…starved of oil receipts, as presently structured, the economy will hurt. However, the catch is in the phrase “as presently structured”. The fact that Nigeria needs reforms that shift the epicentre of its economy away from extractive activity towards improving domestic supply responses (including freer voting) has long since become a shibboleth of domestic economic planning… It has never been truer. Nor has its need been more urgent.
The output numbers for the third quarter of this year suggest that the Nigerian economy is on course to close 2021 on the more optimistic side of the many growth outlooks that were put out earlier for this year ― i.e. more 3 per cent than the 2 per cent+ which both the the International Monetary Fund (IMF) and the World Bank had called it. According to data released, last week, by the National Bureau of Statistics (NBS), gross domestic product (GDP) in the September quarter grew by 4.03 per cent year-on-year. Down on the 5.01 per cent by which the economy grew in the preceding quarter.
In a qualified sense, these numbers highlight the degree of correlation between the domestic economy and the global one. Worldwide, we saw output growth slow in the major economies last quarter, as supply bottlenecks across sectors held down production, and by extension, output growth. These constraints on global supply responses have been implicated in the rise of prices generally, especially through the effect of rising energy costs. However, while we have seen domestic prices rise, as with the slowdown in output last quarter, our economy’s responses reflect idiosyncratic challenges ― a greater portion of which predate the pandemic.
How, though, have rising crude oil prices ― a major driver of inflation in the West ― played to the advantage of the economy? Ideally, higher oil prices, all other things remaining equal, should improve the economy’s balance of payments position, our governments’ fiscal position, as well as the balance on the gross external reserves. For, despite the ritual protestations to the contrary, crude oil production export earnings are the country’s main foreign currency earner.
The unasked question is why Nigeria is struggling, of late, to meet the lower (relative to installed capacity) output quota assigned her by OPEC? Convinced that recent production shortfalls result from pipeline sabotage and other bottlenecks in the sector’s supply infrastructure, the federal government has suggested a return to levels of production closer to or at our OPEC-assigned numbers by year end.
“Not so much”, is the answer to this question, if the NBS’ numbers are to be believed. One unintended consequence of the year of the pandemic was that the serial attempts by governments to throttle the coronavirus’ spread by closing down economies, hurt both final demand and output numbers in a number of industries ― businesses in services most especially. Thus, much of the recovery in supply and demand that we are seeing post-2020, have come from customers returning from online transactions to the main streets.
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This process continued in the third quarter with the non-oil sector doing much of the grunt work. Rail transport (up 59.93 per cent), air transport (33.31 per cent), financial institutions (25.50 per cent), telecoms (10.87 per cent) and construction (4.10 per cent) all grew faster than they did in the June quarter. Alas, along with crop production, the most important sector of the economy, which at 1.36 per cent came in below the June quarter’s 1.38 per cent, the crude petroleum and natural gas sector contracted by 10.73 per cent in the third quarter (following a 12.65 per cent shrinkage in the preceding quarter).
While the September quarter’s output numbers may be parsed to support the conversation around the economy’s openness to global pressures, they raise questions all of their own. The Organisation of the Petroleum Exporting Countries (OPEC), for example (in its monthly oil market report for November), blames higher “crude differentials of light and medium sweet crude” in the “Mediterranean and West African markets in October” partly on domestic supply disruptions. The unasked question is why Nigeria is struggling, of late, to meet the lower (relative to installed capacity) output quota assigned her by OPEC? Convinced that recent production shortfalls result from pipeline sabotage and other bottlenecks in the sector’s supply infrastructure, the federal government has suggested a return to levels of production closer to or at our OPEC-assigned numbers by year end.
…the evidence is clear that fossil fuel’s shift in the factory is nearing clock-out time. With production costs in the local oil and gas sector amongst the highest in the world, chances are that the oil majors will cut back investment plans here faster than they are doing globally. Especially when venture opportunities in the same sector in other places are more lucrative.
There is, though, a more troubling explanation. It is no longer news that the oil majors are quitting onshore crude oil production. Domestic capacity in that sector, on the other hand, is middling. Thus, it is unlikely that we will find local operators big enough to fill the resulting gap. Events like COP26 only worsen this outlook. Higher carbon taxes may still be a long way. But the evidence is clear that fossil fuel’s shift in the factory is nearing clock-out time. With production costs in the local oil and gas sector amongst the highest in the world, chances are that the oil majors will cut back investment plans here faster than they are doing globally. Especially when venture opportunities in the same sector in other places are more lucrative.
In other words, the domestic oil production sector might be in secular decline, and is not just the victim of transitory snafus. The least of our problems, were this to be the case, is that OPEC will at some point reallocate the unused portions of our assigned quota. But starved of oil receipts, as presently structured, the economy will hurt. However, the catch is in the phrase “as presently structured”. The fact that Nigeria needs reforms that shift the epicentre of its economy away from extractive activity towards improving domestic supply responses (including freer voting) has long since become a shibboleth of domestic economic planning.
It has never been truer. Nor has its need been more urgent.
Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
