Many Nigerians are concerned that the declining revenue from oil has started to take its toll on our foreign trade especially imports. BENJAMIN UMUTEME in this report takes a look at the issue.
Over the years, Nigeria’s economic mainstay has been from oil revenue with little coming from the non-oil sector. But the situation took a turn for the worse in 2014 as the global price of crude oil dropped from an all-time high of over $100 per barrel to less than $30.
The implication was that Nigeria’s revenue source declined by about 70 per cent and subsequently pulling the country’s economy into the waters of recession in 2016 after successive negative growth in the GDP.
However, the volatility in the oil market did not last long as measures by the Organisation of Petroleum Exporting Countries (OPEC) led to the rise of oil price. And with it the economy gained traction, but it still reels from the effect of oil- induced reduced revenue.
Declining oil production
In a recent report, the Nigeria Extractive Industries Transparency Initiative (NEITI) expressed concern noting that the country’s oil production had been on a steady decline since 2012 with sharpest decline recorded in 2015 and 2016.
“The total crude oil production in 2016 was 659,137 million barrels (mbbls) which is less than 2015 production figure of 776,668mbbls by 117,531mbbl representing a 15.13 per cent drop.
“There has been a steady decline from 2012 to 2016, with the sharpest drop occurring in 2015 and 2016. Similarly, total crude oil lifting in 2016 dropped by 112,280mbbls from 780,429mbbls in 2015 to 668,148mbbls in 2016, representing a 14.39 per cent decrease,” said NEITI, which asked the Department of Petroleum Resources (DPR) to go after a number of oil companies that owe Nigeria’s revenue in form of royalty and fines on gas flaring amongst others.
Continuing, it noted: “After surviving the slump in the global oil market in 2008 and 2009, Nigeria’s oil sector rebounded in 2010 with a 49 per cent increase in total financial flows to $44.94 billion, followed by the peak of $68.44 billion in 2011.
“However, flows from the sector have been trending downward since that peak year with $62.94 billion generated in 2012, $58.08 billion in 2013, $54.56 billion in 2014, and $24.79 billion in 2015. Similarly, oil production has been on steady decline with 866 million barrels produced in 2012; 800 million barrels in 2013; 798 million barrels in 2014; 776 million barrels in 2015; and 659 million barrels in 2016.
According to NEITI, “Yearly average price of crude oil per barrel was $43.73 in 2016 as against $52.5 in 2015. Total oil production in 2016 was 659 million barrels as against 776 million barrels produced in 2015, a fall of 15 per cent.”
“Losses due to crude oil theft and sabotage rose from 27 million barrels in 2015 to 101 million barrels in 2016, an increase of 274 per cent. This was aside losses due to deferment, which in 2016 was put at 144 million barrels which also went up by 65 per cent when compared to the 87.5 million barrels in 2015.”
It explained that Nigeria’s oil industry experienced peculiar challenges in 2016 which included the bombing of the under-water 48-inch Forcados oil loading and export pipeline.
“This incident occurred in February 2016 and the line remained in-operational for seven months. Shell Petroleum Development Company (SPDC) declared force majeure on lifting from Forcados on 21st February 2016,” the extractive industry watchdog said.
Corroborating NEITI’s statement, data from the Central Bank of Nigeria (CBN) showed that “At N745.52 billion, estimated federally-collected revenue (gross) in August 2018 fell below both the 2018 monthly budget estimate of N1.1 trillion and the receipt in the preceding month of N947.62 billion by 32.7 and 21.3 per cent, respectively.
“Oil receipts at N403.59 billion or 54.1 per cent of total revenue, was below the monthly budget estimate of N640.21 billion by 37.0 per cent, as well as below the preceding month’s receipt of N513.54 billion by 21.4 per cent.
“At N341.93 billion or 45.9 per cent of total revenue, non-oil revenue was below both the 2018 monthly budget estimate of N466.91 billion and the N434.08 billion received in July 2018 by 26.8 and 21.2 per cent, respectively.”
The report also shows that currency in circulation dropped for the fourth consecutive month by four per cent month-on-month (MoM), or N10 billion, to N1.8 trillion in July 2018, from N1.9 trillion in June, just as banks’ credit to the domestic economy declined marginally by 0.4 percent.
The CBN data shows that currency in circulation rose to as high as N2.16 trillion in December 2017 but fell to N1.94 trillion in January and N1.95 trillion in February 2018.
“Currency-in-circulation, at N1.825 billion, on month-on-month basis, fell by 4.0 per cent in July, 2018, compared with the decline of 1.6 per cent at the end of the preceding month, which reflected the decline of 3.4 per cent in its currency outside banks component.
“Banks’ credit to the domestic economy fell marginally by 0.4 per cent to N19.043 trillion at end-July, 2018, in contrast with the level at end-June, 2018.
This was attributed to the decline in claims on both the federal government and the private sector in the review month.
The implication of all these on the government’s revenue stream is that it has affected the strength of the country’s import, and the National Bureau of Statistics (NBS) report on statistics on foreign trade shows that quarter-on-quarter, foreign trade declined by 5.01 per cent between third and fourth quarters of 2018.
The NBS report showed that the drop in trade in the last quarter of the year was attributed to a 14.99 per cent fall in imports between Q3 and Q4 2018.
The report showed that the value of imported agricultural goods stood at N5 billion by Q4 2018 or 2.23 per cent below the value of Q3 2018. However, this was N8.7 billion or 3.8 per cent below the imported value of agricultural goods in 2017.
CBN’s ‘forex restriction’ connection
In the heat of depreciating foreign reserve, the CBN in order to halt the free fall of the nations’ forex reserves, banned some products from accessing foreign exchange officially.
According to the CBN Governor, Godwin Emefiele, the decision to restrict access to the foreign exchange official window for the importation of 41 items is in the best interest of the nation’s economy.
The initiative spurred local production resulting in the country’s import bills falling significantly from $665.4 million in January 2015, to $160.4 million as at October 2018, representing a drop by 75.9 per cent and an implied savings of over $21 billion on food imports alone over that period.
According to him, many entrepreneurs are now taking advantage of policies aimed at ramping local production to venture into the domestic production of the restricted items with remarkable successes and great positive impact on employment.
“The dramatic decline in our import bill and the increase in domestic production of these items attest to the efficacy of this policy.
“Most evident were the 97.3 percent cumulative reduction in monthly rice import bills, 99.6 percent in fish, 81.3 percent in milk, 63.7 per cent in sugar, and 60.5 percent in wheat.
“We are glad with the accomplishments recorded so far. Accordingly, this policy is expected to continue with vigour until the underlying imbalances within the Nigerian economy have been fully resolved,” he said.
He further said: “If we continue to support the growth of small holder farmers, as well as help to revive palm oil refineries, rice mills, cassava and tomato processing factories, you can only imagine the amount of wealth and jobs that will be created in the country.
“These could include new set of small holders farmers that will be engaged in productive activities; new logistics companies that will transport raw materials to factories, and finished goods to the market; new storage centres that will be built to store locally produced goods; additional growth for our banks and financial institutions as they will be able to provide financial services to support these new businesses; and finally, the millions of Nigerians that will be employed in factories to support processing of goods.
“If we turn a blind eye to the opportunities that are being created as a result of our policy on 41 items, we will be spelling doom for our nation. We can no longer afford to depend solely on imports given the size of our population, and the need to create jobs for our people.”