The discovery of oil in Nigeria’s Bayelsa state in 1954 triggered a fundamental disruption of the country’s economic status quo and within the next decade, crude oil emerged in dominance over other drivers of the economy and eventually became the mainstay of what has become Africa’s largest economy.
The name “Nigeria” rings global bells for a number of reasons. Apart from being the power house of Africa’s economy, the country has maintained a steady position on the list of top oil producing nations on earth. Because of the huge demand for oil in the decades following its discovery in Nigeria, the country has amassed a striking amount of revenues from just trading with this resource; however, following recent shifts on the global scene, the question should be asked: “Is Oil & Gas still Nigeria’s Cash Cow?”
As efforts invested into finding alternative energy sources for the world begin to yield fruits, Nigeria may lose whatever leverage it currently enjoys from being a principal oil producer. This statement is more of a fact than a sentiment as reports have it that the United States, which hitherto was the biggest importer of Nigerian crude, has abandoned Nigerian oil.
Earlier in the year, the US slashed oil imports from Nigeria by about 90 percent from one million barrels per day (bpd) to just about one hundred thousand bpd, this was the case till June when it eventually stopped importing from Nigeria for the first time. This is a direct effect of shale oil exploration in the US and other parts of the world.
According to an NNPC report, “Prior to the decline, the US was the highest buyer of Nigeria’s crude, purchasing 14.279 million barrels in December 2012, thereby accounting for 19.15 percent of Nigeria’s total crude export and 86.28 per cent of total crude export to North America. By 2013 end, the US dropped to the 10th highest importer of Nigeria’s crude.”
Despite this setback, Nigeria continues to earn oil revenues by trading with other countries, notably China, India, Brazil and the Netherlands. But it will only be a matter of time before other advanced economies join the race to oil independence, isn’t it high time the Nigerian government took the philosophy of significantly diversifying the economy very seriously?
The sector is no longer Nigeria’s largest although it still accounts for more than 90% of exports and the vast majority of government revenue, according to McKinsey & Co in its latest report on Nigeria. The report further reveals that the sector has struggled in recent years; specifically, it estimates that onshore oil production fell by 18 percent between 2011 and 2013 due to a variety of factors including theft of the order of 100,000 barrels per day. The results of these complex dynamics have seen a number of international oil companies divesting their onshore and shallow-water assets.
“If the country cannot attract new investment in oil and gas projects, production could continue to fall – reducing government revenue and weakening both the balance of trade and the broader economy,” the report reads.
Obviously, the government can and should decide to remedy these losses and turn around the sector by a fundamental restructure; however, the country might be placed on a more sustainable path if its economy was more diversified.
Ready sectors that can offer the same or higher returns than oil & gas include agriculture, solid minerals and manufacturing, and tourism. The country must seek to remove most of its eggs from the oil basket which, from recent events and projections, might not be so valuable in decades to come.