The Economist: Nigeria Missing Out On Rare Global Oil Boom Opportunity

Nigeria has continued to waste the rare opportunity presented by the global rise in oil prices to grow its economy like other oil-producing countries, London-based The Economist has stated.

While a surge in oil prices could do astonishing things, like in Saudi Arabia where a futuristic city was planned to rise from the desert or Angola where its currency has suddenly become one of the strongest performers against the dollar, it noted that in Nigeria, the reverse was the case.

In the Middle East and Central Asia, The Economist stressed that exporters could pocket $320 billion more in oil revenues this year than previously forecast, adding however that Nigeria has been a conspicuous absentee from the merry petro-party.

“Africa’s most populous country, around 220m-strong, desperately needs the money an oil boom could bring. Some 40 per cent of its people live on less than the equivalent of $1.90 a day.

“The government is struggling to service its debts. Social services are dire. The woeful economy has contributed to the violence that afflicts much of the country. In the first half of this year, nearly 6,000 people were killed by jihadists, kidnappers, bandits or the army,” the paper stated.

According to the news outlet, price controls remain the biggest reason the boom was ruining the public purse, noting that whereas elsewhere, as the price of crude rises, drivers pay more at the pump, it was not so in Nigeria.

“In January, President Muhammadu Buhari reneged on his latest promise to reform the system, leaving the government to pay for the vast gap between Nigeria’s low fixed price and the global one,” the report added.

With the subsidy covered by the state-owned Nigerian National Petroleum Company, the paper stated that the “prognosis is grim”.

Recalling that in June, the World Bank projected that the government will spend N5.4 trillion or $12.6 billion on fuel subsidies this year, more than three times what it coughed up last year, the news medium said that that is more than the increase in revenue the government will get from higher crude oil prices.

“As a result Nigeria’s net oil revenues are likely to be about 40 per cent lower than last year, despite the high global price. That squeezes everything else. In this year’s amended budget the government allocated more to the fuel subsidy than to education, health care and welfare combined.

“Price-fixing has other ill effects. Because petrol is artificially cheap, Nigerians burn more of it. Consumption of petrol has risen from about 58 million litres a day in 2021 to around 70 million this year,” quoting NNPC’s figures.

Another reason Nigeria’s public finances benefit so little from high oil prices, it reasoned, was that production itself has slumped to 1.13 million barrels per day, the lowest in more than 50 years, which is partly why the oil industry has also been a drag on headline economic growth.

“One reason for falling output is that the NNPC is so short of cash after paying for petrol subsidies that it struggles to cover production costs for pumping crude oil. Yet another is that a lot of oil is never counted as part of Nigeria’s output because it has been stolen,” it stressed.

Though estimates vary, it quoted the oil industry’s regulator as disclosing that thieves are snaffling 108,000 barrels a day, about seven per cent of production. This, it said, cost the government $1 billion in the first quarter of this year alone.

“The Trans Niger pipeline, which can transport 180,000 barrels a day (about 16 per cent of the country’s current production) suffers so much theft that its flow has been halted since June.

“Another big pipeline that carries 150,000 barrels a day has also been repeatedly attacked. Shell, a big oil firm, has declared force majeure since March on all its exports of Bonny light, a high-quality crude, permitting it not to meet its contractual obligations,” The Economist added.

According to the report, one way to steal the commodity was to overload legitimate shipments with more oil than is declared. Another, the report stated was to break into pipelines and siphon oil off, then cook it up in bush refineries before selling.

Plenty of stolen crude goes straight into the international market, it noted, adding that small boats glide along the delta’s canals, filling up from illegally tapped pipelines.

“They deliver it to offshore tankers or floating oil platforms. Sometimes the stolen crude is mixed with the legal variety, then sold to unknowing buyers. Much of it, however, is bought by traders who pretend not to know it is stolen, or do not care,” it maintained.

“Buhari has promised a crackdown. The NNPC’s first move was to hire private security firms to protect the pipelines—a telling indictment of the army. But it is unlikely to solve the problem.

“Two of the firms are part-owned by a former warlord, Government Ekpemupolo, better known as Tompolo. He led a guerrilla campaign in the 2000s for the locals to control the delta’s oil, before agreeing to a deal whereby he would stop blowing up the pipelines in exchange for an amnesty—and for lucrative security contracts.

“That has fallen apart under Buhari’s government, which in 2016 issued a warrant for his arrest. Yet Tompolo is now bizarrely both a government contractor and still on the wanted list of Nigeria’s anti-corruption agency, which says he has earned $105m through graft. He denies wrongdoing,” the paper added.