- Economy drops to fourth position in Africa, per capita income stands at $1,110
Nigeria’s economic woes seem to be looming larger instead of abating despite efforts by the Federal Government under President Bola Tinubu and his economic team to stabilize it. FESTUS OKOROMADU writes.
First, it was the World Bank’s economic arm, the International Monetary Fund, which came out with its report to announce that Nigeria has been downgraded from its exalted position of the biggest economy in Africa to a fourth position. No thanks to the devaluation of the naira through the Central Bank of Nigeria’s policy of unification of the foreign exchange market.
With the free fall of the naira that emanated from the implementation of the policy, the valuation of Nigeria’s gross domestic product, a measure of the market value of all goods and services from the country in a certain year, has dropped.
According to the IMF, South Africa, Africa’s most industrialized country, is now the biggest economy in the continent with a GDP of $373 billion and a per capita income of $5,975.
The Washington-based institution said Egypt, which held the top position in 2023, has dropped to second a place behind South Africa, with a GDP of $347 billion and per capita of $3,225. Algeria came third with a GDP of $266 billion and a per capita of $5,722.
Nigeria, once dubbed Africa’s largest economy, relinquished its crown and slid to a fourth place this year as its GDP depleted to $252 billion and per capita of $1,110.
“The prospect of Nigeria getting out of the woods is further complicated as the country’s main source of foreign income, crude oil, continues to suffer setbacks”
According to the IMF report, both Egypt and Nigeria recorded a slide in GDP due ‘to a series of currency devaluation.’
“Both countries have seen a downturn in their economic fortunes due to high inflation and a sharp devaluation of the currencies,” the report stated.
Dwindling oil revenue
The prospect of Nigeria getting out of the woods is further complicated as the country’s main source of foreign income, crude oil, continues to suffer setbacks.
For instance, the country’s 2024 Appropriation Act commonly known as the Federal Government budget was predicated on the oil sector contributing N7.94 trillion to the N18.32 trillion earmarked as revenue for the year. To arrive at those figures it was assumed that the country would produce 1.78 million barrels per day (mbpd) of crude oil at a price of $78 per barrel during the year.
OPEC’s contradictory report
Against the estimated crude oil production budget benchmark for the year, the latest report by the Organisation of Petroleum Exporting Countries monthly report for May which indicates that the country recorded a declined production, becomes a source of concern.
According to the report, Nigeria’s crude oil production declined to 1.25 mbpd in May 2024, representing a 2.34 per cent fall from 1.28 million bpd recorded in April.
The oil cartel group stated that the production data was based on direct communication with Nigerian authorities. OPEC receives data on crude oil production from two sources: direct communication — which is from member countries; as well as secondary communication, such as energy intelligence platforms.
Further analysis of the report showed that production was at 1.3mb/d as of the fourth quarter of 2023 and the first quarter of this year.
Unfortunately, the production decline is recorded despite repeated assurances of improvement in production and the fight against crude oil theft and pipeline vandalism by the Ministry of Petroleum Resources, the industry regulator, the Nigerian Upstream Petroleum Regulatory Commission and the Nigerian National Petroleum Company Limited.
Questionable assurances
In what seems to be a mere optimistic pronouncement or outright deceit, both the Minister of State for Petroleum Resources, Heineken Olokpobiri and the Group Chief Executive Officer of NNPCL, Mele Kyari, have continued to assure Nigerians of the possibility of meeting the 1.78mbpd crude oil production target earmark for the 2024 budget before the end of year.
Addressing industry stakeholders at a forum in Abuja in April, Lokpobiri insisted that the country’s production capacity was on the increase. He assured that the government was willing to do all it takes “not just to produce 1.7 mb/d that we need for our budget but ensure that we produce what is needed to meet the local demand.”
Collaborating with the Minister’s claims recently, the NNPCL helmsman while interacting with members of the Nigerian Association of Petroleum Explorationists in Lagos in May said the country was almost doing 1.7mb/d already. He expressed the hope of extending it to 2mb/d before the end of the year.
