An all too familiar story was reported in the Nigerian papers last week. In 2012, the then Rivers state governor, Rotimi Amaechi, acquired 2,000 hectares of land in Ogoni land to setup a banana plantation. The entire project was to cost $45m and 6,000,000 boxes of banana were to be produced annually when completed. Today, after spending $6m on the project and cultivating only 500 hectares, the plantation lies vandalised and abandoned.
There is something this sad and familiar story tells us about one of the most common words in Nigeria today – diversification. We can safely say the project was conceived by the government with the best of intentions. And yet, good intentions were not enough. Why? Let’s consider some points
Psychological Dutch Disease
We all know what Dutch Disease is – when a country starts exporting natural resources, foreign exchange starts to flow heavily into its economy. This makes the local currency stronger and as a consequence, it becomes easier and cheaper to just import stuff than to produce them locally. As a result, local industry gradually withers.
But there is a psychological aspect to Dutch Disease, too. Once people have been exposed to the oil business, almost everything else looks inferior by comparison. After doing the hard work of looking for the oil and spending money to get it out of the ground, the rest is relatively easy. You pump it and sell it for years. This partly explains why you can spend $500m to build a deepwater oil platform and need less than 200 people to operate it.
Compare that to the banana – you have to harvest them while they are green then wash them with soap and water (if for exports). This is important because once the banana starts to ripen, the process cannot be halted or reversed. They also have to be shipped at exactly 14 degrees centigrade in special refrigerated ships to stop them from ripening during the journey. Timing is so important so that they start to ripen as they get to the supermarket. Then, after all this wahala and hard work, a banana costs only 18 pence (less than N100) at a Tesco supermarket in the UK. If you’ve once enjoyed oil money, one way or the other, you are going to look at this banana business and conclude there must be easier ways to make money in life.
Oil is unique
The people who were selling oil for $100/barrel in 2014 are the same people who sold it for $40/barrel this year. Why did they continue selling even when the price dropped by more than half? Because at both prices – $100 and $40 – selling the oil was profitable. This is the weird thing about oil which makes it unique. Oil that costs $11 to extract from the ground can sell for $100. Do you know many products in the market where the price can drop by more than half and the seller will continue making a profit? I can only think of cocaine and perhaps Dangote Cement.
This should make us think soberly about attempts to diversify the economy away from oil. If the plan is to replace lost oil revenues with some other commodity or product, you’re on a very long thing as they say on social media. This is why the very few countries that managed to diversify away from oil (China and Dubai) did so by simply taking the oil money and spraying it across the rest of the economy in the hope that something will germinate from it. In that sense, oil has no replacement. It is a fertiliser for the rest of the economy. It is not even possible to know in advance what might grow out of an economy fertilised by oil.
In short, any attempt by Abuja to try to diversify the economy away from oil to mining or agriculture with the hope of replacing lost oil revenues will ultimately be a wild goose chase.
What do the people want?
This is perhaps the most important lesson here. It is incredibly hard to make anything succeed without the people wanting it. The newspaper story talked about how the youths were far more interested in getting compensation for the land from the government and employed violence to get their way.
But most revealing was a quote from a ‘prominent indigene’ of Ogoniland who said ‘we the Ogonis are wiser and need a better project than banana. We are not monkeys that someone should come and plant banana for us to eat’. This is pretty much the summary of why $6m was wasted on this project. A top down approach where someone in government decides on a project and then foists it on people for their own good is hardly ever going to work. Of course, the prominent indigene was wrong to denigrate bananas as he did but he has created an obstacle that cannot be overcome unless it is addressed.
This is why government should learn to lead from behind. First, allow private effort and initiatives to flourish then step in to provide the necessary encouragement to boost things. It sounds easy to say but sometimes, the matter is not more complicated than we make it. The people clearly do not want bananas but there might be something else they (or it might be just one guy out there) want.
Nigeria needs a lot more economic freedom for people to try out different things to see what works and what doesn’t, backed by a government that encourages them as opposed to ordering them to ‘take banana’. Only when we encourage economic freedom will we discover some really interesting things about the Nigerian economy.