• Thursday, July 18, 2024
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BusinessDay

Lessons from the decline in Oil and Gas contribution to GDP

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The recent rebasing of Nigeria’s Gross Domestic Product (GDP) showed clearly that the structure of Nigeria’s economy has changed significantly, with declining contributions from certain sectors and increasing contributions from others. The visible decline in the contribution of the oil and gas industry is instructive for diversification, as well as indicative of the increasing structural defects and turbulence in the sector.

Before the rebasing, the share of crude oil and natural gas to the nominal GDP was 40.86 percent in 2011, 37.01 percent in 2012 and 32.43 percent in 2013. According to the rebased figures, the share has declined to 17.52 percent, 15.89 percent and 14.40 percent for 2011, 2012 and 2013, respectively.

The contribution of the services industry, which was the top gainer from the rebasing, increased to 51.59 percent in the rebased 2013 GDP figure from 29.04 percent in the old GDP series, while the oil industry, which traditionally dominated the economy, saw a dip from 32.43 percent in 2013 pre-rebasing to 14.4 percent in the total 2013 rebased GDP.

The share of the telecommunications sector in 2013 increased from 0.89 percent pre-rebasing to 8.69 in the old series. Manufacturing also increased from 1.94 percent to 6.83 percent.

Industry analysts are of the view that the remarkable decline in Oil and Gas contribution to Nigeria’s GDP exposes the lethargy that has gripped the sector in recent years, as exploration and production activities have been hindered by rising oil theft, pipeline vandalism and regulatory uncertainty.

This decline is disturbing considering that Nigeria has the largest conventional reserves in Africa and is in the top 10 globally for oil reserves, with significant heavy oil yet to be tapped in the Benin basin, which is one of the world’s largest heavy oil belts in the world after Canada and Venezuela.

But it must be stated that the policy and operating environment is key to growth in the oil and gas sector. With perennial oil facility vandalism leading to lower daily output, dithering on the Petroleum Industry Bill(PIB) that doesn’t send a reassuring signal to international investors it is not surprising that growth in the oil industry is suffering limitation.

The long-delayed Petroleum Industry Bill (PIB), which is expected to overhaul the industry and expand investment, is still stuck in the legislative pipeline.

Aside from the PIB, rising security problems related to oil theft, pipeline sabotage, and piracy in the Gulf of Guinea have curtailed oil exploration projects and impeded the country from reaching its target to increase oil production and reserve base.

Nigeria hopes to increase proven oil reserves to 40 billion barrels in the next few years. However, exploration activity levels are at their lowest in a decade and only three exploratory wells were drilled in 2011, compared to over 20 in 2005, according to the Energy Information Administration (EIA), the statistics arm of US Energy Department.

Over the years, industry analysts have raised concerns over the dwindling performance of the sector, which has been attributed to structural gaps in its regulatory, fiscal and business practices.

While the euphoria is on about Nigeria’s big economy, with a GDP of $510 billion, the largest in Africa and 26th in the world, the data on declining contribution of the country’s oil and gas sector should guide the nation’s economic managers in dealing with those factors that limit growth in the sector while understanding that the era of Oil industry supremacy in the economy may not live long.