Nigeria may not benefit from rising oil price – World Bank

The rising oil prices might have a negative impact on Nigeria’s revenues, according to Shubham Chaudhuri, the World Bank’s country director for Nigeria.

“Ironically, Nigeria is at a point now where rising oil prices might not be a good thing because although oil production might go up and crude oil revenue may increase, which in some sense is a good thing, the fiscal cost of PMS subsidy and gasoline subsidy will also go up,” Chaudhuri said at the Deloitte National Economic Outlook for 2022, Thursday.

Chaudari explained that it is hard to come up with an exact estimate but further oil price increase might have a net negative impact on the federation’s revenues.

On Wednesday, Oil prices hit $88 per barrel, a price level not seen since 2014. “It is not guaranteed, we hope it will have a positive impact. It will help the broader economy but in terms of the direct impact on the fiscal situation or the balance of payment, it is a bit more complicated,” he said.

Nigeria spent N1.03 trillion on subsidies in 2021, according to data from the Nigerian National Petroleum Corporation (NNPC).

According to the World Bank, Nigeria could end up spending N2.5 trillion or N3 trillion in subsidizing PMS in 2022.

The Minister of Finance and National Planning, Zainab Ahmed, on Wednesday, while briefing State House correspondents after the weekly Federal Executive Council (FEC) said that the Nigerian National Petroleum Company (NNPC) has requested a total of N3 trillion from the federal government to fund fuel subsidy in 2022.

Read also: Despite high oil price, Nigeria’s cost of borrowing spikes to highest level in 15-months

During the webinar, the World Bank stated that the N2.5 trillion or N3 trillion can be put to be better and more productive use especially considering Nigeria’s population.

The Bank has predicted that the economy of Nigeria would grow by 2.5 percent in 2022 and 2.8 percent by 2023.

“The 2.8 percent projected growth rate or even the 4.2 percent growth rate projected by the government, relative to the population growth rate of 2.6 percent and a growing young population where 3.3 million join the working age every year, the question we should be asking is if the growth is ultimately creating better good jobs.

“In the 2000s, Nigeria was one of the outliers as it was averaging 7 percent GDP growth a year and that is the kind of growth we have seen in many parts of Asia that have lifted many of their citizens out of poverty which Nigeria also aspires to,” Chaudari said.

Nigeria’s President Muhammadu Buhari inaugurated the Steering Committee of the National Poverty Reduction with Growth Strategy (NPRGS) in 2021 to achieve an ambitious goal of lifting 100 million Nigerians out of poverty within a decade.

The World Bank said Nigeria needs to direct its public fiscal resources towards investment in its people, starting with the children and also investment in critical infrastructure.

Chaudari further stressed that the private sector cannot thrive without these kinds of investments and a lot of the finances will eventually come from the private sector but the government must create the enabling environment and regulatory policy.

Uche Orji, managing director and chief executive officer of the Nigeria Sovereign Investment Authority (NSIA) during the webinar also stressed the importance of the private sector on infrastructural development saying, “Nigeria has a big deficit, and anything that can bring the private sector into infrastructure projects is very important.”

Speaking on the plans of the Government to supplement the allocated budget in order to breach the expansive deficit in Nigeria’s infrastructure, Ben Akabueze, director-general, Nigeria Budget office, said the private sector would be responsible for the larger proportion of the expenditure on infrastructure.

“Taking the National Development Plan of 2021 -2025, for instance, the sizing of the investment required over the planned period is about N348 trillion of which only 14 percent is coming from the Government while 86 percent is projected to come from the Private sector.”

He also cited the Infrastructural Corporation of Nigeria (Infraco) as an example.

Infraco is a privately-managed infrastructure and industrial vehicle that will harness opportunities for Nigeria’s infrastructure development by originating, structuring, executing, and managing end-to-end bankable projects in that space.

Buhari cleared the way for the launch of the infrastructure company with an initial seed capital of N1 trillion ($2.4bn) last year.

Infraco, set up in partnership with the private sector, is expected to grow its capital and assets to N15 trillion over time to fund public projects like roads, rails, and power.