Oil 1 Peak Oil 21
HIGH OIL PRICES KEY TO NIGERIAN ECONOMY
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- STRONG OIL SECTOR KEY TO ECONOMY
- OIL MAKES UP 95% OF NIGERIA’S REVENUES
- HIGH NIGERIAN OIL REVENUES ATTRACTS FOREIGN INVESTORS
- IMPACT—HIGH OIL REVENUES CREATE POLITICAL STABILITY
HIGH OIL PRICES KEY TO NIGERIAN ECONOMYHigh oil prices key to Nigerian economy Biodun Adedipe, Ph.D. Chief Consultant, B. Adedipe Associates Limited, Victoria Island, Lagos, Nigeria, 2004. “THE IMPACT OF OIL ON NIGERIA’S ECONOMIC POLICY FORMULATION” http://www.odi.org.uk/events/nigeria_2004/Adedipe.pdf Oil production by the joint venture (JV) companies accounts for about 95% of Nigeria’s crude oil production. Shell, which operates the largest joint venture in Nigeria, with 55% Government interest (through the Nigerian National Petroleum Corporation, NNPC), produces about 50% of Nigeria’s crude oil. Exxon Mobil, Chevron Texaco, ENI/Agip and TotalfinaElf operate the other JV’s, in which the NNPC has 60% stake. The over-dependence on oil has created vulnerability to the vagaries of the international market, as observed in the preceding section that show the contribution of oil to some macro-economic variables. In particular, the place of oil in the psyche of the average Nigerian has become more profound since the “imperfect” deregulation of the downstream segment of the Nigerian oil industry in 2003. The contradiction is more glaring now with the recent rise in crude oil prices at the global markets, which meant more external earnings for Nigeria, but also increased the expense burden on imported refined petroleum products! It is such contradictions (perhaps aberrations) that make the Nigerian economy appear strange at times, as policies seem to ignore what appears obvious to do. As such, policies designed to address the deficiencies and defects in the structure end up being poorly articulated and/or implemented because of regional, political or rent-seeking selfish interests. Oil is critical to the Nigerian economy. The Daily Trust (Nigeria) 4/30/08 “Yar'adua Seeks PENGASSAN'S Support On Governance” Lexis [ev] President Umaru Musa Yar'adaua has appealed to members of the Petroleum and Natural Gas Senior Staff Association of Nigeria (PENGASSAN), to partner with the Federal Government on governance issues in order to create an egalitarian Nigeria. Speaking at the 2nd triennial delegates' conference of the association in Abuja yesterday, President Yar'adua who was represented by the Minister of Labour, Dr. Hassan Muhammad Lawal, said government needs the support of PENGASSAN in its efforts to a create a new Nigeria. "Oil and gas is the mainstay of our economy as a nation and a vital product that runs the economy of other countries. The power your members possess is enormous. It is stating the obvious to say that the consequences of your actions and inactions have the capacity to influence the growth and development of the Nigerian economy. STRONG OIL SECTOR KEY TO ECONOMYStrong oil sector is key internal to rest of Nigerian economy—consumer confidence. Middle East and Africa Food and Drinks Insights 5/30/08 “Nigeria Attracting Significant Foreign Investment” Lexis [ev] In addition to the arrival of Shoprite, Nigeria's continually improving economy and still-high oil prices will boost grocery retail sales. Consumer confidence is strong, with shoppers willing to spend on non-essential items, and while price consciousness remains high, shoppers are also less concerned about a potential economic downturn. Nigeria is also the African continent's biggest market and enjoys a high level of GDP per capita, although it should be noted that this is very unevenly distributed. This greater economic growth has affected the number of working women, who are increasingly demanding convenience and are not willing to shop at markets where every purchase has to be made individually and bartered over. The modern form of retailing is better suited to the new everyday needs of these women and this social shift is also driving the growth of the organised food retail sector. OIL MAKES UP 95% OF NIGERIA’S REVENUESOil is 95% of Nigeria’s income. CIA World Factbook 5/19/08 “Nigeria—Economy” https://www.cia.gov/library/publications/the-world-factbook/geos/ni.html#Econ [ev] Oil-rich Nigeria, long hobbled by political instability, corruption, inadequate infrastructure, and poor macroeconomic management, is undertaking some reforms under a new reform-minded administration. Nigeria's former military rulers failed to diversify the economy away from its overdependence on the capital-intensive oil sector, which provides 20% of GDP, 95% of foreign exchange earnings, and about 80% of budgetary revenues. The largely subsistence agricultural sector has failed to keep up with rapid population growth - Nigeria is Africa's most populous country - and the country, once a large net exporter of food, now must import food. Following the signing of an IMF stand-by agreement in August 2000, Nigeria received a debt-restructuring deal from the Paris Club and a $1 billion credit from the IMF, both contingent on economic reforms. Nigeria