Dimensions Of NNPC’s Contribution To The Nigerian Economy

Proshare

Thursday, March 29, 2018   9.00AM / Temitope Babalola, Economics Desk 


Being discussion notes for Proshare CEO at the Nigeria Natural Resource Charter (NNRC) stakeholder workshop assessing NNPC’s contributions to the Nigerian Economy and Implications thereof, held on Thursday, March 29, 2018 at Protea Kuramo Waters, Victoria Island, Lagos. 

The NNRC is a Nigerian initiative which implements the Natural Resource Charter Framework to promote effective resource management for the benfit of Nigerians. It conducts assessments to determine the effectiveness of Nigeria’s petroleum sector governance against twelve (a) indices. 

One of those indices, “Precept 6” assesses ‘State Owned Enterprises: NNPC’. It scored Nigeria a ‘red’ in the 2017 benchmarking Exercise Report (BER). 

This discussion / intervention seeks to enlighten stakeholders on the need for Nigeria to adopt policies and frameworks that improve Nigeria’s performance against the NNRC framework.  

Introduction
 

  • How Much Do You Know About Oil Revenue? 
  • How Oil Affects The Nigerian Economy                     
  • Recommendation 

 

How Much Do You Know About Oil Revenue? 

 

Fig 1:  Oil Revenue (US$ ‘bn)

Year

Oil Revenue

Oil Import

Foreign Reserves  ($ ‘bn)

 Exc. Rate  (N/$)

1981

8.56

0.1

2,441.60

 0.61

1982

7.81

0.2

1,043.30

 0.67

1983

7.25

0.2

224.4

 0.72

1984

8.27

0.3

710.1

 0.76

1985

10.92

0.1

1,657.90

0.89

1986

8.11

0.9

2,836.60

4.54

1987

19.03

3.2

7,504.60

 4.02

1988

19.83

3.8

5,229.10

 4.54

1989

39.13

4.7

3,047.60

 7.39

1990

71.89

6.1

4,541.40

 8.04

1991

82.67

7.8

4,149.30

 9.91

1992

164.08

19.6

1,554.60

 17.30

1993

162.1

41.1

1,429.60

 22.o5

1994

160.19

42.3

9,009.10

 21.89

1995

324.55

155.8

1,611.10

81.02

1996

408.78

162.2

3,403.90

81.25

1997

416.81

166.9

7,222.20

81.64

1998

324.31

175.9

7,107.50

83.8

1999

724.42

211.7

5,424.60

92.34

2000

1,591.68

220.8

9,386.10

100.8

2001

1,707.56

237.1

10,267.10

112.025

2002

1,230.85

361.7

7,681.10

120.97

2003

2,074.28

398.9

7,467.80

129.43

2004

3,354.80

318.1

16,955.00

133.5

2005

4,762.40

797.3

28,279.10

131.63

2006

5,287.57

710.7

42,298.10

127.38

2007

4,462.91

768.2

51,333.20

124.611

2008

6,530.60

1,315.50

53,000.40

117.69

2009

3,191.94

1,068.70

42,382.50

147.39

2010

5,396.09

1,757.10

32,339.30

148.81

2011

8,878.97

3,043.60

32,639.80

152.32

2012

8,025.97

3,064.30

43,830.40

155.94

2013

6,809.23

2,429.40

42,847.30

155.75

2014

6,793.82

2,215.00

34,241.50

156.98

2015

3,830.10

1,725.20

28,284.80

194

2016

2,693.91

2,384.40

26,990.60

305.2

79,591.39

23,818.90

Source: CBN

 

  1. We know Nigeria has earned N79.59 trillion from 1981 till 2016.

  2. We know Nigeria earned 96% of that from 1999 till 2016, which is N76.622 trillion!!!!

  3. In Dollar terms, Nigeria has earned $542. 43bn from oil from 1999 t0 2016 

 

Fig 2:  Oil Revenue in Dollar Terms
Proshare Nigeria Pvt. Ltd.
Source: CBN

 

  1. We know Nigeria has spent N23.818 trillion on oil subsidy from 1981 to 2016, thus Nigeria has spent 29% of its oil revenue on subsidy.

  2. We Know 97% of the subsidy payment of the period under-review was from 1999-2016!!!

  3. Presently we produce 1.9 million barrels per day.

  4. Nigerian oil revenue is divided into 3 parts - oil and gas sales, petroleum product tax’s  and sales.

  5. Petroleum product tax’s account for  more than 50% of the country’s  oil revenue right through the 4 decades -first decade was 1980-89 ….. see below.  


Fig 3: Pinpointed Decades

 

Decade

Period

1st

1980-89

Second

1990-99

Third

2000-2009

Fourth

2010-2016

 

 

Fig 4: Oil Revenue Distribution Over The Last Four Decades
Proshare Nigeria Pvt. Ltd.

* Source: CBN

 

 

How Oil Affects The Nigerian Economy?  

Fig 5:  The Oil Cycle

Proshare Nigeria Pvt. Ltd.

Source: IMF

 

  1. Oil rubs on the financial health of banks as slacks in the oil sector trigger(ed) rising NPLs

  2. Oil has an effect on price movement (inflation).

  3. Increase oil revenue from the NNPC helps to bolster supply of foreign currency - Dollar

  4. Increase oil revenue improves the fiscal capacity of states

  5. NNPC, presently  is burdened with the responsibility of paying subsidy (or under-recovery as preferred by the Min. of Petroleum Resources) 

 

Fig 6: Growth and Inflation Over The Last Four Decades
Proshare Nigeria Pvt. Ltd.

  1. Although the largest chunk of revenue was made in the last decade, the growth level is however comparable to the first decade.

  2. Even though $261 billion dollars was realized as oil revenue, the growing cost of subsidy (estimated at N1.4 trillion) and growing consumption leakages have weighed growth down.

  3. Growth have fallen short, given such rooted problems amongst others including its operational structure.  


Recommendation

  1. The opportunity cost of subsidy is too high, it makes it  harder  to carry out sector reform

  2. It consistently limits the space for capital spending at the same time makes  brews price discrimination from crude to the nominal currency

  3. There is a need to expedite action on relevant bills to improve the competitiveness

  4. The existing model under which NNNPC operates is obsolete, thus unbundling the corporation

  5.  It is an organization which is too big to be competitive, therefore the efficiency of the organization is sub-optimal at best.     


Proshare Nigeria Pvt. Ltd.

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