Oil to Soil: Could Covid-19 spur Nigeria’s economic transformation?
Mineral resources such as oil turn out to be a curse not just in terms of economic growth, but also in terms of risks of violent conflict, greater inequality, less democracy, and more corruption — Nicholas Shaxson
Nigeria is an undisputed giant on the African continent. With 206 million inhabitants, it is Africa’s most populous nation, and an economic powerhouse, thanks to its huge oil reserves. The country is the largest producer of crude oil on the continent, and the 11th largest globally. Buoyed by high revenues over the past few decades, Nigeria’s entire economy has, however, become heavily dependent on crude oil.
A recent study argues that 85% of Nigeria’s revenue is derived from oil and gas exports, with related analysis concluding that about 90% of Nigeria’s foreign exchange is derived from crude oil.
Despite its economic fortunes, Nigeria has failed to manage its oil revenues to drive inclusive economic development. According to 2019 data from the Nigeria Living Standards Survey, 40.1% of Nigerians live below the poverty line of less than one dollar a day, or 137,430 Naira (around US$380) a year. For more than 80 million Nigerians (more than the entire population of many African countries), the country’s oil wealth is a curse, not a blessing. And these numbers are set to rise, due to the socio-economic impacts of the Covid-19 crisis. Recent surveys indicate that the number of unemployed, and under-employed people is increasing due to pandemic-related disruptions.
And the country’s elites are also starting to experience the downside of an export-dependent oil sector due to the impacts of the pandemic. A recent Wall Street Journal article described the combined impact of the oil slump and pandemic as an “existential threat” for Africa’s largest economy and biggest crude producer, reporting that cargo ships full of millions of barrels of Nigerian crude have nowhere to go, because of global lockdown. Other media reports have analysed the economic impact of the resulting crash in crude oil prices, which fell from an average of around US$70 per barrel to about US$25 per barrel in the first quarter of 2020.
In just three short months, a global pandemic has impacted heavily on the Nigerian economy.
Yet there was a life before oil was discovered in Nigeria. Prior to the 1970s, agriculture was the major source of foreign exchange earnings. During his tenure as Nigeria’s minister for agriculture and rural development, Akinwumi Adesina, lamented the fact that “Nigeria is known for nothing else than oil… [yet]…we never used to have oil — all we used to have was agriculture.”
Repositioning agriculture for economic diversification
Even today, agriculture ranks as one of the most important sectors of the Nigerian economy, with high potential to continue to be a stable driver of rural development, and employment, and food security. According to the national bureau of statistics, agriculture accounts for nearly one-quarter of all economic activity in Nigeria, and its contribution to the country’s GDP was projected to rise by 8.37% in 2020.
With only 40% of the available 84 million hectares of arable land, currently cultivated, the Nigeria Economy Recovery and Growth Plan (ERGP) has concluded that if food security is prioritized as a critical national objective, the value of agricultural production alone would increase to 31% in 2020, a value of 21 trillion Naira (approximately 31.2 US$ billion).
The country has abundant fertile land and rainfall to produce a diverse range of food, and cash crops for the local and export markets. The western region of the country, for example, produces valuable commodities such as cocoa, oil palm and cassava. The north is a supplier of groundnuts, rubber, and animal leathers, while the east of Nigeria is known for its oil palm, rubber, and kernels.
Given its huge potential, many analysts have attributed the low level of agricultural development in the country to, among other factors: corruption, and a lack of political will; poor implementation of existing agricultural policies; neglect of the agricultural sector in government budgets; poor infrastructural development; and low adoption of technology, research, and mechanization.
Over the years, successive governments have attempted to address these challenges, launching numerous policies and initiatives, including Operation Feed the Nation, the Green Revolution, and Agricultural Transformation Agenda (ATA), among many others. The current federal government has introduced a number of diversification strategies across the agricultural value chain, aimed at boosting the economy, and attaining food sufficiency. Like its predecessors, however, the government’s policy initiatives have made little impact. This is due, in large part, to a lack of political will to tackle the root causes of these policy failures, which include: weak coordination across key government sectors, as well as between states and the federal government; entrenched corruption at all levels; and a lack of institutional “learning” from past failures, due to the low level of monitoring and evaluation of past initiatives.
Covid-19: An opportunity to “reset” Nigeria’s economy?
Amid the unprecedented economic fallout caused by the Covid-19 pandemic, Nigerians are realising, once again, that agriculture has the potential to bridge the gap in lost income, or even open up new ways to earn a livelihood. This reaffirms the need to change public perceptions about agriculture, and make farming cool, especially for young people. Emphasizing that Africa’s comparative advantage is in producing food, Adesina, who is the current President of the African Development Bank, has famously said that “nobody smokes gas, nobody drinks oil, but everybody eats food.”
