Experts say there is a need to diversify the economy as oil earnings continue to shake.
Nigeria’s oil sector, which provides about 83.5 per cent of its export earnings, has continued to be trailed with negative incidents, with oil production steadily declining due to widespread oil theft and pipeline vandalisation.
In March, Nigeria’s production declined to 1.97 million barrel per day, mbpd, according to the Organization of Petroleum Exporting Countries, OPEC. Shell Petroleum Development Company of Nigeria, SPDC, also recently declared a force majeure on its production of Bonny Light crude, effectively shutting down 150,000 bpd worth of crude. In all, four ‘force majeure’ were declared in the first quarter of 2013, according to reports from the Financial Derivatives Company, a diversified finance company.
Weak global market sentiment and soft demand for oil have played key roles in the downward trajectory of oil prices. Three global oil forecasters OPEC, the U.S.’ Energy Information Administration Agency, EIA, and the International Energy Agency, IEA, have cut their oil demand forecast.
“If global oil prices continue to maintain this steady descent, for example with Brent crude currently trading at $99.47pb and Bonny at $107pb, the impact on government revenue may be significant. The decline in oil prices and production are pointers to the risks posed to Nigeria’s revenue framework, forex inflows and external reserves. The federal government may be forced to make necessary adjustments that could be fiscal, monetary and/or structural” Bismarck Rewane, Finance Analyst and Managing Director, Financial Directive Company said.
“The Monetary Policy Committee (MPC) will meet on the 20th and 21st of May and most indicators are in favour of a rate cut. However, the threat of a revenue shortfall and widening fiscal deficit due to the decline in oil price and production may tilt the balance in favour of maintaining the status quo once again,” he said.
Attacks on oil workers and facilities, crude oil theft and pipeline vandalisation and lack of investment by the operators arising from the non-passage of the Petroleum Industry Bill, PIB, are some of the challenges hindering the growth of Nigeria’s oil sector.
The security situation in Nigeria deteriorated in the first quarter of the year, impacting on investment risk, worsening our perception and image at the global level, Goodie Ibru, President, Lagos Chamber of Commerce and Industry, said, in the chambers first quarter press conference on the economy earlier in April.
“Access to markets in the troubled parts of the country has reduced for many enterprises and this is already affecting sales and profitability. Also many enterprises have re-located with the inherent challenges. Also related to this is the escalating oil theft and the vandalisation of pipe lines. Billions of dollars have been lost in revenue; many lives have been lost as well. The environment of affected communities had suffered serious degradation as a consequence of this problem. In the last six quarters, the oil and gas sector had suffered negative growth on the back of this challenge,” he said.
According to him, the Petroleum Industry Bill is a major policy reform instrument that would transform the oil and gas sector of the Nigerian economy. It also has the potential to fast track economic diversification.
“We commend the commitment and speed of the National Assembly in the consideration of this bill. We are pleased to note that it has passed second reading in both houses of the National Assembly. We look forward to an exciting public hearing and expeditious passage and assent of the bill,” Mr. Ibru said.
Mr. Ibru said recent developments in the global economy underscores the urgent need to diversify the economy as there are no guarantees to the sustainability of current levels of oil prices are real. There are demand side issues arising from recession in Europe; declining economic growth in Asia and America and more importantly, acceleration of energy independence programs in the advanced economies especially the United States.
According to him, apart from our oil production challenges, there are also supply side issues as many countries are discovering oil in commercial quantities, this includes countries in the region namely Ghana, Uganda, Cote d’Ivoire, Angola; as well in Brazil and the United States.
“The implication of this is the increase in supply of crude oil which would ultimately put a downward pressure on prices. There is therefore an urgent need to diversify the economy and rely less on crude oil. This continuous reliance makes the economy very vulnerable to external shocks”.
“The way forward is to fix the structural problems in the economy especially Power, the railways, and the road network. All these are critical to enhancing efficiency, productivity and progress in other sectors of the economy namely manufacturing, agriculture, ICT, services and downstream oil and gas. It is important as well to improve the institutions and the policy space in order to attract more private capital both from within and outside the country. Access and cost of fund are equally very critical to economic diversification,” he said.
Published report quoting data sourced from the National Petroleum Investment and Management Services, NAPIMS, the investment division of the Nigerian National Petroleum Corporation, NNPC, reveal that Nigeria has lost an estimated $100 billion in revenue between 2007 and 2012 from its inability to meet crude oil production targets.
The report highlighted that except for 2007 when the federal government achieved its projected target of two million barrels per day at crude oil price of $74.48 per barrel; projections from 2008 to 2012 were not actualised, going by to the prevailing international market price of crude oil, resulting in the loss of revenue.
Support PREMIUM TIMES' journalism of integrity and credibility
Good journalism costs a lot of money. Yet only good journalism can ensure the possibility of a good society, an accountable democracy, and a transparent government.
For continued free access to the best investigative journalism in the country we ask you to consider making a modest support to this noble endeavour.
By contributing to PREMIUM TIMES, you are helping to sustain a journalism of relevance and ensuring it remains free and available to all.
TEXT AD: To advertise here . Call Willie +2347088095401...