Current Affairs

Nigeria: King Oil is dying, arise Prince Tech

Nigeria: King Oil is dying, arise Prince Tech
  • PublishedOctober 31, 2022

Oil, which for decades held pride of place in Nigeria’s economic calculations, is being gradually but surely pushed off the stage. In its place, the new ICT and creative industries are coming to the fore. Dulue Mbachu, writing from Lagos, reports on the decline of King Oil and the rise of Prince Tech.

After more than five decades of dominating Nigeria’s economy, oil is finally leaving the centre stage. And it’s not in a blaze of glory.

Gross domestic product figures for the second quarter of this year published by the National Bureau of Statistics show oil’s perilous decline from relevance in stark numbers.

The petroleum industry contributed just 6.3% to GDP compared with above 16% a decade ago. Activities in the industry were down 11.77% from the same period a year earlier, according to the report. But even that number represented a 14.27% improvement after the industry saw a decline of more than 26% in the first quarter.

Conversely, Nigeria’s formerly laggard non-oil economy has fared much better, driving much of the 3.54% growth in economic activity recorded between April and June. Non-oil economic activities grew by 4.8%, 1.97% short of the mark they hit a year ago and 1.31% down from the first quarter.

This grouping that accounted for 93.67% of the GDP includes agriculture, manufacturing, information and communication technology (ICT), trade, banking and services, among others. The star performer among them has been the ICT sector, led by telecommunications.

In the last seven years alone, the contributions of ICT to the Nigerian economy surged from little or nothing to 18.44% in the second quarter. A previous milestone was when it reached 17.92% a year earlier.

Even in its best years, oil never upset agriculture as the biggest contributor to Nigeria’s GDP. Yet, it became the lifeblood of the economy that at its peak was the source of more than 80% of government revenue and more than 95% of foreign-exchange earnings.

President Muhammadu Buhari came to power in 2015 with a lot of attachment for the petroleum industry. Not surprising, considering that he was the Petroleum Minister while Nigeria was under military rule in 1977 when the state-owned oil company, the Nigerian National Petroleum Company (NNPC) was founded.

Buhari, with an eye on the central role hydrocarbons were playing in the economy, decided to keep the substantive petroleum ministerial portfolio to himself while using junior ministers more in a delegatory capacity.

Prior to the former military ruler’s second coming to power, the Niger Delta oil region had gone through a period of violent instability. This was as communities in the region, feeling cheated out of the wealth pumped from their backyard by an alliance of the state and oil majors, threw up armed militants that targeted the industry and almost crippled it between 2005 and 2008.

This resulted in the 2008 peace deal when then-President Umaru Yar’Adua offered amnesty to the militants in exchange for peace, pledging to address the region’s complaints about neglect and environmental degradation.

Several former militant leaders got pipeline surveillance contracts while former fighters got scholarships and others were put on monthly stipends. Output rapidly recovered and was largely sustained through to 2015 as President Goodluck Jonathan, Yar’Adua’s successor on his death in 2010, kept faith with the deal, especially with regard to the pipeline contracts.

Start of Nigerian oil decline

When Buhari came to power, he repudiated these pipeline contracts while the most famous militant leader, named Government Ekpemupolo, better known as Tompolo, was declared wanted. That was also the year oil began its retreat from the then-unprecedented peak reached in June 2014. Nigeria’s oil industry began a decline from that point from which it’s yet to recover.

By 2016, insurgents in the Delta region responded with another round of attacks that not only crippled crude oil exports but also combined with low prices to force Nigeria into its first recession in a quarter-century. Given the difficulty of fighting insurgents who wouldn’t confront the military but would, surreptitiously, cut vital export pipelines, the government was forced to make peace overtures.

However, the old approach of paying off militant leaders without dealing with the underlying social crisis (particularly poverty and youth unemployment) fuelling the restiveness in the region, has clearly proved inadequate under Buhari.

Many of the former foot soldiers have discovered that rather than fighting, it’s more lucrative to join the illegal trade in crude oil stolen from pipelines for either local refining or sale to vessels waiting offshore.

The impact of the exponential growth of this trade has been the same as, if not worse than, the attacks of 2005-2008 and 2016: cutting Nigeria’s oil output to historical lows from peak production of 2.6m barrels per day as of December 2005, when the first coordinated attacks by armed militants started.

Nigeria last met its OPEC quota in the third quarter of 2020, when it pumped an average of 1.67m barrels of crude per day. In the second quarter of this year, the average output was 1.43m barrels daily, about 400,000 below the current OPEC quota.

Recent data released by the Nigerian Upstream Regulatory Commission show that oil output fell below a million barrels a day in August, with Angola overtaking Nigeria as Africa’s top oil producer. This is comparable to the state of affairs when Yar’Adua called a truce with the militants in 2008.

International energy companies such as Shell, ExxonMobil, TotalEnergies and Chevron are divesting their onshore and shallow water assets to avoid the trouble of staying close to Niger Delta communities and to comply with climate zero-emission expectations.

The reforming Petroleum Industry Act signed by Buhari last year may have come more than a decade late as it made slow progress through the legislature under his predecessors, while prospective investments went elsewhere for lack of regulatory clarity.

Not surprisingly, the Buhari government is re-engaging the former wanted militant, Tompolo, as a pipeline surveillance contractor, as it scrambles to staunch the haemorrhage of oil revenue that has left it debt-dependent in recent years.

Faced with two recessions in four years, the second one induced by the coronavirus pandemic in 2020, and each triggered by a plunge in oil prices, the Buhari regime has largely relied on borrowing to run its administration, accumulating a national debt estimated at more than $100bn, having missed out on the high oil prices caused by the war in Ukraine.

Emerging new economy

While the petroleum industry has struggled, there’s been an ICT boom, driven by the country’s largely young population, and independent of the government. The key activities in this sector are information technology, the movies and the music industry, with telecommunications as their backbone. This has thrust wireless and mobile phone companies such as MTN Nigeria and Airtel Africa to the fore, as they provided the data bandwidth access on which the innovations that have signposted an emerging new economy in Nigeria are based.

Nigerian tech startups got more than $600m in funding from international investors in the first half of the year, putting the country ahead of rivals Kenya, Egypt and South Africa.

While most of the start-up ideas are steeped in fintech, they cover a broad range of areas from logistics through payments to wealth management, and more. Many were founded on business opportunities generated by the country’s social and economic problems. For instance, Bluechip Technologies, which began life in Lagos in 2008 as a data-warehouse for banks and telecommunications companies, later grew to serve companies such as Microsoft and Oracle Corporation. It has expanded to several African countries, and recently announced it was setting up offices in Europe.

Payment companies Flutterwave and Paystack were both founded around 2016 to tap opportunities that opened up in Nigeria with the creation of an interbank settlements system. Both companies grew rapidly to become huge entities, with Flutterwave now valued at more than $3bn, while Paystack was snapped up by US payments giant Stripe in 2020 for $200m.

More than 20 Nigerian companies attracted investment funding of between $4m and more than $100m in the first half of this year. They include Moove, which finances vehicles purchase and raised $105m to fund its expansion into Europe, Middle East and Asia; Thrive Agric, an agricultural technology company that received $56.4m from international investors to deepen its proprietary technology that links farmers with crop buyers and processors; and Reliance Health, which provides health insurance services through an application, among others.

Waking up to the trend, Nigeria is moving to pass legislation, the so-called ‘Start-Ups Bill’, that will create the appropriate regulatory environment to let the businesses thrive while earning taxes for the government. While the attachment to oil remains, there appears to be a growing realisation by those in government that the new oil may well be tech.

Written By
Dulue Mbachu

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