Why Nigeria is moving away from oil
Efforts to shift Nigeria’s economy away from its dependence on black gold — including diversification into gas and rice — may yield the growth that the country desperately needs
Over the past 40 years, Nigeria has emerged as an oil powerhouse — the biggest in Africa. But as the Nigerian government struggles to emerge from petroleum dependency, opportunities for growth have emerged in other sectors.
From Kano’s rice plantations to a fledging gas economy in Bayelsa, Nigeria is moving away from oil.
Speaking at the Africa CEO Forum in Abidjan at the end of March, co-founder and executive director of the Sahara Group Tonye Cole said investors often made the mistake of looking for opportunities only in the cities of Lagos and Abuja, instead of scouring the potential in other states.
With a multibillion-dollar industry created from oil export earnings, government hasn’t placed much emphasis on economic diversification as infrastructural development stagnates and poverty increases.
While US$1bn in investment entered Nigeria in 2017, its economy recorded paltry growth of 0.8%.
The oil sector grew at 4.8% and contributed 8.7% to the economy, but the non-oil sector grew at 0.5% and contributed 91.3%.
This comes after Nigeria’s economy plunged into recession in 2016 as economic growth contracted by 1.51%, marking the first negative GDP growth since 1991.
The IMF estimates 2.1% growth for 2018 and 1.9% for 2019.
Capital Economics economist John Ashbourne says stronger activity in the non-oil sector compensated for weaker oil prices, which hammered the oil industry.
Investors are now looking at the diversification of the Nigerian economy with emphasis on the agricultural and solid mineral sectors. Overall, oil makes up about 10% of GDP, while agriculture make up 25%, industry 22% and services 53%. In the past few years, oil has fallen from 70% of government revenue to 55%.
Yewande Sadiku, CEO of the Nigerian Investment Promotion Commission, says Nigeria’s economy is slowly changing.
"Diversification can never happen overnight. It will take a while for the results to show."
Arable land makes up 37.3% of the total land area of Nigeria.
The potential is enormous. In the Kano province, for example, rice plantations have all but done away with the need to import rice.
The Kano state government earmarked $500,000 for rice farming last year to boost agriculture in the state, in line with efforts to reduce overdependence on oil.
In 2016, the Kano government contributed to the production of 1.3 Mt of rice, which increased to more than 2 Mt in 2017. Thailand used to export 1 Mt of rice to Nigeria, but this has since dropped substantially.
Aside from tapping into agriculture’s potential, Nigeria also has the potential to diversify into the gas sector. But while it boasts 200 trillion ft³ of proven gas reserves, the largest on the continent, it has the lowest consumption in Africa.
In November 2017, Nigerian petroleum minister Emmanuel Ibe Kachikwu said in an interview with the Financial Times that Nigeria was "really a gas nation with some findings of oil".
Despite the large reserves which could be used for transport and power generation, the country suffers from crippling power outages and 75m Nigerians have no electricity. Kachikwu says investment opportunities in the natural gas value chain could amount to over $50bn, and yet the sector remains underdeveloped.
Seriake Henry Dickson, governor of the Bayelsa state, said at the forum that his state had the largest gas reserves in Nigeria.
"We need to unlock the potential that gas reserves have for access of power," he said.
"We have already found a window of opportunity. An eco-industrial park in Bayelsa will have a power-generating station fired by gas and will be a catalyst for investment. Construction has started and will be complete by the end of the first quarter of 2019."
Nigeria’s relatively untapped resources, apart from oil, seem to offer opportunities to bolster economic growth.