“As of today’s data, we are inching to 1.7mbpd. Should we celebrate this? No, and I can tell you why. On April 17, 2020, our production, without doing anything, without drilling new wells, shot up to 2.2mbpd.
“The good news is, there is substantial work that is being done by the government and I’m not going to speak about it. But I know that this will come to pass. It’s already subsiding. We are already seeing the results.
“As of today’s data, we are inching to 1.7 mbpd. Should we celebrate this? No, and I can tell you why. On April 17, 2020, our production, without doing anything, without drilling new wells, shot up to 2.2 mbpd,” he said.
Worrisome oil theft data
But contrary to the assurance from the Minister of State and NNPCL, the Speaker of the House of Representatives, Abbas Tajudeen, recently shocked Nigerians when he disclosed that Nigeria loses an estimated 300,000 barrels of crude oil per day to theft.
According to him, the country is losing about N1.29 trillion annually from illegal activities in the sector.
“It is estimated that Nigeria loses over 300,000 barrels of crude oil daily to oil theft, pipeline vandalism and other forms of criminality. This has led to revenue losses estimated at N1.29 trillion annually.
“Therefore, concerned about the adverse effects of oil theft in Nigeria, I inaugurated a Special Committee on Crude Oil Theft on November 22, 2023, to determine decisive remedial actions to be taken,” he said.
The Speaker who made the revelation during the inauguration of the New Headquarters Naval Training Command in Ebubu, Eleme Local government Area of Rivers State called on the security agencies to take the task of protecting the oil facilities very seriously.
He called on the Nigerian Navy to rise to the challenge of securing the pipelines, emphasizing that crude oil is a major contributor to the survival of the national economy.
No official data on oil theft
Perhaps, the Chief Executive Officer of Nigerian Upstream Petroleum Regulatory Commission, Gbenga Komolafe is more concerned about the absence of accurate data in the industry.
Komolafe had stated in a forum that Nigeria may have lost as much as $3.27 billion to oil theft and vandalism between January 2021 and February 2022, a period of 13 months. This is even as he believes that to create positive change in the industry, data collation is paramount.
To this end, Komolafe met with the core of companies extracting oil in Nigeria, made up of the Independent Petroleum Producers Group and Oil Producers Trade Section last year.
Emphasizing the need for the collation of data at the meeting, he said, “This is a one-agenda meeting and it centres on the issue of crude oil theft. The issue of oil theft has become a very worrisome one to the nation, to the government and I believe to you as investors in OPTS and IPPG, even as it is to us as your regulators.
“So, this is for us to sit at a roundtable and hear each other and share information. More worrisome, is that in recent times, we have had conflicting positions as to what is really happening upstream. As a responsible regulator, there’s a need for us to agree on the way forward and to hear your perspective.
“We need to have accurate figures. As a government, we cannot continue to use abstract or inaccurate figures in a matter as important as crude oil theft. We have set up a crack team to be able to have the information we need,” Komolafe said.
Oil sector’s contribution to GDP in Q1, 2024
While stakeholders are battling to salvage the oil industry, there are indications that the sector may not be able to deliver as promised in the 2024 Appropriation Act. This point is evidenced in the sector’s contribution to the national GDP in the first quarters of 2024.
According to the National Bureau of Statistics, the sector oil contributed 6.38 percent to the total real GDP in Q1 2024, up from the figure recorded in the corresponding period of 2023 and up from the preceding quarter, where it contributed 6.21 percent and 4.70 percent respectively.
In terms of performance, the sector grew at a slower pace but appreciated year-on-year by 5.70 percent in the first quarter when compared to 12.11 percent in Q4 of 2023. When compared to Q4, 2023, growth decreased by 6.41 percent points.
Concerning production, Nigeria in the first quarter of 2024 recorded an average daily oil production of 1.57 mbpd. Though higher than the daily average production of 1.51mbpd recorded in the same quarter of 2023 by 0.06mbpd and higher than the fourth quarter of 2023 production volume of 1.55 mbpd by 0.02mbpd, the critical point is it is lower than the budgeted estimate of 1.78mbpd for the period.
