TRANSITION
FROM FOSSIL FUEL- POWERED VEHICLES TO ELECTRIC CARS: FUTURE OUTLOOK FOR OPEC
MEMBER STATES
Prof. Chijioke Nwozuzu
In 2009, Margaret Atwood wrote a piece titled ‘The Future without
Oil’ for a German Newspaper, Die Zeit. In that famous article, she
said “it’s not climate change, it’s everything change”.
That piece which is as relevant today as ever, presents us a
picture of a possible future of an earth when fossil fuel is no more or becomes
obsolete; and thus prompts us to ask ourselves this pertinent question – what
do we wish to create for ourselves today and for our future generations?
For years, OPEC member states have depended on crude oil revenue
for developing their economies. While it is not a crime to benefit from natural
resources such as oil, over dependence on a single natural resource for
satisfying immediate needs without thinking of the future, present potentials
of catastrophic consequences- as is evidenced today.
Most developed countries are actively producing electric cars,
hybrid vehicles, etc. India and China have also indicated an interest in this
transition with about 10 year’s deadline from now. This transition would likely
impact the export of crude oil and the revenue streams of OPEC member states.
African countries, like other resource-rich jurisdictions have had
series of windfalls in oil revenues, yet with minimal impact on the ordinary
citizens; owing to fiscal recklessness exhibited by some governments during
periods of oil boom.
In Nigeria for instance, petroleum accounts for about 90% of
foreign revenue, yet, it only contributes about 14% to National Gross Domestic
Product (GDP).
Over- reliance on crude oil as a major export revenue earner in
Nigeria beclouded development of other productive sectors, which even
contribute more to the GDP as shown in figure
1.
Figure 1: Sectoral Contribution to Nigerian GDP
(2015)
Furthermore, the over- reliance on crude oil, whose price is prone
to vagaries of or volatility in the international oil market, exposes OPEC
member states to uncertainties in revenues, especially in periods of burst;
leaving most of the economies with minimal revenues to fall back on.
While the current oil glut is biting most export- dependent
nations hard, other crude oil rich countries who had strategic plans for the
future – like Norway, Saudi Arabia, Qatar, etc, have less to worry about,
because they all made provisions for the uncertain future.
Such futuristic strategy is what differentiates them from their
African counterparts, some of which engaged in saving some of their resource
revenue for the future generation, in what is called the Sovereign Wealth Fund (SWF).
Today, as shown in figure 2,
some of these stabilization funds from oil revenues are running into billions
of dollars, which would provide economic stability for those economies in the
future, should oil run out or is replaced by another resource.
Figure 2: Sovereign Wealth Fund from Crude Oil Exports
Even though some African nations have made effort at averting the
potential uncertainties inherent in the commodity market (as a result of
boom-bust cycle), by establishing Excess Crude Account (as is the case with
Nigeria) or Sovereign Wealth Fund, it has only achieved mixed success in
creating the framework for savings during high oil price regimes.
Where successes was recorded in savings, it helped to smooth
government finances and budget, attracted international agencies, such as the
International Monetary Fund (IMF) to back fiscal reforms (as in Nigeria); it
has however not proved a good mechanism for ring-fencing savings as it did not
have a legal provision for sharing of revenue amongst government tiers.
This in itself is a major flaw of the savings programme, as it was
not directed to the future, but for immediate sharing between the various tiers
of government. As a consequence, there has been large- scale theft, funds
misapplication and mismanagement as is the case with Nigeria.
The aftermath of the above failure in Nigeria was the initiation
of the Sovereign Wealth Act in 2011, intended to invest oil earnings during
windfall periods into infrastructure development as well as providing funds
(stabilization funds) for the future generation. Figure 2 above shows Nigeria’s performance in the SWF as at 2015.
Even with this, the management of the fund has been froth with
issues of transparency. This is not peculiar to Nigeria alone, as some other
African countries (like Libya) have had their share of funds mismanagement. In
spite of this absurdity, there should be a renewed effort on the part of OPEC
member state governments at providing for a future without oil.
Strategies for
Mobilizing for the Future
§ Economic Diversification
The oil sector creates fewer jobs (about 1%) in the case of
Nigeria, and the instability of revenue from oil could impact overall growth of
the economy (through changes in government spending), fiscal and external
reserves position and employment.
Diversification here implies development of the non-oil sectors
(e.g. agriculture, manufacturing, services, etc) and reducing oil dependency,
as well as creating a non-oil economy that has the potential to sustain a high
level of government revenue and creating more jobs.
It is imperative for the governments of oil dependent economies to
begin to diversify their economic base in order to reduce exposure to the
inherent volatility and uncertainties which characterize the international
crude oil market; improve private sector employment opportunities; drive up
productivity; and strategically establish the non-oil sector of the economy
which in the future would act as a ‘safety net’, when revenue from oil may
become insignificant.
To diversify the economy and thus reduce over-reliance on oil
revenues, there is urgent need for national development plans geared towards
boosting human capital development, rapid and consistent industrial expansion
with the capacity to employ skilled labor, as well as mobilizing the services
sectors which has the capacity to boost revenue for these countries.
To realize these goals would require a stable economic environment
devoid of high inflationary trends, a business environment that is strengthened
and liberalized such as would encourage trade and foreign direct investment, a
deepened financial sector, as well as expanded and fortified educational
system. These will impact and support private sector- driven economic
activities especially in the non-oil sectors, thereby providing jobs today and
for the future generations.
