Achieving economic efficiency for the economy
IN THE DOWNSTREAM OIL AND GAS industry, Nigeria has not received the expected optimal financial yields for the economy. The reason for this is that, a careful observation made reveals that the nation’s output capacity in the downstream subsector is far below standards, based on the huge gap that has been created by poor performances in local refining activities. The imports of refined products significantly contribute to the low GDP in the economy because, energy consumption within the country on a daily basis, comes top among the nation’s imported items, as revealed from the available data. A supporting evidence is the huge amount spent on petroleum products’ imports in the first quarter of 2021; which came to a total sum of N687.7 billion.
Consider such a significant amount that is spent on imported perishable item, being partly consumed as government expenditure (at the expense of focussing more investments on capital projects, with hope of return on investment in the future). Looking at the 2021 annual budget estimate of about N13.6 trillion no doubt, the significant amount spent on the imported refined products obviously, makes the budget feel the heavy impact of such appreciable figures in the economy.
The output capacity could probably be assessed on three levels of productive performances (potential, actual, and the “gap”, which is the unutilised potential). The underlying factor is the challenge of experiencing a poverty status characterised by total neglect occasioned from underdeveloped downstream infrastructure, that should have put the economy on a good pedestal for high productivity. Generally speaking, however, it is on record that the oil industry has constantly maintained, and still retains the lead, as the significant contributor to the nation’s foreign exchange earnings, from the upstream activities in the oil and gas sector, over the years.
The observed poor performances in the economy is really a worrisome development because, the situation is such that, either the industry regulators, or the political leaders, have willfully worked against growing this economy, by not deploying all the past wasted opportunities that were available at their disposal, which ought to have been tapped into, for full exploitation of those resources (that needed support of the intangible assets, particularly “security”, “rule of law”, and observance of procedures void of “impunity” in the corporate space). That would have presented an effective manifestation of the right results to be achieved for the nation’s economic growth and development. This actually ought to have been, whenever the right strings were pulled for productive efficiency, where capital stock (natural resources and the man-made resources) optimally combined with a labour force to yield reasonable national output (at a low cost).
This appreciable national output will (in this case) be the ‘actual national output’ that surpasses the presently observed poor performance results. The present, as actualised, is nothing to write home about; with a huge gap created by inefficiency, as presently recorded in the economy. The gap in national output created as a result of poor productive activities, requires every seriousness to efficiently change the narrative through improved productive activities.
Achieving a right economic efficiency, amounts to realising improved productivity or increasing the Gross Domestic Product (GDP) growth rate for the economy. The implication is that the downstream operations need to scale up in the in-country productive activities. To achieve this, means that the local refining activities must increase, to trigger automatic increase in locally refined products and make it available for the local market. As locally refined products increase, the import of petroleum products automatically decreases, and at the same time relieves the foreign exchange portfolio or the external reserves of the forex pressure for such importation. The decrease in importation will improve the GDP growth rate in the economy.
Energy is known as fuel for consumption. It could be sourced from nature (like the fossil fuels, including coals and the crude oil and natural gas). It is also sourced from scientifically invented transformative processes, known as the alternative, cleaner energy solutions recently trending due to the climate change global environmental challenges. The cleaner and reusable energy solutions include nuclear, voltaic cells, in addition to the hydro, solar, wind; sources for instance. All put together, obey a phenomenal law in transformation of energy that, “energy is neither created nor destroyed”. This is the basis of processing fossil fuels to a usable form (through crude oil refining) for wealth creation, being expressed in financial or monetary terms. Its consumption through demand and supply, drives prosperity and sustainability in the economy.The productive activities and processes is the main focus in this discourse hence, economic efficiency.
The optimal exploits achieved through product development for maximal yields at low cost is the main target being pursued. It is, therefore, the only way; no gap could be left in national output from its available potential for actualisation of a commensurate national income. This needs to be taking place in the nation’s petroleum downstream operations, as being clamoured hereto.
Energy, of course, is life; because it affects the quality of life. Prosperity, which is an improved economy, can only be achieved when wealth is created through commercial efforts and economic activities undertaken by a business owner (at microeconomic level) or by a nation (at macroeconomic level). It improves productivity or triggers steady Gross Domestic Product (GDP) growth rate, which automatically forces down inflationary pressure, occasioned from the prices of consumable items. On the other hand, importation activities for such consumables are brought to the barest minimum. The macroeconomics, therefore, involves other dimensions of human activities, which include the environment and social factors but, ultimately, boils down to sustainability, in managing those variables.
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