Global Economic Outlook (G.E.O)
OPEC Cannot Save Nigeria from Losing Dollars. Vol. 96. July 4 2022.
Dear readers, welcome to another edition of the Global Economic Outlook (G.E.O) - our weekly newsletter providing insights on the local and global economy. Today, we will be discussing Nigeria’s precarious FX situation.
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OPEC Cannot Save Nigeria from Losing Dollars
Oil is the mainstay of the Nigerian economy, accounting for up to 90% of the country’s foreign exchange (FX) earnings. Despite several calls to diversify the economy, it has been difficult for the country to raise the earnings from non-oil exports to a level that can help to effectively reduce the reliance on oil, leading many to call Nigeria’s Oil resources a curse rather than a blessing.
Nigeria had previously enjoyed its best moment in FX availability when there is a boom in the global oil market but that is not the case any longer. Oil prices have been above $100 per barrel for the most part of this year due to the Russia-Ukraine conflict and Nigeria set its oil price benchmark for the 2022 budget at $62 per barrel. Simple mathematics shows us that prices have been at least 60% higher than expectation.
Just imagine a company expecting to sell products at a certain price (which would have been profitable) and now getting the opportunity to sell at a price more than 60% higher than originally planned. That should ordinarily lead to record profits and probably largesse for everyone. Nigeria’s case though is a strange one with the country unable to meet up with rising demand in the global oil market and enduring one of its worst periods in FX scarcity.
The quota given to Nigeria by the Organization of Petroleum Exporting Countries (OPEC) is more than 1.77 million barrels per day but the country has been unable to meet up with this. It is estimated that Nigeria’s production for May 2022 was just about 1.02 million barrels per day. A combination of Oil theft and inability to resolve the many issues surrounding production has made it difficult to meet up.
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) recently disclosed that only 132 million barrels of oil produced in the first quarter of 2022 were actually exported of the 141 million barrels of oil produced. This means that about 9 million barrels of oil went missing before getting to the export terminals leading to a loss of $1 billion in the quarter.
Also, Nigeria’s refineries are still not functional and a large proportion of the country’s FX earnings are used to import petroleum products. If you add the fact that the government pays subsidies on premium motor spirit (popularly called petrol), you will see that the gains from the increase in oil prices are easily eroded. The subsidies are important because the economy is not in a state where the citizens can afford any further increase in price with inflation already high at 17.71%.
OPEC’s best efforts cannot save Nigeria. Only Nigeria can save itself by tightening the security lapses and implementing policies that will make it easy for investors. Until then, the country will continue to lose dollars and the FX situation is unlikely to get better.
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The 8th Live Edition of the Global Economic Outlook (G.E.O) was held on Tuesday, 28th June 2022 with experts discussing the state of the Nigerian economy and how Small and Medium Scale Enterprises (SMEs) can navigate the difficult business environment. It is a must watch!
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