Glasgow this past week has been abuzz with dignitaries from all walks of life – being host to the largest diplomatic gathering since the history of Conference of the Parties (COP). Yet, with the labyrinth of pavilions of countries and organisations all over and unending panel discussions, meetings, and lectures, it remains unclear if the outcome of COP26 will justly deliver the climate goals, according to some critics. More worrisome are the economic and social implications of the various pledges and commitments declared at the event to developing countries – including Nigeria.
Nigeria is the largest economy in Africa, with a GDP of almost $440 billion in 2021[1] – the non-oil sector contributes about 92% of the GDP while the oil sector contributes only 8%. Interestingly, the oil and gas sector accounts for about 90% of Nigeria’s foreign exchange earnings. The country’s public debt stands at 30% of GDP as of 2019. The debt service to revenue ratios (DSRR) stands at 60%, indicating limited fiscal space for government interventions and spending in critical sectors. Nigeria’s economic growth rate at 2.2 per cent as of 2019 is below the population growth rate; thus, resulting in over 40% of the population remaining below the poverty line. Youth unemployment was 53.40 per cent in 2020, while inflation is on the rise at 17.5% in 2021.
Whilst reeling from the effects of the COVID-19 pandemic, the above grim report of Nigeria highlights a fragile state that may not survive another shock from bad global climate policies analogous to the experience of the 1980s from the Structural Adjustment Programme (SAP). Sadly, the glaring need to diversify Nigeria’s economy and foreign exchange earnings leveraging value-adding local manufacturing industries and agriculture may be retarded given the status of global climate negotiations and fulfilled promises so far. Moreover, the voice of vulnerable countries in the global south seems to be underrepresented, with crucial concerns clobbered to align with the swift transition train expected of the global north.
Beyond the change in the local energy landscape, which have commendable environmental benefits, the energy transition will result in an economic tsunami – impacting the balance of trade of nations, displacing cleaner fossil fuel from the global energy market and reforming geopolitics given new market ordinances and geographical deposit of critical minerals. This notwithstanding, the direct economic benefits of this major green revolution to developing countries like Nigeria is still vague, highlighting the need for cautious optimism and increased collaboration of key stakeholders to reposition Nigeria to benefit economically from the energy transition.
Locally, the clean energy transition will significantly reduce development financing to fossil fuel projects, due to increasing climate considerations before investment by private and public banks, equity funds, multinational corporations, and multilateral agencies. But the $1 trillion climate mitigation and adaptation finance pledged by rich countries at Copenhagen in 2009 is yet to be fulfilled in its entirety, further decreasing trust in the renewed climate finance pledges at COP26. The UN Environment Programme (UNEP) estimates that adaptation costs alone faced by just developing countries will be in a range of $140 billion to $300 billion per year by 2030 and $280 billion to $500 billion annually by 2050. While adaptation finance is more critical for Africa than mitigation finance, a just transition should mean that adaptation financing should be completely delivered first before withdrawing funding for cleaner fossil fuel investments. Moreover, losing economic revenue, whether due to climate-induced floods, droughts or energy transition induced market displacement, should all be considered for the adaptation finance.
These preponderances of events will, unfortunately, impact Nigeria’s oil & gas revenue and global market share in the long run, but more dangerously, it will impact critical industries that rely on gas feedstock for production processes. For instance, fertiliser production critical for a vibrant and mechanised agricultural sector will be affected negatively. This will hamper Nigeria’s opportunity to become more economically competitive leveraging agriculture. One could argue that oil and gas producing countries like Russia and Nigeria are currently making a kill due to rising energy prices linked to the energy transition, but this will be short-lived as investments tilt towards renewable energy.
Even if Nigeria’s government stakeholders hold a more conservative view of the green revolution, it will not change the speed and scale of investments needed to catalyse the utilisation of gas resources for industrialisation. Nigeria’s fiscal constraints, as highlighted earlier, limit public funding to critical sectors. Thus, private sector finances, concessional funds, grants, and foreign direct investments remain crucial to keep up the vibrancy of the oil and gas sector. This, therefore, indicates the urgency of action national stakeholders need to take to deepen discussion and engagement on the global stage; rally regional coalitions and countries for better negotiation of climate decisions as it affects the country’s economic development.
Furthermore, the recent European Union (EU) green deal holds little promise for Nigeria despite being a major trade partner – 39 per cent of Nigeria’s exports is to European nations[2]. The EU green deal proposes a carbon border adjustment mechanism to ensure that the price of imports reflects their carbon content. This can affect revenue, given imports from Nigeria may not meet standards due to low clean energy utilisation. Therefore, Nigeria’s exports are likely to become more costly for EU trade partners due to the carbon price imposed on these imports. Likewise, major global firms, including Airbus, Amazon, Apple, Boeing, Cemex and Holcim, plan to begin purchasing low carbon materials and technologies[3]. This may put Nigeria and other developing African countries at a trade disadvantage.
It is also noteworthy that the technologies and equipment driving the energy transition are not yet cheap for Nigerians to afford at scale and are primarily imported. For instance, green hydrogen anointed as the fourth leg of the energy transition to support hard to decarbonise sectors and complement renewable energy variability is economically non-viable and conceptual in most African countries. This, therefore, means that Nigeria’s energy security and independence may increasingly come under threat of global climate policies constraining the development of our gas reserves. Put differently, Nigeria will not be insulated from any shock or price volatility in the global supply chain of solar photovoltaic components, given the absence of local manufacturing capacity. Also, this will negatively impact our balance of trade as we will import equipment for every kilowatt-hour of clean energy consumed in Nigeria. Therefore, policymakers need to re-negotiate the terms of the energy transition and insist on the localisation of manufacturing, technological skills transfer and capacity building for clean energy technologies. This will enable the country to partake in the economic dividends of the energy transition.
Traditionally, countries in the sub-Saharan African region, including Nigeria, usually have far-flung trade partners and trade less between themselves. In light of the fact that significant global deposits of critical solid minerals pivotal for the energy transition are situated in sub-Saharan Africa – 70 per cent of global cobalt deposit is located in the Democratic Republic of Congo (DRC)[4] – the energy transition may be an opportunity to increase regional trade and cooperation, form a coalition, strengthen the implementation of Africa Continental Free Trade Area (ACFTA) agreement and as well push for the localisation of green technologies manufacturing hub as a condition of continued trade and partnership with foreign countries and multinationals.
The fact is that greening our grids and gas stations is a plus for the environment, people, and posterity. Still, it doesn’t have to be at the cost of Nigeria’s economic resurgence, industrialisation, socio-political stability, and energy independence/security.
As Stephen Brick of the Northwestern’s Kellogg School of Management Illinois notes, if sub-Saharan Africa (excluding South Africa) triple its electricity consumption overnight and 100 per cent of the new capacity came from natural gas, the greenhouse gas (GHG) emissions contribution will still be below 1 per cent of annual global emissions. Therefore, global stakeholders must examine what is at stake and take requisite actions that radiate justice, equity, and inclusion.
[1]https://tradingeconomics.com/nigeria/gdp#:~:text=GDP%20in%20Nigeria%20is%20expected,according%20to%20our%20econometric%20models.
[2] https://www.worldstopexports.com/nigerias-top-trading-partners/
[3] https://www.canarymedia.com/articles/clean-industry/major-firms-pledge-to-start-buying-low-carbon-materials-and-technologies?utm_campaign=canary-social&utm_source=twitter&utm_medium=social&utm_content=COP26
[4] IEA (2021) World Energy Outlook Special Report – The role of critical minerals in clean energy transition