| Work Detail |
The Monetary Policy Committee (MPC) sounded the warning during its 120th meeting last week. The Central Bank of Nigeria (CBN) committee said Nigeria risks slipping into another recession. All key economic fundamentals point in that slippery road. The oil and gas sector, from where 80 per cent of revenue that sustains the economy is derived, has maintained a consistent decline. The National Bureau of Statistics (NBS) in its second quarter 2018 Nigerian gross domestic product (GDP) report said daily oil production averaged 1.84 million barrels, from about 2 million barrels in the preceding quarter. Although projected daily production capacity in successive federal budgets since 2015 has always been about 2.3 million barrels, never has the target been met. The output has dwindled from a peak of about 2.05 mbpd in the first quarter of 2016. Real growth in the oil sector, the NBS report revealed, decreased by 8.34 per cent in the quarter, from -18.72 per cent points recorded in the previous quarter, about -7.48 per cent points drop. Overall, the oil sector contribution to total real GDP in Q2 2018 stood at about 8.55 per cent, down from 9.04 and 9.61 percent in the corresponding first and second quarter of 2017. To jumpstart the process of sustainable economic recovery and help increase the oil sector contribution to overall GDP, the MPC demanded the urgent passage of the Petroleum Industry Bill (PIB). But, the PIB passage has lingered for nearly 18 years since 2000. The long delay is setting Nigeria on the highway to replicating Venezuelas oily crisis story that is well documented. Sadly, our politicians are busy playing politics with an issue capable of determining the countrys future. Venezuelas Crash From Grace To Poverty Venezuelas over 300 billion barrels of proven crude oil reserve, the worlds largest, accounts for 25 per cent of the combined 1.2 trillion barrels estimated reserves of the 14-member Organisation of Petroleum Exporting Countries (OPEC). Despite rising crude oil prices at the international export market above $80 per barrel, Venezuela is in deep distress. In 2017, the Venezuelan Central Bank said the once buoyant oil economy contracted by nearly 200 per cent, with over 90 per cent of its over 32 million population living in poverty. OPEC data showed a decline in Venezuelan daily oil production at about 2.3 million barrels in 2015, from 2.9 million barrels in 2013. Latest data from TradingEconomics.com show the figure dropped further to about 1.4 million barrels in August 2018, with inflation climbing from over 82,000 per cent in July 2018 to over 200,000 per cent. Those who could not cope with the cruelty of hunger and disease as a result of the crisis have fled to join the legion of illegal immigrants to Latin American neighbouring countries like Brazil, Chile, Colombia, Ecuador and Peru. Experts familiar with the distressing Venezuelan experience say this could have been averted if successive administrations were more circumspect, transparent and accountable in the management of the resource. But, an opaque governance structure transferred the wealth from the industry into the hands of a few individuals in the corridors of power. The countrys oil wealth hardly impacted the lives of majority of the population. In 1998, Huge Chavez emerged the Venezuelan leader. His dream was, ostensibly, to redistribute the oil wealth to reverse the inequality in the country. At the time Chavez arrived, crude oil price was less than $20 a barrel. By 2008, the price climbed astronomically above $140 a barrel. With Venezuelas average daily production capacity at 2.4 million barrels, it meant there was surplus oil revenue from exports. Oil accounted for almost 97 per cent of all export revenue, which Mr Chavez deployed to pursue social welfare agenda to the benefit of the poor. Apart from subsidies on various essential services, like free health and education, Mr Chavez transformed Venezuela into one of the worlds most subsidised economies. For a start, Mr Chavez nationalised the oil industry, government took charge of allocation of oil licenses, exploration and production, also oil export and refinery operations. The entire oil industry value chain was government business through the state-owned oil and natural gas company, Petróleos de Venezuela, S.A. With the government, transparency, accountability and good governance died first. The increasing focus on oil wealth meant the neglect of other natural resources, like natural gas, iron ore, bauxite, aluminium and gold. Worse still, there were no new investments to boost output in the oil industry. By March 2013 when the Chavez administration ended, crude oil price dropped slightly to above $100 a barrel average. But, that was the beginning of Venezuelas race to the bottom. Nicholas Maduro The new administration of Nicholas Maduro sought to continue where his predecessor stopped. By 2015, crude oil price had dropped below $32 a barrel. By January 2016, the price had hit the bottom at about $22.48 a barrel. By then, the flow of oil revenue had virtually run dry. Government could barely fund education and healthcare. Those things the people took for granted fizzled, taking new meanings. Today, even with oil above $80 a barrel, the Venezuelan story is one nobody, least Nigeria, can ill-afford. How Nigeria Mirrors Venezuela Nigerias situation may not be the exact replica of Venezuelas, but, with oil as the common denominator, analysts say there is a basis to compare. Nigeria, like Venezuela, is one of the worlds leading producers of hydrocarbon in OPEC. Until recently, Nigeria topped the oil producers in Africa, in terms of proven crude oil reserves. Latest OPEC data on worlds crude oil reserves put Libya ahead of Nigeria. Out of about 1.2 billion barrels of all OPEC member countries, Libya accounts for 4 per cent (48.4 billion barrels) against Nigerias 3.1 per cent (37.45 billion barrels). However, in terms of daily oil production capacity, OPEC crude oil production data show Nigeria still towers above others, with about 1.73 million barrels, against Libyas 926,000 barrels as at August 2018. Regardless, Nigerias current production capacity still falls below its projected 2.3 million barrels target in successive federal budgets since 2016, during which only 1.56 million barrels per day were realised, in 2017 (1.76mbpd) and 1.73 mpbd as at August 2018, according to OPEC records. Oil production is impacted directly by rig count deployed in daily drilling operations. OPECs monthly oil market report for September 2018 showed Nigerias oil rig count declined from 35 in July (the highest since 2015) to 33 in August. The decline is not affecting production alone. New investments are not spared. Chairman/Managing Director, Chevron Nigeria Limited, Clay Neff, said new investments in Nigerias oil and gas industry declined by about $21billion (20 per cent) before the arrival of Buhari administration. In 2017, the NBS, in its third quarter 2017 Nigerian Capital Importation Report, said foreign direct investment inflow into the oil and gas industry slowed drastically by 91.56 per cent, from $190.39 million in the second quarter to $16.07 million. Although about $85.62 million was recorded as capital importation in the first quarter of 2018, the NBS said the figure dropped to about $24.85 million in the second quarter. The NBS said the new level is the least in seven consecutive quarters, since 2016. The drop represents a decline of 90.64 per cent, from $171.63 million recorded in the third quarter of 2016. In sum, experts say, the industry lost over $150 billion over the last decade from revenue losses and lack of investment. The declining output in the industry tells the story of festering rot and years of neglect of a sector that account for more than 80 per cent of government revenue. At inception in 2015, President Buhari promised to reverse the declining trend. He announced the removal of fuel subsidy, which was a drain pipe for NNPC. From a retail pump price of N86, the removal of subsidy drove the price to the current ceiling price of N145 a litre. |
