An abundant supply of a natural resource in an economy is both a blessing and a curse: the economy can have an absolute advantage in specialized production, however, when an entire economy is built on that one resource, it lacks a sturdy, broad foundation, and may become victim to recession and global competition. Diversified economies tend to withstand the winds of adversity and the waves of uncertainty.
As demand sinks below daily oil production and oil prices plummet, fear of economic slowdown plagues major oil hubs that heavily rely on the oil industry for jobs and growth. This is evident in the tale of two economies: Texas’ and Nigeria’s. Both economies were built primarily on the oil and gas mining industries and both have experienced the perils of low prices and excess supply. Fortunately, both economies have learned the importance of economic diversity, preparing for the future by learning from the mistakes of the past.
Houston, We’ve Had a Problem
The oil bust that shocked Texas in the early 1980s led to the loss for jobs of thousands of workers, bankruptcy in businesses, and the eviction of thousands of homeowners. It was a devastating contrast to the success that filled the state just a decade before. The terrible experience left government officials calling for greater diversification in the city’s economy. During that time, the Houston’s economy was about 84 percent dependent on the oil industry. That figure has dropped to about 44 percent in recent times, and the employment base has expanded well beyond the energy sector. In fact, as a whole, Texas’ energy sector is neck and neck with other major industries such as manufacturing, finance, insurance, and real estate. Texas’ cities are home to several Fortune 500 company headquarters and many niche businesses continue to emerge and take advantage of the constantly developing economic climate.
Texas continues to grow rapidly and has Houston, Dallas, and Austin as the top cities to live and work in the United States. Its diversified economy has promoted its great GDP and resilience against the current oil price shocks. If Texas was a country, it would rank as one of the top 20 countries based on its GDP alone. Texas has even ventured into diversifying its energy sector, adopting renewable and alternative energy sources such as wind, solar, and biofuel. Many oil-rich economies can learn from the lessons of Texas’ diversification strategy, and Nigeria is one perfect student.
Cassava Can Save Us
When Nigerian crude oil was discovered in 1956, Nigeria was still under British colonial rule. When it gained independence four years later, the economy thrived on the idea of freedom, endless possibilities, and “black liquid gold”. With corrupt leadership and the control of OPEC, Nigeria quickly became a slave to its own abundant resource, abandoning its promising agricultural industry and relying on expensive imports to feed its citizens. For many decades, the lack of diversity crippled its economic growth. Recently, following in Texas’ footsteps, the African Development Bank, Nigerian Federal Ministry of Agriculture and Rural Development, and International Institute of Tropical Agriculture (IITA) established an Agricultural Transformation Agenda program in order to diversify and boost the economy.
The program is intended to revamp the agriculture industry with a new twist: turn farming into an agribusiness ran by “agripreneurs” (entrepreneurs in agriculture), making it attractive for new graduates who can apply research, business, and technology knowledge to raise the industry to a competitive level. This program has effectively begun to solve many of Nigeria’s economic woes: jobs are created; food imports are dramatically reduced, increasing net exports, thus increasing GDP; Nigeria can gain comparative advantage by trading high-demand crops such as cassava, yam, beans, rice, and other tropical crops; and can enter the renewable biomass energy industry using inedible crop by-products and cow manure.
The future of economic growth is exciting and empowering. Economic diversity is essential for sustainable development and it opens doors for specialization and skill improvement. Poultry farmers nor agripreneurs put all their eggs in one basket, neither should an economy.
By: Temi Odunlami