A Review of the Nigerian Energy Industry

One ball, 36 players: oil dependence & the misfortunes of ailing Nigerian States

Chijioke K. Mama.
*Chijioke K. Mama.

Chijioke Mama

12 September 2015, Sweetcrude, Lagos – Excessive reliance on crude oil revenues has seen Nigeria’s 36 states chasing a single ball; petroleum. With the ball now deflated, it is time to either share the team or throw in more balls.

There are emergent models of state enterprise participation and resource governance that could see Nigerian states earning enhanced revenues from many other sectors in the economy (e.g. aviation, manufacturing, agriculture and Information Technology).

On a closer analysis, the unique advantages of state participation in businesses such as mini-refining, petroleum exploration & production, solid minerals development and petrochemicals remain stack. Many lucrative State-Owned Enterprises (SOEs) in Nigerian has been left to die due to brazen negligence; since Abuja will often call at the end of the month. Midwestern Oil and Gas and the role of the Delta state Government remains a possible good model of what can work.

If the recent economic misfortunes of the Nigerian Government, which started with the fall of oil prices (now headed for the lowest price ever) is critically evaluated along with all the emergent issues. Issues such as the diversification of the economy, the suggested decoupling of major and choked economic hubs (Lagos, Port Harcourt & Kano) and the question of the economic viability of many states in Nigeria demonstrate that there is no better time or situation to develop a strategic and long term revitalization program that now. Likewise, there is no other tool more suited for achieving this than a forward-looking Nigerian Governor’s Forum (NGF). If partisan politics can be shunned for a moment, in favor of economic alliances and a thinking session, such a program will permanently strengthen the economic position of the 36 states

Research and publications on the future of crude oil and the fate of Africa’s hydrocarbon economies has led to data which validates the notion that Nigerian states are headed for multiple other shocks (if the status quo remains the same).

This fresh Governors’ forum and its new leadership have an uncommon duty to implement and nurture a program for reinventing state level viability; a process and program that will outlive the individual tenures of the member-governors.

Some investment opportunities that are receiving renewed attention by Nigeria’s new government present some challenges and deterrents for current and potential investors. These challenges are surmountable via innovative models of state participation that could solve problems such as;

a) Lowering the barrier to raising capital via political risk assurances which possible in a state’s participation. This is especially important for offshore funds and lenders/promoters with limited funding footprints in Nigeria.
b) Community, security and operational challenges: State participation provides a “social license” for local businesses; conferring an image of “our own” to locals who may otherwise view foreign or unknown entities with a different lens and consequently sabotage its activities. This is especially relevant in the restive Niger Delta.
c) Eliminating or minimizing red tapes and optimizing fiscal incentives:
By virtue of a state’s participation in an enterprise (in the diverse possible forms but excluding state-operated), significant bureaucratic and regulatory challenges that stifle business operations can be solved. The promoters may – in addition – enjoy certain fiscal incentives, favorable policies, executive and legislative goodwill at the state level, which will make a lot of operational difference.
d) If state participation is modeled at the level of Nigeria’s geo-political zones, (i.e. multi-state participation) expansion plans and efforts to reach into nearby markets will not only be easy but will also entail rolling over most of the benefits from the originating states. Thereby, saving cost and growing revenue both for the participating states and the private sector investors.

Numerous advantages are derivable from such. Succinctly, it’s critical that the Nigerian Governors Forum consider the development of a long term framework towards the restructuring of the revenue standing of the states via state participating enterprises, Public Private Partnerships (PPP), Innovative Investment Vehicles and many other models.
This new model will take advantage of emergent opportunities in other sectors of the Nigerian economy that were previously neglected (in favor of Oil and Gas) while simultaneously reaping from opportunities in the old (now sick!) cash cow: Oil and Gas.

This task goes beyond the usual act of appointing a single adviser but calls for a team of competent experts working within a program. Such a program will create, implement and nurture unique strategies in a program that may last for 10 to 15 years.
Although programs like this can be executed discreetly, at the state levels, converging it and executing through the NGF, will not only save resources and time but will also make success and strategies repeatable, failures avoidable and performance easily comparable across the 36 states; thereby yielding 36 or more balls for 36 players.

*Chijioke Mama is a senior Oil and Gas analyst in Lagos, Nigeria and the founder of Africa’s Barrel Equations. Chijioke.mama@yahoo.com

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