Webinar Summary – Economic Diversification in Nigeria: The Politics of Building a Post-Oil Economy
On December 1, 2022, the Boston University Global Development Policy Center hosted Zainab Usman to discuss her book, “Economic Diversification in Nigeria: The Politics of Building a Post-Oil Economy” as part of the Fall 2022 Global Economic Governance Initiative Book Talk series. Usman’s book, which was named to the Financial Times Best Books of 2022 on Economics, argues that Nigeria’s major development challenge is achieving economic diversification beyond oil. Through analysis drawing on economic data, policy documents and interviews, Usman poses that Nigeria’s challenge of economic diversification is situated within the political setting of an unstable distribution of power among individuals, groups and institutional actors. Moderated by Rishikesh Ram Bhandary, the discussion analyzed how current frameworks fall short and an alternative framework is needed to understand these development challenges.
Usman began the talk by discussing her motivation behind the book, including providing a better understanding of the development challenges faced by low- and middle-income countries that are resource rich in hydrocarbons. She argues that there needs to be an alternative framework for thinking through the challenges of oil-rich countries – challenges which include sustaining growth over a period of time, diversification, sharing proceeds and achieving human development. She explains that the prevailing frameworks attribute these challenges to an “oil curse” and a neopatrimonialism environment constricting economic growth. However, through her analysis, she has proposed a more encompassing alternative that also addresses the political landscape of countries like Nigeria.
Nigeria has experienced several reform eras over the past fifty years. After lost decades in the 1980s and 1990s, the country’s growth rebounded in the 2000s following a transition of power. However, when political settlement began to falter economic growth, mainly driven by non-oil industries like banking and finance, information and communication technology, and entertainment, the country was plunged into two recessions between 2016-2022. During the long period of non-oil growth before these recessions, the oil sector’s share of gross domestic product (GDP) dropped from around half to less than 10 percent today. However, the oil sector still accounts for 80 percent of export earnings and 50 percent of government revenues, which Usman explains is where the concerns lie.
Usman argues that regardless of the political regime, unstable political settlement and distribution of power results in a “perpetual state of crisis management” for policymakers. As a result, their policy orientation is largely towards macroeconomic stabilization, the restoration of growth and “easy fix” reforms. This has led to very little political space for policies like land reform, petroleum sector deregulation and civil service reforms which can help increase productivity in an economy. Ultimately, while policy reforms do happen, they focus on short term economic stabilization rather than a long-term outlook on structural transformation and economic diversification.
Usman emphasized that to address the challenges facing countries like Nigeria, there needs to be a more accurate diagnosis of the development challenges that resource-rich countries face. While the dominating frameworks of the oil curse and neopatrimonialism as the source of the problem have provided interesting additions to the discussion, according to Usman, they have had a disproportionate influence on policy decisions, which have been largely unsuccessful in systemic transformation.
To kick off the Q&A, Bhandary inquired about why the “oil” or “resource curse” is not satisfactory in tackling these development challenges. Usman explained that the current body of work attributes a complex range of challenges seen in counties like Nigeria to just the resource as an explanatory variable, which in Nigeria’s case is oil. Usman does explain that ideas like the Dutch disease, a popular theory on the negative impact of one commodity’s domination on revenue, has provided insights on revenue streams and volatility, exchange rate volatility and more in economies with a dominant commodity While these economic insights have been useful in developing fiscal and monetary policies, they do not encompass the sum of the challenges, according to Usman.
In prevailing frameworks, the focus is on the resource, like oil, as the explanatory variable, and an additional assumption on the direction of causality, which manifests in policymaking that aims to mitigate the damage from the commodity rather than implementing systemic changes that will create a more resilient system as a whole. Usman warns that if policymakers are only thinking about things like managing revenues, it will be extremely challenging to achieve structural transformation. She continued that if the entirety of the problem is subscribed to the commodity itself, structural characteristics of the domestic and global economy like history, social composition, private sector development, population size and labor supply are left unaddressed. Usman provides a comparison to Guyana, another oil-rich country in Africa that has not faced the same development challenges, to highlight how subscribing these challenges to the resource itself doesn’t account for the variation you see among resource-rich countries.
To wrap up the Q&A, Bhandary asked how Usman saw the climate crisis and decarbonization challenges played into the discussion. According to Usman, these challenges have highlighted how imperative it is to address the age-old challenges of economic diversification – especially with respect to a post-oil future. Governments will have to address the implications for policymaking and revenue management. Usman worries that the prevailing discourse focuses too much on the risks and argues that while daunting, climate change creates new opportunities for structural transformation. For example, investments in transportation infrastructure and access to electricity can help position Nigeria to translate its large manufacturing industry into exports, pivoting the country’s exports away from oil. Policymakers and scholars will have to confront that when oil demand begins to decline, the prevailing development models will have to change completely.
Although the challenges facing hydrocarbon countries like Nigeria are substantial, Usman and her book provide a solutions-oriented approach to better understanding these unique development challenges. Policymaking that focuses on seeking economic diversification while also addressing economic, political and social implications provides an opportunity to achieve the structural transformation that will be critical as the decarbonization efforts accelerate.
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