After many glorious years of enjoying the benefits of a robust and high crude oil price, the Nigerian economy is currently teetering on the edge of depression, mainly due to faulty planning and the short-sightedness of the country’s leadership.
Nigeria’s current economic woes was primarily kick-started by the petroleum sector, which was and is still the major source of foreign exchange earnings for the country and a major driver of the economy. The economic crisis was triggered by a sharp decline in the prices of crude oil in the international market, as well as by the crisis in the Niger Delta, which brought about a sharp drop in Nigeria’s crude oil and gas output. These twin problems of low oil price and low output, forced down the country’s foreign exchange earnings, reduced the country’s revenue, engendered a devaluation of the naira due to scarcity of foreign exchange and also brought about a general hike in the prices of goods and services, starting with the hike in the prices of petrol. With the general hike in prices, inflation figures skyrocketed, trade and industrial activity dropped sharply, unemployment rose sharply, while Gross Domestic Product, GDP, figures declined in more than two quarters. Specifically, latest figures for the third quarter of 2016 from the National Bureau of Statistics, NBS, showed that Nigeria’s GDP, contracted by 2.24 percent, year-on-year, in real terms. According to the NBS, oil production averaged 1.63 million barrels per day (mbpd), lower by 0.06 million barrels from 1.69 million mbpd recorded in the second quarter of 2016, while it stated that oil production was also lower relative to the corresponding quarter in 2015 by 0.54 mbpd when output was recorded at 2.17 mbpd. In addition, it stated that real growth of the oil sector declined by 22.01 per cent, year-on-year, in third quarter of 2016, a sharp decline when compared to 1.06 per cent growth recorded in same quarter of 2015. As a share of the economy, the oil sector contributed 8.19 per cent of total real GDP, down from10.27 per cent recorded in the corresponding period of 2015 and 8.26 per cent recorded in the preceding quarter of 2016. The current economic challenges was blamed, by some, on the plundering of the country’s resources by past administrations, others believe it was because the country failed to diversify its economy and save for the rainy days, while many others are still of the opinion that the current administration lacks the requisite knowledge to effectively manage the country’s economy. However, despite the fact that some of these reasons appeared tenable, one cannot divorce the impact of the oil and gas sector – ranging from low crude oil price in the international market, dwindling crude oil output and sabotage of oil facilities in the Niger Delta among others, on the country’s economic woes. Specifically, Nigeria’s 2015 and 2016 budgets was hinged on a crude oil output of 2.2 million barrels per day, but the country had struggled to produce about 1.4 million barrels per day on an average in both years. The 2017 budget is still hinged on 2.2 million barrels per day. It is only of recent that the Minister of State for Petroleum Resources, Mr. Ibe Kachikwu, declared that Nigeria oil output had risen to 1.8 million barrels per day. Confirming the fact that Nigeria’s current economic crisis was fuelled by the challenges in the petroleum industry, recent data obtained from the National Bureau of Statistics, NBS, disclosed that Nigeria’s crude oil export in the first nine months of 2016 depreciated by 13.51 per cent or N712 billion to N4.558 trillion from N5.27 trillion recorded in the same period in 2015. Also, data obtained from the Central Bank of Nigeria, revealed that oil revenue inflow into the Federation Account for the first half of 2016 stood at N1.203 trillion, dropping by 36.88 per cent and 41.32 per cent against N1.906 trillion and N2.05 trillion recorded in the second half of 2015 and first half of 2015 respectively. On its own part, the Nigerian National Petroleum Corporation, NNPC, disclosed that from August 2015 to July 2016, it remitted $48.99 million to the Federation Account from crude oil export sales, compared to $607.83 million remitted between December 2014 and July 2015. On the other hand, the NNPC also stated that from August 2015 to July 2016, N881.933 billion was remitted to the Federation Account from the domestic sale of crude oil and gas, compared to N774.467 billion remitted to the federation account from January to June 2015, a six-month period. In the month of August 2016, from the proceeds of crude oil and gas export, the NNPC remitted $23.885 million to the Federation Account, dropping by 45.87 per cent from $44.125 million remitted to the Federation Account in July 2016, while nothing was remitted to the Federation Account for September and October 2016. In addition, Minister of Finance, Mrs. Kemi Adeosun, disclosed that oil revenue declined by N23.3 billion to N135.4 billion in September 2016, compared to N158.7 billion recorded in August. Furthermore, due to the crisis in the Niger Delta, Nigeria’s crude oil output declined sharply from an average of 2.1 million barrels per day, dropping to as a low as 0.9 million barrels per day for several months. Confirming the situation, Minister of State for Petroleum Resources, Mr. Ibe Kachikwu said, “There is nowhere in Nigeria today where there is an urgency of yesterday as the petroleum sector. Like I say, oil got us to where we are today. It is going to take oil to take us out of it.” In addition, Permanent Secretary, Ministry of Petroleum Resources, Mrs. Jamila Shua’ra, stated that the oil price volatility brought about enormous challenges for the Nigerian economy, and led to huge debt burdens, huge wage bills and weak infrastructure among others. Also, Vice President Yemi Osinbajo disclosed that the unparalleled volatility in the global oil market has impacted negatively on the Nigerian economy. Signs of a rebound in the country’s oil and gas fortunes, and subsequently, a rebound on the economy, appeared bleak, as evidenced in the declining earnings and output figures from the oil and gas sector. Therefore, unless something urgent is done to address the crisis in the Niger Delta, boost crude oil and gas output and diversify the economy, the country would be forced to walk a long, lonely and frustrating path to full recovery. Outlook However, to ensure that the mistakes of the past are not repeated and to position the Nigerian petroleum industry for growth, profitability and to ensure that its contributions to economic development are increased, the Federal Government has introduced a number of measures. Among the measures are the partial deregulation of the downstream sector of the petroleum industry, the revamp of the country’s refineries, the award of licenses for modular refineries to boost local production of petrol and the exit of the Joint Venture Cash Call, JVCC, among others. Giving a hint of what to expect in 2017, Osinbajo disclosed that plans are underway to introduce measures that would ensure that every drop of crude oil that is extracted and exported from Nigeria is adequately accounted for. He said exiting JVCC would boost additional investments and raise daily production levels to about 2.8 million barrels per day in the long term. Kachikwu, on his own part, said that in addition to boost Nigeria’s crude oil output,it would bring about a reduction in crude oil Unit Technical Costs from $27.96 per barrel oil equivalent (boe) to $18 per boe. He added that the net payments to the Federation Account is expected to double from about $7 billion to over $14 billion by 2020 and the immediate effect of the new cash call policy will increase net Federal Government of Nigeria Revenue per annum by about $2 billion. Kachikwu further stated that the recently launched Nigerian Gas Flare Commercialisation Program which lays out a framework for Government to license gas that would otherwise have been flared to technically credible and financially sound third party private sector players, would attract about $3bn of capital investments, increase the availability of gas for the domestic sector while eliminating about 20million tons of CO2 emissions per year. There are also ongoing efforts to ensure transparency in Nigeria’s crude oil lifting programme, especially with the Direct-Sale Direct-Purchase (DSDP) programme which has saved the country over N110 billion. All these measures, stakeholders believe, would help turn the fortunes of the petroleum sector, ensuring that substantial revenue are obtained from the sector to help in turning around the economic fortunes of the country.