Friday, June 14, 2024

A Saudi Lifeline or a Mirage of Reform?

During the recent Saudi-Africa Summit in Riyadh, Saudi Arabia, news filtered into Nigeria that the Nigerian government and the Kingdom of Saudi Arabia had agreed to facilitate business and trade-related investment between the two nations. Notable media talking points that emerged from the summit, especially those disseminated by Nigeria’s Minister of Information and National Orientation include a “pledge” by the Saudi government to revamp Nigeria’s perennially-under-maintenance oil refineries, and a ”significant” investment or deposit of foreign exchange in order to boost, presumably, dollar liquidity in Nigeria.

Expectedly, this has sparked a flurry of discussions and debates. While the agreements reached between the two countries hold promise for economic growth, however minimal, given the uncertain prevailing economic situation in the country, it is necessary to think in practical terms, particularly because of Nigeria’s challenges with extravagant government spending and mismanagement of resources.

In practical terms, the Saudi government’s pledge to revamp Nigeria’s oil refineries holds the promise of addressing long-standing issues of inefficiency and underutilization that have been the bane of our oil production. All things being equal, it might seem a bit naïve to think that there will be a boost in domestic refining capacity, which may likely reduce our dependence on imported petroleum products. If executed well, this could lead to significant cost savings, improved energy security, and increased economic activity in the oil and gas sector.

It is instructive to note that this is happening concurrently with an ongoing senate investigation into the spending of N11.35 trillion Naira on the turnaround maintenance and rehabilitation of Nigeria’s refineries over the course of thirteen years (from 2010 to 2023). Alarmingly, these refineries have remained moribund. In October 2023, the Senate of Nigeria set up an ad hoc committee to probe the expenditure of this mind-boggling sum.

Clearly, this is wasteful spending and it implies that workers in these refineries have enjoyed remuneration without any significant commensurate output to national economic productivity. It is therefore unsustainable to make additional investments, albeit from a foreign government, if there is realistically no way of getting these refineries to work optimally. Little wonder why some have argued for an outright sale of the refineries to private investors.

The significant investment or deposit of foreign exchange by Saudi Arabia is aimed at improving Nigeria’s dollar liquidity. Industry analysts have posited that this could have positive effects on the stability of the Naira and shore up the country’s foreign exchange reserves. For the average business person who has to rely on imported stock in order to maintain healthy inventory levels, improved dollar liquidity is crucial for facilitating international trade. For the government of Nigeria, this may also be useful in meeting external financial obligations.

Yet, red flags abound. Nigeria’s oil sector is a vital component of its economy, accounting for a significant chunk of foreign exchange earnings. Subjecting refinery rehabilitation plans to foreign investments by another sovereign entity definitely raises concerns about transparency, accountability, and long-term economic interests. It is not surprising that many have taken it with a pinch of salt, given Nigeria’s well-documented history of corruption via profligate government spending.

In addition to the economic implications, the partnership between Nigeria and Saudi Arabia also raises broader social and political concerns. Saudi Arabia is a conservative Islamic monarchy with a strict interpretation of Sharia law and questionable human rights record, while Nigeria is a fledgling democracy with a history of debatably competent leaders who have mismanaged the country’s resources.

It remains to be seen how this could precipitate any tensions, if any. Nevertheless, to the masses on the streets, these are valid concerns that should keep everyone watchful and hopeful at the same time.

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