Extractive Sector Transparency, Value Maximisation and Nigeria’s Economic Recovery
Waziri Adio
Ihave been asked to speak about “Transparency in the Extractive Sector: Driving Wealth Creation and Sustainable Revenue as Solution to Economic Recession”. Since we are technically out of recession, I feel it would be more useful to talk about how we can use our natural endowments to drive economic recovery in Nigeria and to also talk about other things we need to do to ensure that the attendant growth from the primary advantage granted by resource endowment is deepened, sustained, and shared. I will pursue two theses in this intervention: one, our natural resource endowments can translate to real and sustained prosperity only if we maximise the opportunities they offer and only if we manage the revenues derived from them in a prudent, transparent and accountable manner. In our almost 60 years of independence, we have not done that. Two, and somewhat contradictorily, we need to look beyond natural resources for our development. The wealth of nations, it is now established, is not under the ground but over it.
Nigeria and the Paradox of Plenty
In terms of natural resource endowments, our country could as well be the biblical Promised Land, a land flowing with milk and honey, just that the milk and the honey have not been appropriately harnessed to nourish and benefit the mass of our people. Nigeria is richly endowed with oil and gas, still highly prized sources of domestic and industrial energy across the globe. With 37.1 billion barrels of proven oil reserves, Nigeria has the 11th largest oil reserves in the world and is the world’s eighth largest exporter of crude oil. The first level of paradox is well known: Nigeria exports crude oil and imports refined petroleum products to meet most of its local needs. The total installed capacity of our four refineries is 445, 000 barrels per day, with actual utilisation sometimes below 20%. A quick comparison with Singapore can help with perspective. Singapore has a population of 5.6 million people (compared to ours of 186 million), produces a little over 20, 000 barrels of crude oil per day (compared to ours of average of 2 million barrels per day), is the 78th producer of oil in the world (compared to ours at 8th) but has an oil refining capacity of 1.54m barrels per day (compared to ours that could be lower than 100,000 barrels per day). Nigeria is sometimes described as a gas country that has some deposits of oil. With proven gas reserves of 180.1 trillion cubic feet, we have the 9th largest gas reserves in the world. Though gas utilisation is improving, a very significant proportion of our associated gas is flared, with dire implication not just on the people and the environment but on prosperity in terms of lost electricity and income. According to figures from the Nigerian National Petroleum Corporation (NNPC) and the Department of Petroleum Resources (DPR), though gas flaring was slashed by 26% within ten years, sum of $850m and 3500 megawatts of electricity were lost to gas flaring in 2015 alone. Despite being a major oil and gas producing country for 60 years, it is clear that we have not fully optimised and maximised the opportunities in the oil and gas value chain.
The picture is grimmer in the solid minerals sector, where Nigeria is blessed with large deposits of 44 different minerals spread across the country. According to data from the Ministry of Mines and Steel Development, Nigeria has, among others, 639 million metric tonnes proven reserves of coal but production is only at 0.04 million metric tonnes; has 3 billion metric tonnes proven reserves of iron ore but production is only 0.07 million metric tonnes; has 5 million metric tonnes proven reserves of lead/zinc but production is at 0.6 million metric tonnes; has one million metric ounces proven reserves of gold but production is 0.14 million ounces; and has 568 million metric tonnes proven reserves of limestone but production only at 11 million metric tonnes. Thus, despite the abundance of solid minerals in the country, production has been low and the sector has contributed minimally to national output. Solid mineral sector, according to the NBS, only accounted for 0.12% of GDP and 1.45% of total non-oil exports in 2015. Remember for a moment that Nigeria used to be a major mining country, that some of our cities developed around solid minerals (Jos, the Tin City; Enugu, the Coal City), and that the solid minerals sector used to be a major employer of labour and used to contribute about 5% to our GDP in the ’60s.
Partly because of low optimisation and largely because
of governance issues, natural resource endowment has not translated to prosperity for the mass of Nigerians. Nigeria has one of the lowest development indicators in the world. The 2016 UNDP Human Development Report, which measures human development in terms of educational attainment, life expectancy and per capita income ranked Nigeria 152 out of 188 countries, behind South Africa, Kenya, Gabon and Ghana, and not among the top 20 in Africa. In a related vein, data from NBS show that the period between 1980 and 2010 witnessed a steady increase in poverty rate in Nigeria. While 27.2% of Nigerians were considered poor in 1980, this increased to 46.3% 1985 then 69% in 2010. In raw figures, the number of Nigerians adjudged to be poor increased from 17.1 million in 1980 to 112.47 million in 2010, an increase of 558%. The massive inflow of rents from the oil sector has not made a positive dent on human welfare in Nigeria. This illustrates not just the paradox of poverty in the midst of plenty but has turned Nigeria into the most cited example of the phenomenon of resource curse.
Table 1: Comparison of Human Development Indices
Source: Human Development Report 2016
Table 2: Trends in Poverty Incidence in Nigeria