Reversal of Fortunes: Nigeria’s Economy Shifts Back to Oil-led Development

There have been recent indications that the economy of Nigeria is reverting to an oil-led growth, undoing the progress made in the non-oil sector. This transition presents new obstacles for the country, despite improved Foreign Exchange (FX) liquidity resulting from increased oil exports.

Analysts have observed positive signs of a revival in the oil industry, such as the increasing rig count, recoveries in multiple oil terminals, the opening of new oil wells, and stable export prices. The average rig count has surged by 62 percent year-on-year, reaching 15 between June and October 2023, compared to just nine in the same period of 2022.

The Organization of Petroleum Exporting Countries (OPEC) has warned that Nigeria may struggle to maintain its newfound strength in the crude oil sector. This setback comes after the nation experienced a significant increase in oil production, rising by over 40 percent from less than one million barrels per day (mbpd) last year to 1.45 mbpd in October 2023. When condensate production is factored in, the total output exceeds 1.6 million bpd.

Several major oil terminals have seen substantial performance improvements in the third quarter of 2023. Forcados terminal reported an impressive 6,028.5% year-on-year rise, while Bonny terminal and Brass terminal also saw significant increases. These positive developments have been attributed to the continued positive response of stakeholders to Nigeria, particularly following the enactment of the Petroleum Industry Act (PIA).

The export of Nembe crude by the NNPC/Aiteo Joint venture has also had a significant impact on the nation’s oil output. The recent recommencement of production and export of Nembe crude has led to a boost in Nigeria’s crude flow to Europe, filling supply gaps left by the ban on Russian crude.

With the recent shifts in Nigeria’s economy placing the oil sector back in a dominant position, industry experts and economists are urging substantial investment to meet future targets. Addressing the divestment by International Oil Companies (IoCs) is crucial to ensuring that Nigeria can capitalize on potential exchange rate revaluation gains from crude oil sales.

The resurgence of the oil sector is accompanied by a reversal in the growth of the non-oil sector, potentially affected by the actions of the Central Bank of Nigeria (CBN). The CBN’s decision to withdraw from direct development finance interventions and implement sustained hawkish policies has constrained growth in key sectors like agriculture and manufacturing.

While the revival of the oil sector is a positive development for Nigeria’s economy, there are concerns about potential challenges posed by OPEC’s forecast for a production cut back in 2024. This places Nigeria’s economic recovery and fiscal plan at a critical juncture, highlighting the need for strategic decisions to ensure inclusive growth in the coming years.

In conclusion, the return to oil-led development in Nigeria’s economy presents both opportunities and challenges. It is essential for the nation to address the issues in the oil sector while also focusing on revitalizing the non-oil sector to achieve sustainable economic growth and development.