Oil contribution to Nigeria’s gross domestic product (GDP) is on the rise after witnessing a downward trend over a four year period-between 2013 and 2017.
In the second quarter of 2017 (Q2 2017), Nigeria came out of its worst recession in 29 years after five successive quarters of lackluster performance in the oil and gas sector.
Data from the National Bureau of Statistics (NBS) showed that the economy grew at 0.55 percent in that quarter.
The rebound was driven predominantly by improved performance in four key sectors — oil, agriculture, manufacturing and trade.
In that quarter, oil contribution to GDP was 9.04 percent, up from 8.79 percent in the corresponding quarter of 2016 (Q2 2016) and 8.53 percent in the preceding quarter of 2017 (Q1 2017).
Year-to-date oil growth rate also rose from -14.45 percent to 3.80 percent.
The increase in oil GDP was attributed to amplified oil production, which was revised from 1.84 million barrels per day (mbpd) to 1.87mbpd.
Oil production for Q3 2017 also increased by 420,000 barrels per day, spiking to 2.03 mbpd, from 1.61 mbpd in Q3 2016.
Maintaining its growth trajectory, oil GDP in Q3 2017 rose to 10.04 percent, up from 8.09 percent in Q3 2016 and 9.04 percent in Q2 2017.
REDUCED OIL PRICE AND OUTPUT WEAKENS GDP
In 2015, the annual average of Brent crude, the international benchmark for crude oil fell to $52.35 from $99.03 per barrel in 2014. These depressed global oil prices, coupled with challenges in oil output in Nigeria, largely affected crude oil contribution to GDP.
By 2016, the global average for brent crude had fallen to $43.55 per barrel. This led to a visible reduction in oil sector’s share of real GDP. This also was occasioned by falling oil prices as well as increased pipeline vandalism in the Niger Delta region.
Lack of substantial investments in the sector was also evident in the decline in capital importation to the sector.
Ibe Kachikwu, the minister of state for petroleum resources, had said 350,000 jobs had been lost to the oil-driven economic crisis as at 2016.
Kachikwu’s stance was corroborated by NBS data, which revealed that “capital importation into Nigeria’s oil and gas sector declined from the $200 million (N90 billion) from the second quarter of 2016 to $172 million (N78 billion) in 3rd quarter” as investors voted their monies.
In all, full year oil GDP figures from 2013 up till the second quarter of 2017 (Q2 (2017), showed oil sector’s contribution to GDP observed a downward trend.
Annual growth rate of the oil sector was in the negative at -13.07 percent in 2013, -1.32 percent in 2014, -5.45 percent in 2015 and -14.45 in 2016.
Maikanti Baru, group managing director of the Nigerian National Petroleum Corporation (NNPC), said in 2016 alone, Nigeria lost an estimated $7 billion in oil revenue.
According to him, the loss stemmed from vandalism of oil infrastructure and incessant crude oil theft in the Niger Delta.
He also said oil price shock and high production costs had affected the sector negatively.
Hence, in 2016, oil GDP was at an all-time low in relation to production and price challenges. This led the sector to contract sharply and reduced the sector’s share of real GDP to 9.64 percent for the full year 2016.
But 2017 proved to be a turning point for Nigeria’s oil sector as there was an improved performance.
According to a PriceWaterhouseCoopers projection, Nigeria was to experience “a gradual but weak recovery of economic activities and a further decline in per-capita GDP” — though out of recession.
The projection hinged the recovery on “moderate improvement in crude oil production to an average of 1.8mbpd, up from 1.7mbpd in 2016”.
This was possible as vandalism of oil and gas infrastructure reduced in the period under review.
EXPERTS: NON-OIL SECTOR ALSO NOT IMMUNE TO OIL CRASH
Speaking with TheCable on the factors that hindered oil output in the period under review, Bismarck Rewane, chief executive officer, Financial Derivatives Company, said constant attack on oil installations by militants was a key issue.
“It’s very simple. First and foremost, GDP is an output measure not a revenue measure,” he said.
“Even if the price of oil goes to heaven, if you don’t produce your output will fall. Therefore, the question we should be asking is: Why did output increase?
“The reason why the output did not increase was because the militants were sabotaging the operations. Now that the militants stopped sabotaging it, then we’ve seen an increase.
“But now we have a cap, we cannot do more than 1.8 million barrels, so from the third quarter last year up till now, our production has capped at 1.8 million barrels.
“Before then, it was down to 1.3 million barrels or 1.2 million barrels. So that difference from 1.2 million barrels to 1.8 million barrels is responsible for the increase in output.
“Before it was constrained because the militants were sabotaging the activities of the oil sector.”
The CEO of Economics Associates, Ayo Teriba, also attributed the poor performance of the oil sector during the review period to vandalism of oil infrastructure as well as fall in global oil prices.
“There are two components in the oil GDP- there’s the output component and there’s the price component,” he said.
“For Nigeria, both nosedived around 2015 and 2016 because Niger Delta Avengers were vandalising oil installations and this led to a fall in Nigeria’s oil output.
“The global oil price fell as a result of global supply glut in the oil market. Whereas Nigeria had enjoyed oil price of $100 a barrel or more on average up to 2014.
“Since 2015…production fell almost by 50 percent at the peak of the avenger’s actions (Niger Delta Avengers).
“So that led to a collapse of the income Nigeria was getting from oil.”
Teriba added that the non-oil sector was also hurt by the issues in the oil sector, following the fact that Nigeria’s oil receipt is largely responsible for the country’s foreign exchange supply.
“Nigeria also depends on oil for the bulk of its foreign exchange supply, and that also declined,” he continued.
“The fall in the foreign exchange crept into the non-oil sector, because the non-oil sector depends on the forex from oil.
“So inability to get the forex needed for imports, pushed the non-oil economy into recession.
“In 2017, domestically the government succeeded in dialoguing with the Niger Delta Avengers, and they ceased their attacks.
“Also internationally, OPEC headed by Mohammad Barkindo, secretary general, managed to broker an agreement for major OPEC and non-OPEC producers to cut output to reduce the glut, and that helped to lift the price.
“They’ve extended the agreements further, so in 2018 we are even seeing further positive impacts on oil prices.
“So oil GDP fell because of the cut in output and the fall in price, and it has lifted again because both have recovered.”