Nigeria’s primary source of foreign exchange earnings, crude oil, has become a source of worry as the industry crisis continues to overwhelm the players, adding to the country’s economic woes.
Oil and gas contributed 90% of Nigeria’s foreign exchange earnings in the first quarter of 2022, a significant dependency for Nigeria’s forex stability. The rise in oil and gas inflows is correlated to a stronger naira and vice n versa.
Depending on your market source, the naira has fallen to a record low of N740 to $1 on the black market due to Nigeria’s inability to profit from recently high oil prices due to widespread oil theft, skyrocketing gasoline subsidies that continue to be a burden on the economy, and FX speculation by currency traders.
The Central Bank of Nigeria’s Monetary Policy Committee acknowledged in Q1 that the impact of rising oil theft on the economy is preventing the country from building up its foreign reserves.
“The committee highlighted, with deep concern, the unparalleled rate of oil theft documented in recent times and its crippling impact on government revenue and accretion to reserves,” the CBN governor, Godwin Emefiele, stated as he read from his prepared remarks.
Crude oil still made up 80% of Nigeria’s exports in the second quarter of 2022 amid high oil theft.
As Nigeria’s primary export, when we earn less from earns, it bodes a dearth of foreign exchange, especially US dollars. Attracting foreign Investments has been impacted by the experience of businesses and investors finding it difficult to repatriate funds due to forex scarcity. This has been a detrimental effect on the naira.
A plethora of oil theft
It is unbelievable how much oil is being stolen in Nigeria. According to Mele Kyari, group chief executive officer, of NNPC Ltd, illicit operations had severely hampered operations at the Brass and Bonny terminals. “When you conduct a reality check,” he said, “the cumulative consequence is that you have lost 600,000 barrels (of crude) per day.
Nigeria produced a pitiful 927,000 barrels per day in September, compared to the 1.826 million barrels per day that OPEC had allowed.
Nobody knows the exact cost of crude theft in Nigeria, according to the Atlantic Council, a US research think tank. Still, it is estimated to be between $3 billion and $8 billion a year.
The effects have been disastrous. After Angola overtook Nigeria as the continent’s top petroleum producer in 2016, it is now ranked third after losing second place to war-torn Libya in August when production fell to just over 900,000 bpd, the lowest level in 25 years.
If the loss had been curbed, it might have enabled the nation’s cash-strapped federating units (states and local governments) to launch significant initiatives that could have increased productivity.
Due to crude oil theft, Nigeria lost $1 billion in revenue during the first quarter of this year, which is related to the nation’s underproduction. The NUPRC chief executive, Mr. Gbenga Komolafe, warned that the situation posed a threat to the economy of Africa’s top producer.
Komolafe estimates that 132 million barrels of oil were exported in the first quarter of 2022 out of 141 million barrels produced.
This suggests that almost nine million barrels of crude oil were lost to theft. This translates to a loss of roughly $1 billion in government revenue in only one quarter.
Nigeria is currently experiencing an economic crisis as a result of mounting debt service expenses, fuel subsidy payments that could exceed the projected N4 trillion this year, and a depletion of the country’s Excess Crude Account. It is anticipated that petroleum subsidies will rise to about N7 trillion by next year if the nation votes to continue the policy.
Due to this, Nigeria cannot meet the demand for foreign exchange. On the other hand, we are attempting to limit and constrain the supply, which has resulted in a significant number of genuine requests for foreign exchange being diverted to the black market.
Because the official market is unable to meet demand, more genuine requests for foreign exchange are being directed to the parallel market.
The country’s mainstay is still oil. The FG must confront the situation head-on and with strength.
Without international assistance and coordination, oil theft in Nigeria will keep hampering the nation’s chances of obtaining enough forex ‘ammunition” to keep the naira stable
The harshest measures, however, must begin at home, where the FG must make sure that the country’s security services and military forces have the tools and the trustworthy leadership, they need to combat oil smugglers in the Delta and at sea.