By Michael Eboh
Analysts at FBN Capital Limited have bemoaned the negative correlation between Nigeria’s oil output and economic development, saying the oil sector has contributed negatively to the growth of the Nigerian economy.
They also dismissed hopes for any improvement, saying, “Given the seeming indifference of the executive and legislature to these constraints, we do not assume a recovery in the sector ahead of the elections.”
The analysts in their Economic Report for June 2014, stated that the oil sector share of the country’s Gross Domestic Product, GDP, contracted by an average of 0.8 per cent year-on-year, in the past eight quarters.
This, they said, is in contrast to the telecommunications and post, building and construction, hotels and restaurants, solid minerals, and real estate, which achieved double-digit growth in third quarter 2013.
The analysts, Gregory Kronsten and Chinwendu Egwim, also blamed the declining fortune of the oil and gas sector on faltering production, arising from reduced investment and leakages.
According to them, underinvestment by the joint ventures, the vacuum created by the non-passage of the Petroleum Industry Bill, PIB, and the steep increase in production leakages/theft since 2013, have all contributed to the disappointing oil performance.
The analysts linked the oil sector with a number of weaknesses in Nigeria’s fiscal policy. They said, “Oil continues to generate a dangerously high proportion of Federal government revenue and of foreign-exchange inflows. Oil accounted for 76 per cent of federally collected revenues in 2012 and a provisional 70 per cent in 2013.
“The collection of dues from the non-oil economy is constrained by overly generous tax exemptions, inadequate pay for the officials and a poor culture of paying tax in the population at large.
“Another weakness of fiscal policy is the inclusion of the Nigerian National Petroleum Corporation, NNPC in the federal budget. The corporation cannot always meet its obligations to its joint venture partners (cash calls) because of delays in disbursements from the federation account. The arrangement also does not enhance accountability.
“We have already noted that the version of the PIB currently before the National Assembly does not change the financing arrangements for the corporation other than at the margins.”
In the long term, the analysts further stated that Nigeria can reduce its appetite for imports without sacrificing its dash for growth, adding that the country could make some inroads into its import bill by finally scrapping petrol subsidies and encouraging investments in refining.
In addition, Mr. Bismark Rewane, Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, projected that oil export will remain the major source of revenue for Nigeria in the months ahead.
Rewane, in his monthly economic news and views, lamented the continued pilfering of Nigeria’s crude, noting, however, dwindling Nigerian shipments to the U.S. imply that disruptions to Nigeria’s oil supplies are unlikely to trigger oil price rallies.
Despite claims of improved refining capacity in the country, he disclosed that Nigeria still imports about 50 per cent of its refined products from the United States.
On the outlook for August, Rewane stated that stock market sentiment will remain tepid pushing stock prices down, while slow external reserves replenishment will continue to $41 billion.