A Review of the Nigerian Energy Industry

Tanzania: Relying entirely on natural resources dangerous to economy

Financial-market12 August 2013, Dar Es Salaam – The English have a saying, ‘look before you leap’ which simply means to think before acting. The discovery of mega amounts of gas and oil in Tanzania is great news to its people, many with high hopes of turning into multimillionaires within a short period of time.

Experts in the field are, however, cautioning the public and the government especially to weigh the pros and cons of this excitement and to be vigilant in whatever moves they opt for after the discovery and to take time to learn from other African countries like Nigeria.

Crude oil was discovered in Nigeria in 1956 at Oloibiri in the Niger Delta after over fifty years of exploration. Exploration had started as far back as 1908 by the German led Nigerian Bitumen Corporation but the First World War stopped the exploration.

Nigeria joined the ranks of oil producers in 1958 when its first oil field came on stream producing 5,100 barrels per day. After 1960, exploration rights in onshore and offshore areas adjoining the Niger Delta were extended to other foreign companies.

Following the discovery of crude oil by Shell BP, pioneer production began in 1958 from the company’s oil field in Oloibiri in the Eastern Niger Delta. By the late sixties and early seventies, Nigeria had attained a production level of over 2 million barrels of crude oil a day.

Petroleum production and export play a principal role in Nigeria’s economy and account for about 90 per cent of its gross earnings. This dominant role has pushed agriculture, the traditional mainstay of the economy before the discovery of crude oil to the background.

According to a study entitled ‘effect of petroleum on agriculture development’, cited that the petroleum industry in Nigeria has brought unprecedented changes to the Nigerian economy, particularly in the past five decades when it replaced agriculture as the cornerstone of the Nigeria economy.

The oil industry has risen to the commanding heights of the Nigerian economy, contributing the lion share to gross domestic product and accounting for the bulk of federal government revenue and foreign exchange earnings since early 1970.

“However, Nigeria’s considerable endowment in fossil fuel has not translated into an enviable economic performance; rather, the nation’s mono-cultural has assumed a precarious dimension in the past decade susceptible to the vagaries of the international oil markets,” the study read in part.

Agricultural technology has remained relatively unchanged over the years and over 90 per cent of the farmers are subsistence farmers operating on traditional methods using basic tools. It stated that farming technique in the Niger delta has still remained the use of land rotation or bush fallow system characterised by land and labour behind the principal inputs of production.

The challenge of resuscitating agricultural production and development in Nigeria is an enormous one. This is because of the dramatic shift in the fortunes of the sector over the years; from the dominant sector of the economy (contributed 64.1 per cent to GDP) and supplier of food, income, foreign exchange and employment in the 1960s to a net importer of food contributing less than 5 per cent to total foreign exchange earnings in 2000.

In another study entitled, ‘Oil boom in Nigeria and its consequences for the country’s economic development’ it is urged that in practice, it has proven to be extremely difficult to convert natural resource wealth into broad based improvements in economic performance and human development.

In fact, heavy dependence on the export of natural resources has been shown to negatively affect a country’s economic, social and political development. The empirical literature on the implications of abundant natural resources points out to a number of consequences for different spheres of a country’s development.

For starters the problem of the “Dutch disease” effect of mineral resource production: on the one hand, resource booms tend to cause real exchange rates to rise due to the large inflows of foreign exchange generated by the increased resource exports; on the other hand, labour and capital tend to migrate to the booming resource sector from other productive sectors.

Dutch disease refers to the de-industrialisation of an economy as a result of the discovery of a natural resource, as that which occurred in Holland with the exploitation of North Sea Oil, which raised the value of the Dutch currency, making its exports uncompetitive and causing its industry to decline.

“Together, these two effects result in higher costs and reduced competitiveness for domestically produced goods and services, thereby reducing agricultural and manufacturing exports,” the report cited.

The HakiMadini Executive Director, Mr Amani Mhinda advices the government in the wake of the recent discoveries to have a quota system in higher learning institutions for students aspiring to be a part of the prospective gas and oil industry in the country lest the country have economic imbalances.

Speaking during the ongoing oil, gas and mining workshop for journalists from Ghana, Uganda and Tanzania, Mr Mhinda said that the government needed to control the number of students opting for oil and gas courses because there was every likelihood supply could surpass demand for such jobs.

“Evidence shows that there are many students today seeking advice on opting for oil and petroleum related courses because the courses are seen to be hot cake and high paying,” he said.

Mr Mhinda said that he had personally received offers of partnership with numerous research and consultancy firms eagerly wanting to enter the sector.

He said that if proper attention wasn’t given to these new trends, there was every possibility that to have an imbalance where there will be a concentration of say students opting for oil and petroleum subjects as compared to others as well as an over concentration of firms in Mtwara where gas has been discovered.

“If we are not careful, we will have empty classrooms and courtrooms because of the high expectations from the oil and gas discoveries that is driving people to have professions that fall in line with the new sector,” he said.

Renowned environmental and natural resources lawyer, Dr Rugemeleza Nshala concurred with Mr Mhinda’s sentiments saying that instead of ridiculing Botswana as having succeeded in its mining industry for being a small country, he said that there was a lot to learn from it.

Dr Nshala said that much as the option not to exploit was a difficult one because of the obvious advantages it can have to the economy, as long as the contracts being signed don’t see the country benefiting more than other parties, the resources are best left untapped.

He called for total public participation in the environmental impact assessment process such that the public is made aware of the possible environmental impacts both positive and negative they will have on the people that surround the project.

– Masembe Tambwe, Tanzania Daily News

In this article

Join the Conversation