Nigerian oil economy

1. at the
THINK-TANK INITIATIVE
to
Being paper presented by:
NOVEMBER 14, 2023
Mr. Kayode Adebiyi
Managing Director
HONEYROCK MULTICONSULT LTD
18B, Bayo Ajayi Street, Off Hakeem Balogun Street,
Marwa Brooks Estate,
Alausa, Ikeja,
Lagos.
08033181225,07064078211
Email: hmlconsultancy@outlook.com
Nigeria Oil Economy and National Development
Mr. Kayode Adebiyi MBA, FCA, ACTI MIoD

2. Openers
 The opportunities that God gives does not wake
up those who are asleep, tap the snoring nor
make sober those who are drunken – Proverb
 To whom much is given, much is expected
 National resources can only translate into
national blessing through national
resourcefulness
 Revenues must be seen as seed to invest, not as
sweet to lick
2

3. Strategic Nature of Oil
Characterizations as a source of energy
Dominance in world economy and politics
Skewed geographical concentration of
reserves
Major driver of growth, wealth, conflicts and
wars
Captive market – the hydrocarbon man in the
hydrocarbon society 3

4. Special characteristics of oil
• National asset
• Motor of globalization
• Depletability
• Boom-bust cycles
• Capital intensive
• Enclave nature
• Exceptional profits

5. Nigeria Oil Industry – in the beginning
Exploration started in 1937 by Shell D’Archy
Concession initially the whole of Nigeria
Oloibiri was the first commercially
successful well
Discovery 1956, production 6,000 bopd,
first shipment 1958
5

6. Nigeria Oil Industry – today
Oil Reserves
Oil production
Crude oil refining capacity
Natural Gas reserves
Natural Gas consumption/utilization
6

7. Nigeria Oil Revenue Management:
summer and winter
Bust and Boom cycles
First windfall 1973 – Arab Israeli face off
Nigeria recorded 350% increase in revenue 1973
After a prolonged lull in crude oil prices, there
was a rebound in 1999. From $10 in 1998 to $147
in 2007
Crude oil is particularly vulnerable to (a) price
volatility and (b) non-renewability
7

8. How was the oil money managed?
Opinions are divided but facts are sacred
The metrics – GDP, per capital income, state of
infrastructures, imbalances say it loud
Boom became doom, windfall became pitfall
Lamentation not liberation
How are the barrels fallen and the power of
petrodollars perish!
8

9. Oil-rich countries (ORC) – Startling
revelations (1)
ORCs are among the weakest growth performers despite the
fact that they have high investment and import capacity
Countries that depend on oil for their livelihood are among
the most economically troubled, the most authoritarian and
the most conflict-ridden in the world
There are almost no cases of successful a nation’s
development based on the export of petroleum
Oil windfalls flatter to deceive, creating a false sense of
unlimited wealth
9

10. Oil-rich countries (ORC) – Startling
revelations(2)
Oil development can take resources and investment away
from other sectors of the economy and lead to Dutch disease
Oil development encourages government expansion and
centralization. It weakens the impetus to implement economic
reforms
Oil producing countries have difficulty creating inter-sectoral
linkages and are vulnerable to price and interest rate shocks
Because oil prices are inherently unstable, excessive reliance
on oil makes the economy vulnerable to rapid swings
Resources are rarely used effectively in petro-economies
because the large profits that the industry generates often lead
to corruption. 10

11. Resource curse
• Economic effects
–Dutch disease
–Revenue volatility
–Enclave effects(Mono sector
economies)
–Human resources
–Incomes and employment

12. What is Natural Resource Curse?
 The phenomena whereby a country with an export-driven
natural resources sector, generating large revenues for
government, leads paradoxically to economic stagnation and
political instability
Resource curse a.k.a paradox of plenty. The paradox that
countries and regions with an abundance of natural resources,
tend to have less economic growth and worse development
outcomes than countries with fewer natural resources
The surprisingly negative outcomes in oil and mineral
dependent countries
12

13. Natural Resource ‘Curse’ – Some
Characteristics (1)
 Disproportionate impact sectors of the
economy – because of lack of diversification
options to invest revenues or off-set revenue
volatility not abundant
 Worsened ‘income inequality’ –
 Enclave nature of oil/gas sector – few
forward or backward linkages, and global
sourcing
 Revenue expenditure concentrated in towns
and cities, to detriment of rural economy 13

14. Natural Resource ‘Curse’ – Some Characteristics (2)
 Dutch Disease effects –
 a phenomenon in which the oil sector drives up the
exchange rate of the local currency, rendering other
exports non-competitive
 an economic concept that tries to explain the apparent
relationship between the exploitation of natural
resources and a decline in the manufacturing sector
combined with moral fallout
 resource movement/crowding out of non-oil resources
 ‘spending effect’ (exchange rate appreciation/domestic
inflation – particular challenge to manufacturing and
domestic agriculture).
14

15. Natural Resource ‘Curse’ – Some
Characteristics (3)
 High public expectations, wrong attitudinal
dispositions – large rent revenues puts pressure on
government to spend, leading to drift away from national
development plans and fiscal discipline or reform
 Eroding of tax base – when ‘boom’ ends, Federal, States and
Local governments’ are trapped by high levels of recurrent
expenditure
 Absorptive capacity rapidly breached – ‘windfalls’
reposition governments as key drivers of growth, yet often lack
institutional capacity
15

16. Natural Resource ‘Curse’ – Some
Characteristics (4)
 Political economy – ‘windfalls’ promote shift
from developmental to predatory state:
revenue leakage, clientism, rent-seeking,
raiding by elites.
 Political instability – statistically the most
powerful factor for why countries might be at
risk of civil conflict is the share of their income
(GDP) derived from the export of primary
commodities.
16

