As revenue from oil begins to decline on account of global transition to clean energy, and because of her failure to diversify her economic base, Nigeria is set to face a prolonged social upheaval.
The ongoing energy transition across the globe has been described as a “political risk nightmare” for hydrocarbon export-reliant state, with a country like Nigeria named as one of the first casualties in the crisis that may soon blow open.
Nigeria is listed among the first four African countries that will become casualties of the change in a report prepared by international risk consultancy firm, Verisk Maplecroft, on the impact of Energy Transition.
The company said that the result of harsh living condition that would beset the country would spark off a wave of social and political instability.
The country will begin to pay the price of being unserious in the areas of broaden its revenue base beyond oil.
“There will be a “slow motion wave of political instability” over the next three to 20 years as the energy transition takes hold”, the report said.
It warned that time is running out for countries that have failed to broaden their economies beyond exporting fossil fuels.
Verisk Maplecroft’s analyst, Franca Wolf,told Energy Voice that those that fail to diversify their economics face “political instability and market turmoil.
A lack of diversification stems from a range of economic, political, legal and social factors, Wolf continued, giving Nigeria as an example.
“Added to deep-seated weaknesses in political institutions, including corruption, it’s very unlikely that the country can move away from the status quo to undergo the required reforms.”
The report picked out Algeria, Iraq and Nigeria as the first casualties of the change. These countries’ weak diversification capacity partially stems from weak political institutions, which already make them more vulnerable to political instability.
“As living standards fall and existing social contracts come under pressure, there is a high risk that inadequate channels for expressing social discontent will result in political turmoil – which may or may not be violent, but will certainly be disorderly,” the report stated.
Other countries at risk are in West Africa. These include Chad, Angola, Gabon, Congo Brazzaville, Cameroon and Equatorial Guinea. These six, along with Azerbaijan, are next “in line for trouble” as the energy transition continues, the report said.
Venezuela and Libya have gone through various degrees of state failure and economic collapse. These two show how bad things could get, the report said.
Three factors determine when, if and how badly the storm will disrupt these countries. These are breakeven costs, capacity to diversify and political resilience.
Wolf, one of the lead authors, said reducing external breakevens would “require forced economic adjustment”, either through devaluation or drawing down foreign exchange reserves. This would effectively rebalance economies’ import and export bills at the expense of living standards.
Most oil and gas exporters have “become less diverse” since the 2014-15 and 2020 oil price crashes, the analyst said.