There is no doubt that complete diversification of the economy
from oil to non-oil sectors is a difficult task, however timely implementation
of adequate policies will help in its achievement.
Lessons of such policies and diversification efforts could be
learnt from countries like Indonesia, Malaysia and Mexico, which have been able
to implement diversification of their economies from oil, with huge successes
recorded. These countries did not only create favorable business and economic
environments, but also focused on quality upgrading as well as encouraging
their manufacturing firms to develop export markets.
§
Fiscal
Responsibility
In the case of
Nigeria, government revenues or finances over the years have been handled with
high level of fiscal irresponsibility, characterized by misuse and
mismanagement of revenues from crude oil exports, thereby jeopardizing
infrastructural development goals.
Today, the era
of fiscal irresponsibility has to be jettisoned, and addressed as a misnomer of
the past, in order to garner ample revenue for driving sustainable development
initiatives for our future generations.
Furthermore,
government should as a matter of importance, strengthen the agencies
responsible for the management of the Sovereign Wealth Fund, to insulate it
from political pressures and interests.
§
Improvement in
the Taxation System
The objective
of good tax systems is to guarantee long- term fiscal stability of government
programs and policies. Thus, appropriate tax administration is necessary to
ensure that tax payers comply with the provisions of tax laws and that the
funds derived are paid into the government coffers.
Over the years
however, tax systems in developing countries have had mixed results. It has been estimated by the Global Financial
Integrity that outflows from developing countries due to tax avoidance/evasion
and illicit financial flows amounts to about $1 trillion each year. This is
especially rife in countries with weak tax collection institutions/systems.
Therefore, countries should develop strategies
for tightening every loophole to ensure appropriate tax collection; since such
revenue could boost government finances needed for funding developmental
projects.
§
Boost to Small
and Medium Scale Enterprises (SMEs)
New firms and innovative
SMEs play an increasing role as drivers of growth and job creation in most
economies. A number of countries
have witnessed, and are still witnessing successful SME-led economic growth and
development.
For instance, in India over 95 percent of
industrial units are within the small-scale sector with a 40 percent value
addition in the manufacturing sector. Enterprises of this type provide the
second highest employment levels, behind agriculture and accounts for the 40
percent of their industrial production.
Thus, developing countries can learn a lesson
from this example, and thus create and stimulate an environment which
incentivizes SMEs growth. This is a sure way of increasing GDP growth, while
mobilizing technical skills that will drive the future generation in an
environment devoid of oil revenues.
§
Sustainable
Development Policies
Sustainable development
has the capacity to fundamentally strengthen adaptive capacity and safeguard
national economies’ long-term prospects in the face of decreasing revenues from
natural resources.
Thus, going forward,
national policies should be geared towards increasing the socio-economic
wellbeing of its citizens (in both the short-term and long-term) through
maximization of the inflows of income without diminishing the total stock of
national assets.
Concluding Remarks
To achieve the
goals of sustainable development - which means “meeting the needs of today
without compromising the potential for meeting the needs of future generations”
– OPEC member states must as a matter of urgency consolidate their fiscal
systems and stabilize their macroeconomic environment, with rapid and sustained
effort at diversifying their economies.
Member states
need, also, to broaden the export market potentials with a diversified export
mix, and above all develop strategies for resource mobilization that will
entrench capital formation requisite for meeting the needs of future generations.
To guarantee a
sustainable future without oil therefore, countries should begin to adopt a
Savings Policy in the interest of the present and future generations. Such
savings would act as real stabilization funds or buffers at such times when oil
revenue may become insignificant.
Such savings could
be set aside for investment in low- risk bonds so as to earn greater returns
for the government, and thus provide for the future generations. It is
imperative to save today, so as to protect the economy from volatility in the
international oil market, thereby providing sustainable capital growth that
will serve as the buffer or ‘safety net’ for present and future generations.
Some other
important safeguards against crude oil price volatility are as follows:
- utilizing
crude oil and natural gas as feedstock, i.e. expanding the scope of the
downstream petroleum sector;
- forging a
strong linkage of the upstream and downstream sectors of the oil industry;
- linking the
petroleum sector with other productive sectors, e.g. agriculture, mining,
manufacturing, etc;
- prudence in
the management of costs of oil and gas operations;
- finding a
balance between the removal of fuel subsidies and providing ‘safety nets’ for
the citizens;
- curtailment
of government revenue mismanagement, misappropriation and misapplication; and
- massive
investments in infrastructure development to create the government expenditure
multiplier effects on the economy.
Conscious
effort needs to be made today, to liberate countries from the shackles of the
‘Dutch Disease’ tendencies which have bedeviled most oil-producing nations for
decades.
The key to
this is ‘Mobilizing Today for a Future without Oil”.
It was not raining
yet when Noah built his famous Ark!
Contributed
by Prof Chijioke Nwaozuzu, Former British Chevening Scholar, Former PTDF PhD
Scholar, and Deputy-Director at Emerald Energy Institute (for Energy &
Petroleum Economics, Policy, & Strategic Studies), University of Port
Harcourt. Email: cnwaozuzu@gmail.com.
Tel: 070 6874 3617 (SMS Only)
