World Bank Vp, Oteh Suggests How Nigeria’s Economy Can Be Revived
BEVERLY HILLS, February 22, (THEWILL) – Former Director-General of the Security and Exchange Commission now Vice President and Treasurer of World Bank, Ms Aruma Oteh has declared that diversifying the economy of the nation from its over-dependence on crude oil remains the only strategy to effectively revive Nigeria's parlous economy.
Delivering a lecture on the topic: “The proper role of oil in the context of accelerating growth and development in Nigeria” at the Philip Asiodu Lecture series in Lagos on Monday, the World Bank chief advised that notwithstanding the effects of declining crude oil prices, the country should begin to make preparations to survive the impact of cheaper renewable energy on oil and gas demand.
Oteh, who harped on the need for Nigeria to move away from oil given the level of price uncertainty, said the country needs to apply a strategic mind-set in utilising its oil revenues to finance the diversification of its economy, assess comparative advantages which would be built upon and launch into new industries that are destined to grow in the 21st century.
According to her, “Abundant availability of oil is one of Nigeria's comparative advantages and diversifying its economy away from oil should not be construed as not taking advantage of efficient linkages between oil and related industries. Because of the abundant oil resources, the cost of energy to Nigerian industries is relatively lower; therefore, energy-intensive industries and those that use by-product derived from oil such as petrochemicals, aluminium, steel production, fertiliser and bio electronics should benefit.”
The former SEC DG said that to diversify the economy and leapfrog development, Nigeria should invest in human capital, its other and most important endowment, adding that a more inclusive economy is needed to effectively transmit as much oil wealth as possible into improving the well being of all Nigerians.
Her words, “Three components of human capital are critical: education, workforce quality and specialised training for researchers and scientists. As discussed in the next section, large investments in primary, secondary, tertiary and vocational education are also essential as a key pillar to building a knowledge economy.
“Nigeria's over dependence on oil revenues for its economic growth and government budgets makes it highly susceptible to oil price volatility. Furthermore, the future of the oil industry will be shaped by climate change and environmental concerns which require a global transition from fossil fuels to cleaner, renewable and more efficient energy sources. Nigeria's current dependence on oil is all the more unsustainable in the face of this trend,” she said.
While speaking on the effects of dependence on oil resources, Oteh said: “Nigeria has the second largest oil reserves in Africa but not all of it is economically viable to extract at low oil prices. Depending on geology, some reserves are more expensive to exploit than others and only a high oil price can justify the costs in some cases.
''In contrast, Saudi Arabia and its Gulf neighbours, blessed by nature, are profitable even when oil is at $20 per barrel due to their readily accessible reserves. While Nigeria's break-even cash cost of oil is around $32 per barrel, the country's fiscal break-even cost of oil was around $122 for 2015 budget.
''In other words, when oil drops below $30 per barrel, Nigerian production, on average, is no longer profitable; and at $40 per barrel, only about 16 per cent of Nigeria's reserves are economically viable.”
The World Bank Treasurer, who noted that the demand for energy will remain even though oil and gas were gradually taking the back seat as energy fuels, urged Nigeria to begin mapping out ambitious but realistic action steps with timelines that would ensure the replacement of fossil fuels as sources of energy.