pulled out of its IMF program in April 2002, after failing to meet spending and exchange rate targets, making it ineligible for additional debt forgiveness from the Paris Club. In the last year the government has begun showing the political will to implement the market-oriented reforms urged by the IMF, such as to modernize the banking system, to curb inflation by blocking excessive wage demands, and to resolve regional disputes over the distribution of earnings from the oil industry. In 2003, the government began deregulating fuel prices, announced the privatization of the country's four oil refineries, and instituted the National Economic Empowerment Development Strategy, a domestically designed and run program modeled on the IMF's Poverty Reduction and Growth Facility for fiscal and monetary management. In November 2005, Abuja won Paris Club approval for a debt-relief deal that eliminated $18 billion of debt in exchange for $12 billion in payments - a total package worth $30 billion of Nigeria's total $37 billion external debt. The deal requires Nigeria to be subject to stringent IMF reviews. GDP rose strongly in 2007, based largely on increased oil exports and high global crude prices. Newly-elected President YAR'ADUA has pledged to continue the economic reforms of his predecessor and the proposed budget for 2008 reflects the administrations emphasis on infrastructure improvements. Infrastructure is the main impediment to growth. The government is working toward developing stronger public-private partnerships for electricity and roads. HIGH NIGERIAN OIL REVENUES ATTRACTS FOREIGN INVESTORSNigerian oil sector key to attract foreign investment/ Business Day 6/4/08 “Go north, developers told” Lexis [ev] OMIGPI MD Ben Kodisang says his group is looking at investing in other African countries, particularly Nigeria. The group has a pilot property project in Abuja, the capital. What attracted Old Mutual to Nigeria was its huge population and its strong gross domestic product growth because of the oil-based economy. "We chose the capital of Nigeria because the government is located there and demand for property space will be quite strong." The group is developing a waterfront mixed-use property that includes about 30000m² of retail, two hotels, and an office and residential component. IMPACT—HIGH OIL REVENUES CREATE POLITICAL STABILITYHigh oil prices solve political stability. Africa Recovery Vol.13#1 June 1999 “Oil a Mixed Blessing for the Nigerian Economy” Box: “Nigeria: Country in Focus” http://www.un.org/ecosocdev/geninfo/afrec/subjindx/131nigr2.htm [ev] Nigeria is a major world supplier of crude oil, producing about 2 mn barrels per day, and is an influential member of the Organization of Petroleum Exporting Countries (OPEC). Sales of oil account for more than 90 per cent of the nation's total foreign-exchange earnings, and therefore, the lion's share of the funds Nigeria puts into its multi-faceted development programmes. Because of this substantial contribution, Nigeria could well be described as an oil-based mono-cultural economy, and the country's fortunes often rise and fall with the price of oil. Based on an exchange rate of 86 naira to the dollar, Nigeria expects to earn N454 bn from oil resources in 1999, more than double the N216 bn it earned in 1998, although the latter was at a much higher official exchange rate, N22 to the dollar. Non-oil revenues (customs duties, company tax, value-added tax, independent revenue) accounted for N167 bn in 1998, while N214 bn is projected to be earned from outside the oil sector in 1999. Nigeria's vulnerability to oil market shifts is well illustrated by the outcome of the 1998 federal budget, which recorded a whopping deficit of N59.8 bn, due largely to the decline in international crude oil prices, the cut in Nigeria's OPEC quota, as well as the closure of many oil wells in the troubled but oil-rich Niger Delta (see "Delta communities protest neglect"). Oil-related revenue had been projected to reach $9.8 bn, but fell short by 28 per cent, reaching only $6.3 bn. The government's budget assumptions had proved way off the mark. They were based on a $17 per barrel selling price, while oil prices for the year actually averaged only around $12.5 per barrel. The 1999 budget, based on a forecast of $9 per barrel as the average price for the year, is considered somewhat more realistic. The impact of the slide in oil prices also was felt in the nation's public service, with potentially serious consequences for the country's political stability. In September 1998, the government raised the salary of public employees by about 300 per cent, to N5,200 per month. But three months later, it had to go back on its promise and slashed the amount by almost half because of declining oil earnings. Then in March it reached agreement with the unions on a new monthly minimum wage, N3,500 for federal workers and N3,000 for those employed by the 36 states. But in April workers in three-quarters of the states went on strike when most state governments failed to implement the new wage for lack of funds. 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