The revelation by Godwin Emefiele, governor of the Central Bank of Nigeria, that the official foreign exchange receipt from crude oil sales into Nigeria’s official reserves has dried up steadily from above $3.0 billion monthly in 2014 to an absolute zero dollars has triggered outrage among Nigerians.
Some analysts have faulted Emefiele’s claim on the basis that the estimation omitted earnings into the federation account from the royalties oil companies pay the government as well as petroleum profit taxes. But this will make little difference if Nigeria’s crude oil production continues to decline.
Raise oil production
The new Petroleum Industry Act has created a frontier basin development fund to drive production inland around the country. This is critical, considering that international oil companies are withholding investments into the energy sector in developing countries on account of pressure by environmental activists and their own shareholders.
The state-owned Nigeria National Petroleum Company Limited (NNPC) said it has spent N14.3 billion on oil exploration in the North and over N20 billion in frontier exploration in other areas across the country. The frontier exploration fund, which has risen to N30 billion, could continue to provide funding needed for future exploration in other inland basins.
However, Nigeria also needs to rein in crude oil theft and rampant sabotage in onshore, shallow water fields in the Niger Delta.
Mele Kyari, the group chief executive officer of NNPC, has said crude oil thieves, in collaboration with the government and security officials, used technology to lay pipelines for stealing crude.
To recover production, the government has to tackle crude theft and provide incentives for independent producers.
Fully deregulate the downstream sector
Nigeria can no longer afford to subsidise petrol for the entire West Africa as reports show that smuggled petrol in Nigeria reaches as far as Sudan.
Nigeria’s neighbours are selling petrol per litre between N450 and N550 per litre while Nigeria’s official pump price remains at N165 per litre. Experts say this is no longer sustainable.
“We must remove subsidies and adjust PMS prices to match our regional neighbours to curtail smuggling,” said Babajide Soyode, a former general manager at the NNPC, in an interview on Arise Television.
The Federal Government has set a June 2023 deadline to remove subsidies but current realities show that timetable could plunge the country into a fiscal crisis.
The country’s gross official reserves declined to $37.20 billion on November 11 from $40.52 billion at the end of last year, data obtained from the Central Bank of Nigeria (CBN) show.
Analysts at FBNQuest said the sharp drop in the FX reserves is mostly due to the CBN’s increased interventions on the various FX windows, such as the Investors and Exporters and the Secondary Market Intervention Sales windows, following the difficulties with FX supply.
To worsen matters, oil revenues have fallen due to declining production and crude theft.
“Despite the high level of crude oil prices, the external reserves have seen very little accretion from oil sales this year, due to the sector’s low productivity because of large-scale crude oil theft,” analysts at FBNQuest said in a note.
Zainab Ahmed, minister of finance, budget and national planning, at the recent NESG forum in Abuja, said the fuel subsidy is a fiscal drain affecting the country significantly, especially as the government struggles with revenue problems and a high debt profile.
Grow non-oil revenue
Nigeria’s non-oil sector accounts for about 93.67 percent of the GDP, while the oil sector accounts for 6.63 percent but the oil sector accounts for over 95 percent of export earnings, according to data from the National Bureau of Statistics.
This contradiction has crimped Nigeria’s economy, highlighting its inability to diversify its export earnings away from oil. If the economies were fully diversified, non-oil companies would contribute more than the current less than 5 percent of dollar income.
Nigeria has to plug into the African Continental Free Trade Agreement, improve efficiency of its ports and as well aviation and critical sectors such as transportation, healthcare and human resources development.