Frankly, if you perhaps are shrewd enough to assume Dr Riddhi Ambavale’s quote was specifically put together to describe The Organization for Petroleum Exporting Countries (OPEC) in 2020, you wouldn’t be “too” wrong. “This is not the end of life, but the beginning of a slow death”. The power and significance of the organisation seemingly appears to be in rapid steady decline.
OPEC defines itself as an international organization with the aim to influence and maintain price of oil through the control of production levels and to generate revenue, which goes towards meeting the needs of its members. Created at the Baghdad Conference on September 10-14 1960 by primary members; Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. It is now made up of 13 members in total. Libya, UAE, Algeria, Nigeria, Angola, Gabon, Guinea with Congo joining as recently as 2018.
Putting the benefits of OPEC succinctly, stable oil prices, efficient supply, investment in and development of its member countries are its promises which were hitherto met without much ado. Member countries have made varying degrees of economic and social progress over the past 60 years of its existence, with OPEC exhibiting tremendous control and price stability until 2014, save for 1998 when oil price averaged $11.91/barrel.
EMERGENCE OF OTHER PLAYERS
In 2014, new players emerged as big players like the USA, Russia, China, Mexico and a few others, slowing gaining footing since dawn of the decade. The oil reserves and productions of these countries were shored up by the advent of hydraulic fracturing commonly referred to as Fracking; A mechanism to extract recoverable shell oil wherever found albeit with possible stern repercussions. Fracking carries huge environmental risks such as earthquakes, sanctioning its total or partial ban by governments in countries like the UK, France and Mexico. This has posed no form of deterrent whatsoever to countries like the USA and China among others. It is also worthy of mention that China and the USA have judiciously and calculatedly amassed oil by purchasing from OPEC and other suppliers for donkey years. Their oil reserves is mammoth.
POWER TUSSLE
The OPEC has incessantly battled for influence and control ever since, strategically against the USA and quite recently, directly with Russia. With its dwindling influence due to the numerous player in the fray, small and big alike; the fatigued hands of the OPEC haplessly endeavours to prolong the fight by crafting an agreement called “Declaration of cooperation” (DOC). The “fallible” aim of this agreement was to extract commitments from non-players in the market; to harmonize and mirror the activities of OPEC to either increase or decrease production quantity, to manage and stabilize price. This particular move completely decries the powers of the OPEC rendering it all but impotent in this age and dispensation. For an organization set up to wield influence in the market, to descend out of necessity and co-opt non-members in order to stay influential; it is all but finished.
The fallibility of the DOC agreement was exposed when Saudi Arabia, a leader in OPEC’s production quota decision, entered into a price war with Russia (a supposed co-opt OPEC plus member). Both countries forced their hands causing a crash in price per barrel to as low as $15. We all know what happens when two elephants fight. Developing member countries like Nigeria, Angola hugely dependent on proceeds from oil are scared to the teeth for their economic present and future.
The USA appears unperturbed and less likely to compromise their position of increased production. Note that the USA are now the major producers of oil daily averaging 12 million barrels in 2019. Before Fracking, the United States were the major customer of The Organisation of Petroleum Exporting Countries. With USA now into active production, OPEC experiences decreased patronage and predictably would very soon not have them on its list of customers.
To further substantiate predictions of the demise of OPEC, there has being no noteworthy addition of petroleum producing countries in OPEC. China, Mexico and the others see absolutely no justification to enlist and rather deal independently, surrendering to forces in the market. Instead, OPEC has recorded exodus of some member countries worsening its forlorn position. They increasingly look more susceptible to more members exiting than any notable inclusion. Indonesia, Qatar, Ecuador are the countries to have exited OPEC for multifarious reasons but remotely sponsored by the need to produce beyond or below OPEC’s mandates. These departures affect OPEC in 3 ways; highlights their dwindling influence, weakens their control, reduces their output barrels however slightly.
NIGERIA- ANY SOLUTIONS IN SIGHT
The current economic crises presents an opportunity for transformational change. Nigeria must put aside political considerations, unite and implement quality policies that will insure the lives of not just posterity, but our very own economic future. Government has to look inward into managing its existing income sources and developing new revenue sources.
Firstly, analysing our non-oil sources, we have made remarkable revenue from overseas remittances over the last decade. Taxation and levies, fees, import duties aviation, tariffs all make up other non-oil sources that have earned us interestingly notable revenue.
The government must overcome the scourge of embezzlement and profligate spending; if not for any moral reasons but simply because the country can no longer afford it. Government should ensure that these revenues generated are ploughed back into the development of the country’s economy. Through building befitting infrastructures and giving more attention to sectors capable of directly influencing and improving business existence in the country. This will aid the springing up of new businesses and also attract investors.
Services is an income generating sector for Nigeria. According to Wikipedia, Nigeria ranks 27th worldwide and 1st in Africa. However, progress in this sector has being inhibited and thwarted by poor economic policies and abysmal infrastructures. Linking to my previous point, we need to consciously expend cost on building amenities in order to create businesses, attract investors and earn us revenues
Subsistence agriculture has improved gradually over the years to be fair, thanks to the Federal Government’s sector focus, by making farmer loans available. This needs to be ramped up. Take a leaf from Malaysia who are the world’s second largest producers of palm oil. The commendable and shaming fact to Malaysia and Nigeria respectively is that they obtained their very first ornamental palm fronds from eastern Nigeria. Malaysia stayed world’s largest producers afterwards until 2006, overtaken by Indonesia. We can do a lot with our agriculture and live stocks. Groundnut, palm oil, cocoa, rubber, cassava, yam, milks, beef all constitute green zones for making revenue and improving our economy and GDP.
Collection of all forms of taxes and levies should be implemented with intensified approach to reduce tax evasions. 48% of federal revenue in the United States of America is from taxation, according to tax policy center. Borrowing as well, which has constituted a major revenue source must be avoided. The government must discontinue this sad trajectory as soon as possible. Focus on gradually servicing and paying off these debts, the size of which is simply scary.
Should OPEC be extinguished or cling onto its existential seat with the same desperation you see in the eyes of a caged animal during a flood, Nigeria can and must thrive. Drawing strength from the likes of Indonesia and Qatar who called time on their membership and did away with the services of OPEC. Their exit might have being triggered by dwindling production, but they had succeeded in accomplishing a relatively diverse economy. Reinvesting proceeds from the oil industry towards other sectors, transforming their economy from oil dependency to manufacturing.
Nigeria might have failed to do the right thing like Indonesia during the oil boom, good a thing the second best time to plant a tree is now. The difference between hearing and listening is paying attention, this again proves the difference between growth and regression. I hope we do more than hear this time.
Ekene Onyeama is a young chartered accountant and private banker currently plying one of the Tier 1 banks in Nigeria. For discussions connect on twitter @Ekenergy_
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