Introduction
When I saw the advert for a seminar on Twitter about a symposium with the above title (the title did not include the words I have included in brackets), I felt it was the most positive thing to read from Akwa Ibom social media in a while, a breath of fresh air from banal politically motivated insults and scandals that seem to occupy the minds of Akwa Ibomites. This topic is the biggest question for this generation and the organisers must be commended for putting it up for discussion. I was never going to attend the seminar because of work commitments and distance but I always intended to publish my thoughts on it after the seminar.
I will go straight into it: Akwa Ibom State is grossly unprepared for a life without oil revenues. It has over the past decade or so, made the wrong choices and it must from now begin a process to turnaround its focus and attention. My assertion seems bold, but I will back it up with concrete evidence and facts and end it with suggestions we can work on and improve our fortunes.
A few things first:
Oil wealth is a recent addition to Akwa Ibom state (and all the other political division the people of the state have been grouped — Cross River State, South Eastern State et al). Pre the 1999 Nigerian Constitution, our ‘good’ and ‘generous’ brothers in the larger Nigerian entity conspired together to deny us any benefit of the oil mined from our shores. First the derivation principle which sets out the allocation to each state from where national revenues were derived from, was set at a dismal 3%; down from 50% when agriculture was the main stay of the Nigerian economy, additionally, to add salt to it, the offshore/onshore oil dichotomy was introduced, which in effect meant that those littoral states like Akwa Ibom whose contributing resource was based in the waters around them had nothing coming back to them, as offshore resources where owned by the federation. As a start point, we have to commend our forbearers who fought and schemed and cajoled the Nigerian state, to eventually accept 13% derivation formula and also remove the offshore/onshore oil dichotomy (this has only been done partly, the dichotomy still exist: resources beyond 250 nautical miles is not part of the derivation percentage, in fact deep sea oil drilling is the future for us, and this generation must fight to remove all visages of the ugly and irrational policy, while increasing the percentage from the derivation principle)
Apart from not benefitting from oil until recently in terms of state revenues, Akwa Ibom oil story is distinctly different. It is not like Aberdeen in the UK, where fishing families, on the discovery of oil, made that transition to wealthy oil resource owning families, or like the Middle East or indeed the America’s where landowners became oil well owners etc. Ours is a sad story of forceful but lawful takeover of land and resettlement of communities, done in a way and manner that the communities benefitted little from the oil wealth. In fact, some of the poorest communities are oil bearing communities. I remember dealing with individual fishermen during one of the many oil spillages, and being taken aback at the poverty that stared me in the face.
As a final part of this introduction, oil wealth will and from the beginning was going to end. Oil is an expandable resource, once fully mined it is gone. Also, we sit at an interesting juncture in international affairs, where, although inconclusive in pure scientific terms, the politics of climate change has made fossil fuel a pariah. International oil companies of the famous ‘seven sister’s fame’ are transitioning to energy companies with a focus on renewable energy. There are billions of dollars being spent in various countries that will eventually reduce the need for petroleum — i.e. Germany and the UK are working on plans to build roads that will charge electric cars while people are driving through them. So no matter how we view it, our late coming oil wealth is not going to last. For those familiar with the history of the decline of coal as a predominant energy source, petroleum is going through a similar process, it is plainly obvious that in less than a generation, and most likely in my life time, it might not matter whether or not Akwa Ibom had oil wells. This is why this topic is of great importance. To situate it properly: the question is what will Akwa Ibom state government do when the oil revenues currently accruing to it ends.
Akwa Ibom and the Dutch Disease
The Dutch disease describes a phenomenon where due to the cyclical and uncertain nature of revenue coming from commodities, governments are unable to plan adequately and during revenue windfalls engage in vanity projects that waste their resources. Let us bring this to Nigeria and Akwa Ibom. Each month, the Federal Government publishes the amount allocated to each state. The amount changes from month to month and from year to year. Unlike, tax revenue, Akwa Ibom is never really sure how much it will get each month, and it is completely out of its control. Oil prices may rise, improving the revenue allocated to it, or may slump, reducing the revenue allocated to it. So the government has to plan with this uncertainty (obviously it can manage and does manage its payments using various banking mechanisms), but what this means is that it cannot say for certain if it would have a billion naira to build a particular project or less. But the real substance of this theory is what happens when there is a windfall in revenue, during such period, in a hurry to show that these sums are well utilised often times vanity projects are engaged in and therefore there is a waste of resources.
Have we had the Dutch disease?