Meanwhile, NBS reported that Nigeria’s economy recorded a gross domestic growth of 2.98 percent to N18.28 trillion in real terms in the first quarter of 2024. The figure is lower than the 3.46 percent growth reported in the fourth quarter of 2023 but higher than the 2.31 percent recorded in the corresponding quarter of 2023. This growth marks the 14th consecutive quarter of economic expansion since exiting the recession in 2020.
The growth was underpinned by the non-oil sector which grew by 2.80 percent in real terms during the reference quarter (Q1 2024). This rate was higher by 0.02 percent points compared to the rate recorded in the same quarter of 2023 and 0.28 percent points lower than the fourth quarter of 2023.
Further analysis shows that this sector was driven in the first quarter of 2024 mainly by Financial and Insurance (Financial Institutions); Information and Communication (Telecommunications); Agriculture (Crop production); Trade; and Manufacturing (Food, Beverage, and Tobacco), accounting for positive GDP growth.
Consequently, the Services sector, which recorded a growth of 4.32 percent and contributed 58.04 percent to the aggregate GDP led the growth momentum. Performance of the service sector comes from strong activities in the finance and insurance sector, information and communication as was driven by improvement in financial services offerings, development in the technology space as well as investments into finance and technology companies (Fintechs) to drive services offerings. In terms of share of the GDP, the services sector contributed more to the aggregate GDP in the first quarter of 2024 compared to the corresponding quarter of 2023.
Similarly, the agriculture sector grew by 0.18 percent, from a negative growth of 0.90 recorded in the first quarter of 2023. However, the sector contributed 21.07 percent to overall GDP in real terms in Q1 2024, lower than the contribution in the first quarter of 2023 and lower than the fourth quarter of 2023 which stood at 21.66 percent and 26.11 percent respectively. The growth of the industry sector was 2.19 percent, an improvement from 0.31% recorded in the first quarter of 2023. This sector’s growth was propelled by growth in manufacturing, water supply, construction, trade, arts and entertainment, and other complimenting sectors during the review period.
“While stakeholders are battling to salvage the oil industry, there are indications that the sector may not be able to deliver as promised in the 2024 Appropriation Act”
In furtherance of the uncomfortable financial situation Nigeria currently faces, the World Bank in its latest global economic report titled, “Global Economic Prospects” June 2024, says the reform agenda embarked upon by the Central Bank of Nigeria may not improve the economy.
The World Bank joined critics to postulate that the CBN is wasting time by thinking that it could tame inflation, which is currently the biggest elephant in the room, through interest rate hikes.
The report noted that Nigeria’s economy grew slowly by 2.9 percent in 2023, stressing that, “Despite ongoing macroeconomic adjustments, the economy has held up reasonably well in early 2024. Oil production has picked up since mid-2023.
“To rein in soaring inflation, which exceeded 30 percent year-on-year in early 2024, the central bank has tightened its monetary policy stance substantially, including by hiking the policy rate,” the report noted.
The CBN has hiked interest rates three consecutive times by a total of 700 basis points to 26.25 percent.
Forecasting the growth prospect of Nigeria, the report said, “Growth in Nigeria is projected to pick up to 3.3 percent this year and 3.5 percent in 2025.”
It added that, “After the macroeconomic reforms’ initial shock, economic conditions are expected to gradually improve, resulting in sustained, but still-modest growth in the non-oil economy. In addition, the oil sector is expected to stabilize as production somewhat recovers.”
But on the downside, the report insisted that “Risks to Nigeria’s growth outlook are substantial, including the possibility that the tightening of monetary policy stops short of reining in inflation.”
With declining crude oil production, amidst a GDP growth rate below 4 percent and a population growth rate estimated to be 3.2 percent, the government has no option but to incur more debt to finance its budget.
Thus, the latest report that the Federal Government was seeking a $500 million loan from the World Bank for rural road infrastructure and agricultural marketing may be the one channel available to initiate infrastructural development.
