Investment into Nigeria’s oil and gas sector has suffered the worst decline in the last three years.
According to a research report put together by Prof. Adeola Adenikinju of the Department of Economics, and Centre for Petroleum, Energy Economics and Law University of Ibadan, Ibadan, and his counterpart at the Department of Economics University of Benin, Benin, Prof. Aderoju Oyefusi, they said despite being one of the largest producers of crude oil, the citizenry remain impoverished and suffer a lot of privations more than they’re willing to admit.
The report tagged: ‘Oil and Gas Sector Management and Quality of Life in Nigeria,’ shows graphic details of the nation’s oil receipts in the last couple of years.
The report, which is in two separate volumes of 144-200 pages respectively, gives a global view of the nation’s revenue streams vis-a-vis the challenges facing the sector in both the up and down stream segments of the oil market.
In the report which reads in part, the university dons stated that Nigeria is estimated to have the second-largest amount of proved crude oil reserves in Africa, the eight largest among OPEC countries, and the 10th largest in the world. It also has the 8th largest gas reserves in the world, is the largest oil producer in Africa, and among the world’s top five exporters of Liquefied Natural Gas (LNG). With a population of about 203 million, it has one of the largest economies in Africa. However, the economy is still hugely dependent on crude oil. Oil accounts for over 80% of foreign exchange earnings and up to 66% of government revenue, but contributes less than 10% to GDP.
“Despite 60 years of oil exploration and production and massive inflow of rents occasioned by multiple periods of oil boom, Nigeria remains at the bottom in terms of development.”
Recent performance rankings place her among countries with low human development with HDI score that is lower than the averages for oil-exporting countries and Sub-Saharan Africa.
Despite a boom in all prices between 2010 and 2014 and significant increases in oil production following a peace deal in the Niger Delta, the proportion of people living below the national poverty line in the country rose from 34.1 between 2000 and 2006 to 46.39 by 2017.
The latest collapse in crude oil prices has more than the previous episodes, exposed the vulnerability of the Nigerian economy and people to shocks in the international environment that affect the oil and gas industry. The economy was hit hard by downward trends in oil prices in 2015, leading to an economic recession in which growth declined for more than two consecutive quarters. The effects of the recession were felt by citizens around the country who bore the brunt.
Between January 2016 and January 2018, unemployment doubled while inflation rose by over 50%.
Within a space of about five years, between 2013 and 2018, Nigeria moved from being “one of the fastest growing economies in the world” to “the world’s poverty capital” with almost half of the population in poverty and another 60 per cent of its citizens standing in danger of falling into poverty every minute.”
While some oil-exporting countries, such as Norway and Gabon, were able to minimise the impacts of fall in oil price on their domestic economies, Nigeria and its citizens paid a heavy price.
“As shown in this report, civil servants were not paid salaries for long periods, traders lamented over unsold stocks, households groaned under the heavy burden of high food prices and diminished real income, many businesses shut down and workers were laid off, unemployment increased, growth tumbled and the economy reeled. Insecurity, crime and suicide rates increased across the land. Industrial actions by workers paralysed activities, especially in the medical and educational sectors, fragility increased and many of Nigeria’s middle class migrated out of the country in droves.”
These developments clearly brought to light a reality that has been quite often ignored; that is, developments in the oil and gas sector impact on all aspects of the Nigerian economy and all groups in the society: the farmer in the rural community, students, civil servants, government contractors, traders in rural and urban markets, the typical household, big businesses, small and medium scale enterprises, and Nigeria’s middle class.
The report examines the linkages between the management of the oil and gas sector and quality of life in Nigeria. It sets out the transmission mechanisms by which shocks in the international and domestic environments that affect oil prices translate to lower quality of life for Nigerians. At the primary level of impact are government revenue, the exchange rate and domestic prices. The combination of reduced and fluctuating government spending, higher exchange rate, and rising domestic prices, affects the entire economy and various socioeconomic groups, leading to lower spending, lower quality of life and reduced prospects for growth over the long time. These impacts could be reduced or even eliminated, however, if domestic policies in the oil and gas sector are gotten right, if the country has effective fiscal buffers, and if the horizontal and vertical linkages provided by oil and gas have been exploited to diversify the economy.
The implication of the above is that the ability of governments to develop and effectively implement the right policies in the oil and gas sector and to respond quickly and positively to changing global environment, largely determine the outcomes of oil price shocks on oil exporting countries and the quality of life of their citizens.
The report identifies, at least, six policy failures in Nigeria’s oil and gas industry that have made the economy vulnerable and made it difficult for the sector to positively impact on the living standards of Nigerians. They include the absence of effective saving/stabilisation fund, absence of a wholesome and effective legislation for the oil and gas industry that adequately address the challenges in the sector.