In 2014 we commissioned a state of the art stadium which brings a lot of pride. It is the perfect picture opportunity for visiting the state capital and has hosted many national football matches and might soon host FIFA grade international matches. The stadium was built at the cost $84million. In one of the periods of sustained good oil revenues, this is generally seen as a good investment. The expected general refrain would be — at least we can see where our money went. In fact it was a Dutch disease investment. At the same period we engaged in this project, we did not upgrade our educational facilities. The opportunity cost was something shiny we can celebrate with — hence a stadium. The stadium has no anchor tenant. In fact, to make it appealable, sometimes the state government pays some money to help stage matches in the stadium. There is no economic analysis in which that stadium makes back half of the money spent on it in the next 30 years and while an expose on decaying educational facilities in the state was challenged, the telling part was the government response: paraphrasing it, the government has started improving those facilities! Meaning, (yes in a previous administration but it matters nothing), they were allowed to decay!
But it is wrong to think of the Dutch Disease as a stadium, two 5 star hotels, a mega church building, or indeed a 21 story building. It also plays out in populist policies. Public education is free, all national examination school fees are paid for by the state. Generally, this policy has huge support: for our people, it is our share of the oil wealth. But this policy cannot be sustained if that wealth ends, which as we have said earlier is inevitable and a matter of time. So rather than improve our educational facilities to World class level, the state is paying for examination for children, some of whom the parents work and can afford these fees.
The clearest sign of our Dutch disease status is that the office of the state chief executive has a private jet!
Akwa Ibom state is heavy on debts and light on investment. We do not have a future generation fund, or an international investment vehicle. I can count on one hand all known investments the government has been involved in through the decades: Econet, Ibom Power, Port Harcourt Electricity Distribution Company, an energy company here or there. On a whole we spend all we receive and we borrow to spend. Akwa Ibom is still largely a civil service state (and not a very efficient civil service), with average infrastructure (parts of the capital still floods during rainy seasons and roads within major local governments are still un-tarred ), and rudimentary agricultural base (you would struggle to point to a commercial and sustained agriculture industry backed by agro based industrialisation), while the current government has started an industrialisation policy which is commendable but some (not all) of those industries seem to rely more than 60% on materials that are not produced within the state and are imported, this may indeed work, but I have my doubts.
As it stands today, more than 80% of our revenue is derived from the allocations related to our oil bearing state status.
After Oil
In simple terms, if the derivation percentage was withdrawn today, Akwa Ibom will be unable to pay salaries, fund the government, build projects or continue to exist at its current level. The end of oil is not a distant, highly improbable black swan event. On the contrary, it is a perfectly predictable event, which we now can see in the horizon and must immediately plan for.
These then are my suggestions, which I hope, are practical and not the type of meaningless words that we seem to use so often to embellish discussions ( my best such term is dividend of democracy, followed by sustained investment in human resources — what do those mean exactly!):
1. The state assembly should pass a law, requiring the executive to publish each financial year, along with its budget programme, a programme that details out the executive plans to replace the revenues derived from oil — this may sound procedural, but it will focus minds on finding solutions.
2. The state assembly should pass a law, requiring that the executive save in a future fund and invest same, 2.5% of its earnings from the federation account, this should rise by the same percentage yearly. The aim being to save of up to 50% of our earnings from that source in the next 2 decades. The law should also cover windfall revenue, and seek to save half of all windfall revenues.
3. Akwa Ibom state should produce a state infrastructure plan, that details out all capital projects in order of priority and economic importance and seek to establish a concession system that aims to have private capital build the infrastructure we need. This will result in tolls, government guarantee of investment etc, but takes off the pressure from annual budgets and reduce borrowing. This will also mean that we will have fewer political projects. Infrastructure must have clear and identifiable economic benefits and must pay for itself, either directly or through the economic activities it generates.
4. The state must focus on rural economic activation through agriculture and agro based industries. This may sound as a waffle statement but it is not. We still practice bush-fallow system. We still plant on less than 50% of the available land we have. We need to focus our budget on growing the state agricultural sector and moving it into manufacturing. We need to double yields by mechanization and change outcome by moving into agrobased manufacturing:
i. We should not try to grow things that are not compatible with the land we have, and as much as possible we should meet people where the already are.
ii. We have to set yield targets. How much do we want to grow, growing more means reduced prices which is no incentive for the farmer. So we must plan arbitrage in the short term (sale in areas of the country that pay more) and agro industry in the medium term.
iii. Privatise the agricultural extension part of the ministry of agriculture, in such a way that it makes money, when farmers make money.
5. We have to focus on our education system. Education should be free for the poor and indigent with a clear plan to pay back and paid for by everyone else. We should create STEM centres to cover each catchment of schools and also create a state academy of science and also another one for arts to be a link between industry and schools. The Akwa Ibom state university must be a big player in this regard. We should have various spin off private companies — Oxford and Cambridge provide a good example of how this can be done.
An Akwa Ibom state, that saves and invests more, improves its project delivery and focuses on agriculture and education will be ready for a non-oil future. We are not a rich state, the private jet should go, our civil service cannot grow indiscriminately, and it has to be more focused and slimmer. In the short term we all must be ready to work harder and sacrifice more, in the long term, 2 decades from now, we will come out richer and ready to face the future. That to my mind, is the only option we have.