Most analysts agree that the extractive oil industry is in long term decline due to new technologies replacing the need for petroleum products.
There are various simple indicators of this that demonstrate the expectations of motor companies, oil companies and financiers/analysts.
- Tesla (US electric car manufacturer) briefly exceeded BMW value (market capitalisation) in June. BMW value has sunk approximately $20bn since 2015 and Tesla having increased by approximately $30bn. This shows the market sentiment of the direction of the future
- Saudi Aramco (the Saudi Arabian state oil company) has announced its move into the chemicals and plastics market. This is a seismic move. The Saudis have never diversified sources of primary revenue before and have never shown any interest in doing so. When the most powerful voice in OPEC and the wider oil Industry announces such well advanced plans, lesser players (such as Nigeria) need to pay attention.
- Reports are increasingly suggesting that there will be a shift to electric vehicles, with the tipping point coming sooner than expected. The most desirable cars in New York and London are no longer gas guzzling Range Rovers but Teslas. Research and development spending for all serious international automobile manufacturers is mainly focused on electric and self driving cars.
All this points to consumption of petroleum products for automobile usage falling and if the forecasts are to be believed, this will be a precipitous fall once the tipping point for electric vehicles is reached.
It is no longer a case of IF but WHEN.
Of course, this is bad news for Nigeria, but it is the timing of his tipping point that is critical.
How long does it take to diversify an economy?
It is the view of Naira Insider that if this tipping point is reached in the next 10 years, it will be disastrous for the country.
More likely and worryingly, if oil prices fall dramatically in the next 5 years as a result of the tipping point being forecast as imminent, then Nigeria could hit serious problems in the next 3 to 5 years.
How quick is diversification? Well, if agriculture is taken as an example, then the time taken for a crop to reach mature yield varies from 6 months to 9 years.
With terrible performance of the government on diversification so far and the lack of domestic credit at rates of return that agriculture companies can pay back…..the future is bleak.