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Dangote refinery project, a testament to state failure in Nigeria

Africa’s strategic sectors, such as the energy sector, should not be left under the total control of private interests
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In January this year, the biggest oil refinery in Africa began production in Nigeria with the hope of boosting refining capacity in the country and the West African region. The initiative, which is spearheaded by the Dangote Group, came against the backdrop of many years of failure and inefficiency in government-run refineries. While this project might be a good reason for celebration, we must remain cautious about privatization in strategic sectors in Africa, such as energy. The Dangote project should remind us that, even in the face of state failure, there are alternative ways of fixing the many developmental challenges confronting African countries.

 

An embarrassing state of affairs

 

Nigeria cannot meet its local energy demands. The country currently produces 1.7 million barrels of crude oil per day but can only refine about 6,000 barrels per day, according to data obtained from the Organization of the Petroleum Exporting Countries in September 2023. As a result, “Nigeria imports more than 80% of its refined petroleum products because its four publicly-owned refineries, with a combined capacity of 445,000 barrels per day, do not function.”

The situation is very embarrassing for Nigeria as a top oil producer in Africa, as its crude oil is refined in Europe and then imported back into the country at a much higher cost, thereby creating a negative trade balance, a depreciation of the naira, and rising inflation in the country. Importing petroleum products of all kinds into Nigeria costs the country over $28 billion annually and could reach $30 billion by 2027 if the situation persists. Nigeria is not alone in its category. Angola, which is Africa’s second-biggest crude oil producer with one functional refinery, still imports about 80% of its local demand for refined petroleum products.

Both situations are in stark contrast to other comparable oil-producing countries in Africa, such as Libya, which can meet 60% of its local refining needs, and Algeria, which has the second-highest refining capacity in Africa after Egypt.

The failure of state-run refineries in Nigeria has been attributed to corruption, mismanagement, and aging and poorly maintained infrastructure, all of which have made them continuously operate far below capacity, according to several reports. This is the same situation in neighbouring Ghana, where state-run refineries have failed, causing “an estimated loss of thousands of potential jobs, economic opportunities, and energy security” for West Africa’s top economies.

 

What is the alternative?

 

Private ventures offer appealing alternatives. For example, the Dangote refinery project, with its massive capacity (about 650,000 barrels per day), promises to reduce Nigeria’s refining deficit significantly when fully operational. The refinery offers many benefits, which include job creation, savings on foreign exchange, stabilization of the naira, reduction in inflation, boosting industries and production, end of lingering petroleum scarcity and transition to an era of self-sufficiency as a nation, according to some experts.

However, to save the situation, privatization is not the long-term solution Africa needs. First, because Africa’s strategic sectors, such as the energy sector, should not be left under the total control of private interests whose acquisitions can move from hand to hand and end up under the control of foreign, inimical interests. Second, because the price of refined petroleum products is not likely to fall, given that private ventures are driven primarily by profit. There are, however, proven alternative ways to harness and add value to our rich oil and natural resources.

The success story of state-run Ethiopian Airlines comes to mind as a good example of how state-owned enterprises can be run and managed successfully and profitably in Africa and by Africans. The airline, which was founded in 1945 by Emperor Haile Selassie, is currently reputed as the most profitable airline in Africa, with a turnover of about 6.1 billion dollars in the 2022 – 2023 financial year, about 130 destinations across the world and over 140 fleets.

The success of Ethiopian Airlines is largely due to the fact that the Ethiopian government, as owners of the business, prioritized hiring professionals rather than government appointees as management staff running the day-to-day operations of the airline. Efficient management practices are key to the success of any enterprise, and this is what oil-rich countries in Africa, like Nigeria, lack and can borrow from their Ethiopian counterpart in practice. Professional management staff must be hired on merit and given a free hand to run state-owned refineries on sound business and financial practices.

Therefore, in a situation where governments in Africa, under the influence of the IMF and World Bank, insist on privatizing their national business assets, careful consideration must be made to safeguard domestic interests and ensure that strategic national assets do not fall into the hands of foreign entities whose interests do not necessarily align with the welfare of ordinary Africans. African governments, through their regulatory bodies, must prioritize domestic equity and the interests of ordinary citizens in such ventures.

The Ethiopian Airlines experience is a testament that governments in Africa can make public assets and institutions work efficiently for the greater public good by simply putting the right persons in charge, providing the enabling environment and regulatory oversight for them to succeed.

 

 

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