So how can Nigeria take advantage of this pandemic-driven window of opportunity? As highlighted above, one of the weak links in developing Nigeria’s agricultural sector is the low levels of investment, including in technology, mechanization, and innovation. These are all prerequisites for increasing agricultural productivity and efficiency, and raising profit margins for farmers. Currently, Nigeria allocates a mere 2–3% of total public spending, which falls short of the African Union target of 10%, as set out in the 2013 Maputo Declaration on Agriculture and Food Security.
With regard to mechanization, for example, the 2019 Oxfam Nigeria report — citing recent statistics from the National Centre for Agricultural Mechanization — notes that only 3% of agricultural work in Nigeria is done with engine-powered technology. The report adds that there are only an estimated 45,000 tractors in the entire country, which equates to a density of 5.7 tractors per 100 square kilometers. This is relatively low compared to developed countries, and even other African countries such as South Africa and Kenya.
The pandemic has also exposed the poor state of rural infrastructure, which hampers farmers from getting their produce to markets. This is exacerbated by weak logistical support systems for farmers, a lack of storage and preservation facilities, ineffective distribution systems for agro-inputs, and poorly organized informal markets.
Addressing these weak links in Nigeria’s food system and providing enabling support for the different chains of agriculture will help in boosting the agricultural sector to create values across the entire value chains, reposition agriculture for economic growth while attracting young people into the sector.
What the experts say
“In the midst of every crisis, lies great opportunity”, is a widely-quoted saying from Albert Einstein. In a bid to find more insights on how Covid-19 can spur the much-needed economic diversification for Africa’s largest oil producer, I spoke to three experts in the field of governance, agriculture, and development.
Fisayo Alo — Senior Researcher, Good Governance Africa
The Covid-19 pandemic has exposed the myriad lapses and inadequacies in governance generally, and in the delivery of services across all the sectors. Most important of these are health, education, agriculture, infrastructure, security, and social safety nets. Whereas the presence of Covid-19 in itself cannot create economic diversification, heeding the lessons learned from this experience can spur the needed economic diversification.
For instance, it is now clear how important it is for the government to invest in socio-economic initiatives like health, education, agriculture, and raising living standards. To successfully diversify, investment in human capital has to be exponentially increased. It is also clear that it is the role of the government to spearhead this economic diversification. The pandemic could help catalyse this process as it provides an opportunity to rethink certain ‘norms’ within the public and private sectors. The time seems right for investments in those catalysts.
Dr. Debisi Araba — Managing Director, African Green Revolution Forum
The economy continues to diversify. Perhaps this shock to the global economy may well add some zest to the entrepreneurial fervor in the private sector. The government needs to appreciate the critical role of private enterprise and support its growth through an enabling policy environment. The government does not create jobs, private entrepreneurs do. I am rooting for every agribusiness entrepreneur to thrive as the shape of our future depends on their success.
Fred Nwogu — Programme Manager, New Nigeria Foundation
We can expect that the loss of jobs, businesses and small enterprises will continue to deepen for a long time before we can see substantial recovery and diversification. I hold the opinion that the government does not diversify the economy, people and businesses do. This can be through the application of their technical capacity, savings, business, and personal integrity, which is based on the availability of empowered markets and access to investment funds.
In conclusion…
As economies and businesses build back better, Covid-19 offers yet another reason for Nigeria to look beyond oil dependency. Even as many turn to agriculture to secure their livelihoods, all hands must be on deck to prioritize investments in the overall enabling environment for sustainable agricultural development, such as adequate support systems for farmers. Other sorely needed interventions include: building sustainable and resilient business models; leveraging innovations and technologies to improve agricultural productivity and efficiency, such as reducing post-harvest losses, and introducing multiple farming seasons a year; and promoting sustainable consumption practices, such as reduced food wastage.
Written by John Agboola
This article is part of Covid-19 Food/Future, an initiative under TMG ThinkTank for Sustainability’s SEWOH Lab project (https://www.tmg-thinktank.com/sewoh-lab). It aims at providing a unique and direct insight into the impacts of the Covid-19 pandemic on national and local food systems. Also follow @CovidFoodFuture, our Video Diaries From Nairobi, and @TMG_think on Twitter. Funding for this initiative is provided by BMZ, the German Federal Ministry for Economic Cooperation and Development.
