By TBY | Nigeria | May 03, 2018
South of the Sahara Desert, there is an old proverb that goes, “A man does not wander far from where his corn is roasting.“ Apart from their rural charm, African […]
South of the Sahara Desert, there is an old proverb that goes, “A man does not wander far from where his corn is roasting.“ Apart from their rural charm, African aphorisms retain an unmatched ability for being extremely accurate. Between 2005 and 2015, Nigeria witnessed an average GDP growth of 6.5%, becoming the largest economy in Africa and one of the most promising platforms for savvy investors. However, in 2016, the country experienced the hard reality of facing a draught with just “corn“ in the harvest.
Nigeria’s “corn,“ or sole source of sustainment, is oil. Since it was discovered in 1956, crude oil has accounted for over 90% of the government revenue for decades. Once key to the country’s rapid rise, it now bears the blame of its economic downfall. The country’s resource income is not tied to the economy’s productive capacity, but only to a specific sector, and, therefore, is exposed to a greater risk of volatility as a result of lacking differentiation.
Thus, in Nigeria, political speeches and newspapers were swarmed with magic words like “diversification,“ “invest in infrastructure,“ and “capacity building.“ However, the recession Nigeria faced in the past year was not the product of high dependency on one commodity. Diverging opinions between the Central Bank and the Ministry of Finance over interest rates led to further instability in commodity prices. Speculations on the low amount of foreign reserves led to a full-fledged balance-of-payments crisis the Central Bank is still dealing with. Nevertheless, diversification is and will be an ambitious long-term strategy.
Despite the efforts of creating a productive, efficient infrastructure to limit crude oil dependency, any answer to the Nigerian economy’s illness must start from where its corn is roasting. Supported by Pan Ocean Oil Corporation, a local exploration and production company, the Amukpe-Escravos Pipeline looks to increasing national overall crude export, boosting government revenue and eventually overall growth of the economy. The winning bid for the project was sent by Fenog Nigerian Limited in 2011 and will end this September. The contract specifies the installation of 20-in pipeline across 67km, which will carry 160,000bpd.
Beyond numbers, the pipeline showcases the nimbleness of the Nigerian energy sector. While in 2016 downstream players suffered the harshest reality, upstream firms simply halted their drillings, often switching to more cost-effective exploration activities. This led to a wave of acquisitions of many distributors by foreign manufacturing companies that were not afraid of investing despite hostile winds. Thus, despite the reshuffling of players, support for the completion of the Amukpe-Escravos Pipeline Project never halted.
Though not as immediately affected by price volatility, the pipeline and the entire sector are subject to security issues that should be addressed by the government. The oleoduct starts in the Delta region, a 775sqkm hotbed of continuous acts of violence led by a group of militants that engages in kidnappings and attacks on oil facilities. The CEO of a well-known multinational recently confessed to TBY that 50% of its operations were suspended due to the security crisis.
While the government struggles to find a viable solution to the problem, the construction of the project entails the use of continuous horizontal directional drilling (HDD) method to install the entire pipeline length to prevent attacks. The pipeline will thus serve as an alternative to the already looted Trans-Forcados Pipeline, a 31-km pipeline that delivers crude to offshore loading berths for export. The Amukpe-Escravos Pipeline will therefore provide energy players with a solid alternative to maintain their business in the country, as well as attracting newcomers from all over the world. Undoubtedly, there is still a long way to go to bring back that 6.5% annual GDP growth.
Diversification across sectors is always positive, but within the same one might just be better. Rather than planting a dozen different grains, Nigerians are sticking to their corn.