17. Natural Resource ‘Curse’ – Some
Characteristics (5)
 Lagging skill accumulation and heightened inequality
 The enclave and tax problem
 Wasteful domestic oil policy
 Elite claim to resources and elite power
 “Sovereign” leaders – who have little or no
dependence on citizens
 Weak or ineffective income smoothing systems
 Opaque, highly politicized fiscal systems that lacks
checks and balances 17

18. Biggest Resource Curse
18
“Countries dependent on oil are more likely than
resource poor countries to have civil wars; the wars are
more likely to be secessionist and of greater duration and
intensity compared to wars where oil is not present. Oil
may be a catalyst to start a war; petrodollars and
pipelines may serve to finance either side and prolong
the conflict. And this is, of course the biggest resource
curse of all” Source: Covering Oil

19. BIG Questions for ORCs
How much to save for future generations
How to achieve economic stability in the face of
uncertain and widely fluctuating oil revenues a
How to manage “boom-bust” cycles
How to ensure that spending is of high quality
19

20. Wealth is in the journey!
• Oil industry is an enclave
• Fiscal linkages
• Forward linkages
• Backward linkages
• Consumption linkages
• Socio-political and cultural linkages
• Environmental linkages
20

21. 21
A country’s existing reserves and their ability when
produced to generate positive cash flow
 Her willingness and ability to invest in finding,
acquiring and producing oil and gas reserves
 Her people and their ability to find, develop and
produce oil and gas reserves
 The investment capacity of the country in the
downstream sector and the ability to transform crude
oil to usable products at a profit
Key Drivers of Petroleum wealth (1)

22. 22
Her recognition of oil and gas reserves as a non-
renewable resource; ability to design, implement and
follow-through a thoughtful depletion policy, fix
appropriate prices based on “user cost” and replace
reserves produced
 The ability of her people to translate oil revenues to
productive capital thereby converting a nonrenewable
resource into a renewable one
 The totality of the economic environment, systems
and procedures in place to obtain, retain, sustain,
increase and multiply petroleum wealth
Key Drivers of Petroleum wealth (2)

23. 23
Nature determined, Money determines, Men decide
 As age does not translate a spinster to a married
woman, riches do not automatically translate to wealth
 Riches are received but wealth is acquired
 Poverty needs no planning, but wealth cannot be
acquired without a scheme.
Key Drivers of Petroleum wealth (3)

25. Maximising the Opportunities
Get the politics right
Forward planning
Economic policy sequencing
Resource management funds
Managing revenue flows and
expectations
25

26. Maximising the Opportunities
Creating linkages with non-petroleum
sectors
Expanding local capacity and infrastructure
development
Human capacity building and development
Advancing technical, entrepreneurship and
managerial progress
Democratic governance and transparency
26

27. The Opportunities
Get the choice of revenue management and
economic policy, their sequencing, and
alignment with global value chains, right;
…..support this with fiscal prudence, adequate
institutional capacity and civil society
participation;
….. then oil and gas revenues can be a force for
sustained economic growth and social
development.
27

28. The Risks
Get the revenue management and economic
policies, sequencing and alignment wrong;
…. and ignore issues of institutional absorptive
capacity and good governance;
….then international experience tell us that a
‘boom’ in natural resource revenues can become
a ‘curse’, depressing economic growth,
worsening poverty and fuelling political
insecurity 28

29. What are strategic resources?
<> Resources that are used to create
value for customers and
shareholders – oil, minerals, etc.
Are strategic resources not easy to
manage?
<> The problem does not lie with the
resources, but their management
Strategic Resources

30. Last Notes
30
Crude oil is neither beneficial or detrimental.
All depends on what its owners do with it and
its proceeds.
The fault is never in resource but in the
owners!

31. Thank You.
Kayode Adebiyi
08033181225
31

32. Profile of Mr Kayode Adebiyi
Kayode Adebiyi holds an MBA from the University of Lagos and he is both a Fellow of the Institute of
Chartered Accountants of Nigeria (ICAN) and Chartered Institute of Taxation of Nigeria (CITN).
His working experience is rounded - spanning from the manufacturing industry to academics and
Management Consulting. He rose to the position of Executive Consultant before joining NNPC in 1991
as a Senior Accountant.
In NNPC, he worked in various SBUs - IDSL, CHQ. NAPIMS and NPDC where he acquired cognate
experience in oil and gas accounting, taxation, managing Joint Ventures (JVs), Production Sharing
Contracts (PSC) and Service Contracts (SC).
With his vast exposure, extensive training, work attachment and self-development, he is an acclaimed
subject matter expert in Oil and Gas Accounting and Taxation in the Nigerian Oil and Gas industry.
He rose to the position of Executive Director, Shared Service in the Petroleum Products Marketing
Company (a subsidiary of the Nigerian National Petroleum Corporation) before retiring from NNPC in
March 2020 to start his financial and management consulting practice.
He has authored three books, the most notable of which is "Petroleum Accounting and Taxation in
Nigeria" which he co-authored with Dr. R. U. Uche, a former President of the Institute of Chartered
Accountants of Nigeria.
A notable conference speaker, he has presented papers to the most distinguished audiences in his
professional domains. He has recently been appointed a Guest Lecturer in the Department of Accounting,
Covenant University, Ota. Ogun State.
He is presently the Managing Director of HoneyRock Multiconsult Ltd, a financial and management
consulting firm based in Lagos and Abuja, Nigeria. Mr. Adebiyi is a member of the Institute of Directors
(IoD).