalist and guarantors all in exchange for more tax concessions, and they say the rest is history.

As no economies are dynamic, each and every economy is unique, subject to its own set of peculiarities, be it cultural, religious, geopolitical/graphical or socioeconomic, the greatest leaders have always found their strength in identifying such peculiarities and using it to their advantage. In recent history, one such country was Ireland, the Celtic Tiger. With the formation of the European Union in the 90’s, The Irish realized that most of the Multi Nationals were going to need a place to invest in in-order not to be left out of this ‘new deal’. The Irish government embarked on a heavy campaign to attract investors to its shores. Ireland with its highly skilled and literate workforce, created a tax heaven for would be investors, by giving them huge tax concessions and availing its services and expertise to all that might have a stake in investing there, and by doing all that they managed to attract the lion share of new investors to the Union, making Ireland realize record growth levels in the 9-13% range, which saw Ireland emerging as an economic powerhouse in the newly constituted Union.

Nigeria as a Sovereign Power, could continue to fumble in the dark, relying on the black gold, or we could see the light and make the black gold work for us. We can either sit back, relax and reap the rewards of what we have under our soil, or we can leverage what he have today, to build a bright future for our children thereby becoming the beacon of hope for the whole continent.

The government could create a retroactive partnership with the oil barons to draw investments to the country. These indigenous companies could use their assets (oil blocks) to serve as collateral to secure financing, and raise the startup up cash for the venture, while the government can serve as guarantors to the foreign banks. By investing, these indigenous companies will be increasing their asset bases, thereby increasing their ability to secure additional financing for more capital intensive projects. We can create more jobs, securing the livelihoods of our citizens, while simultaneously creating taxable income for the government in the eventuality of our diminishing natural resources.

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