Data from the National Bureau of Statistics shows that Nigeria’s crude oil and gas mining sector recorded a negative real GDP growth rate of 13.43% in the second quarter of 2023.
This marks the 13th consecutive quarter in which the sector has posted negative real GDP growth, extending a downturn that began in the second quarter of 2020 when the COVID-19 pandemic led to a global economic shutdown that included Nigeria.
The oil refining sub-sector has also been in decline, contracting since the second quarter of 2018. The underperformance of Nigeria’s refineries has compelled the country to rely on imports for refined petroleum.
In terms of GDP composition, both crude oil and gas production and the refining of oil contribute about 5.34% and 0.01%, respectively. Crude oil and gas contributed 9.5% to GDP in 2020.
In nominal terms, these sectors together account for N2.946 trillion, with crude oil and gas production making up 99% of that total.
Stagnation in Nigeria’s crude oil output has only compounded the government’s fiscal woes; production levels have remained at between 1 to 1.3 million barrels over the last five years.
Although the oil and gas sector comprises around just 5% of the GDP, it contributes to more than 85% of government revenues and serves as a major source of foreign exchange for the country.
The continuous contraction of the sector has significant implications for Nigeria’s ability to maintain a stable exchange rate regime, particularly after the government’s move to unify exchange rates through a managed system.
Since the introduction of this system, the exchange rate has soared to over N900/$1 on the black market, as the demand for dollars continues to outstrip supply.
Several factors have contributed to the sector’s contraction, including organized crude oil theft, which has severely impacted output. Furthermore, International Oil Companies (IOCs) have been divesting and selling off assets to local firms, leading to a nearly $20 billion investment shortfall in the sector.
The local firms, however, lack the technical and financial capacity to operate these assets efficiently, resulting in lower production and higher costs. Additionally, the delays in enacting the Petroleum Industry Bill (PIB), which was pending for over a decade, has deterred new investments and exploration activities in the sector.
Critics also opine nothing much has happened in the sector since the bill was signed into law by President Buhari.
To reverse the decline of the oil and gas sector, Nigeria needs to urgently address the challenges that have hampered its growth and competitiveness.
Some have pointed to Nigeria’s fixation on crude oil production rather than focus on gas which the country is more endowed with.
To address these issues, the government recently created a new Ministry of State for Gas with the aim of harnessing Nigeria’s enormous gas reserves. However, these efforts are unlikely to bear fruit unless Nigeria can attract foreign investment back into the sector.
Crafting the right policies has also never been the challenge, however, implementing them has failed several successive governments.
For example, under the National Development Plan 2021-2015, the APC government plans to commercialize up to 80% of upstream gas for use in powering gas power plants as well as for export purposes.
The continued contraction of the oil and gas sector has far-reaching implications for a government already grappling with a fiscal crisis, characterized by high budget deficits and burgeoning debt.
The Nigerian populace is also growing increasingly frustrated with soaring inflation, fueled by the removal of fuel subsidies and the depreciation of the naira.
