by Tunde Leye
Oil has not been important for a very long time. When we see the behemoth-like companies that are involved in the oil trade worldwide now, and the way the global economy seems to revolve around the price of oil, many of us will find it very difficult to believe. But oil has been important for what is equivalent to a mere second in human history. What made oil become important was technology that required it to power transportation, and powering the industrialization of the West.
Simply put, it is the industrialized and technologically advanced countries that have made our oil important. All our importance and puffing our chests up is not because of any intrinsic value of our oil. Our oil is valuable because western (and now Asian) technology makes it so, and also because they do not have enough to meet their needs at the moment. Any change in these two factors, and we will be in trouble. Already, these changes are beginning to appear in the horizon. But in our typical ostrich approach, we refuse to face the reality. Instead, we adopt the Nigerian optimism that blinds us into believing we are too special to have the problems of ordinary countries. It will shock us, if we do not take firm steps to plan for a world where our oil has much less value than it has now. Of course, the final elephant in the room for us in particular is that our oil is a finite resource which, sooner than later, will run out.
Already, our biggest buyer, the U.S hasn’t bought from us for 2months now. Their shale reserves are beginning to yield. China sits on huge shale reserves too, but we are believing they will keep buying oil from us. So also does Brazil. The only one of our main markets that doesn’t have shale reserves discovered yet is India. But if I was India, and China which shares a border with me can supply me oil over land, I will not buy from a faraway African country. There are a few scenarios that are possibilities when one of the following happens to make our oil lose value
- New technology makes the West and Asia not need our oil for transportation and power any longer, the same way electricity rendered the use of kerosene for illumination useless. Imagine some Henry Ford type of genius entrepreneur arose and made a mass adoption of electric cars at a cheap rate possible in these markets. Kaboom!
- The rich countries find other means to supply themselves and hence supply becomes much more than demand, driving price down dramatically. Let’s imagine that apart from this shale extraction, Iran’s relationship with the West thaws well enough. Supply will jump and we will be in trouble again. Kaboom
- Our oil will eventually run dry. Our wells will eventually become economically un-viable. No explanation needed here.
If just one of these factors happen, then our oil revenue is gone, and the national cake will significantly reduce to reflect our reality. We produce very little for our size
Oil revenue is what makes the elite consensus to hold Nigeria together, no matter what, possible. Elections are basically jousting contests to determine which of the elite will control this practically free revenue for four years. Our politicians are lazy because they don’t have to do any real work to generate revenue. The political offices are attractive because they do not mean real work – they simply mean access to a share of the free oil money. Without it, the incentive to enter government and get free money is removed. The elite consensus is shattered, and coupled with the friction that scarcity of resources brings, conflicts amongst the constituent ethnicities within the Nigerian state escalates. And unlike before where the political elites have a vested interest in keeping Nigeria together plus the financial means to do so, this time, it does not happen. Spiral into chaos.
As the free money from oil disappears, the elite try to make up for the revenue shortfalls by not only becoming very serious with tax collection, they increase the tax burden on the citizens to make up for the shortfalls. And then they attempt to continue in their old ways of spending money as if it is going out of fashion. But unlike the days where the people are uninterested because the money is not coming out of their pockets, this time, they are keenly interested in how the elite use the monies they pay in tax. The political elite are used to calming the people down by buying them over with the free oil money. But that is no longer available and the money raised from taxation is just insufficient to buy them like the days of old. A clash of the people and the elite happens and it is not pretty. Anarchy and chaos. From the ashes, rises the potential for a Nigeria that begins the journey it had deferred for so long to do the hard work to realize its potential.
A group of the elite, with a strong leader accurately predict the timing of the decline in our oil’s importance in the world and proceed to accumulate stupendous wealth in the period. By the time we get to the point we are no longer making oil money, these have become so rich that we have a Mobutu Seseseko type situation where individuals in leadership are richer than the nation they rule. Of course, in Africa, it is normal for political leaders to be stupendously rich, or business men to be worth more personally, than the businesses that are supposed to be the source of their wealth. Therefore, eyebrows are not raised over this wealth accumulation. When money becomes scarcer in the nation, the wealth stash these ones have stored up is used to perpetuate them and their people in power. Nigeria devolves to a Zimbabwe situation.
We recognize the need to prepare for a world where oil is no longer important. Even oil companies are getting prepared for this. Everyone else is preparing, except we the African countries from where this oil is extracted and who depend so desperately on the proceeds of the sale of this oil, but who have little or no power in determining whether oil will continue to have value or not. We then begin to do the hard work necessary to build our economy to move away from oil. We take taxation more seriously and derive government revenue from it. The taxpayers conversely monitor the government better. We do what smart companies do when they had a key customer or product risk, especially when it is one they have no real control over. They back out the performance of that product or customer from their books and evaluate their business as if it didn’t have that product or customer. They prune things to the level that this reality reflect and then work very hard to remove this risk by either taking control of the circumstances around this key product or customer, and/or diversifying so that their risk is diluted. This is the mindset we must have with our oil, and it must start from our leadership, to the “ones whose land the oil is extracted from” and the rest of us that make up Nigeria.
Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija.