From $3Bn to Zero in 8 Years — How Nigeria’s Oil Forex Vanished

November 28, 2022

The governor of the Central Bank of Nigeria (CBN), Godwin “Meffy” Emefiele loves dropping bombshells on Nigerians — from banning crypto trades to redesigning the naira. He dropped  another one at the 57th annual banker’s lecture on November 25, 2022.

From Emefiele’s revelation, we now know Nigeria no longer earns anything from selling crude oil. It would be so funny if it wasn’t so sad. A country of 200 million people went from being ballers to mechanics in eight years under a government that promised to deliver positive change.

How did Nigeria get here?

When Russia invaded Ukraine in February 2022, the war presented opportunities for other oil-producing countries. With Russia, a major oil producer cut off from the global oil market, other countries could step up and grab the money on the table. Many countries stepped up but Nigeria has proved to be the black sheep of the oil-producing family.

The signs were already there. In February 2022, Timipre Sylva, the minister of state for petroleum resources, said the increase in prices of global crude oil was bad for Nigeria. When the seller of a product complains that prices are too high, despite the fact that there are willing buyers, you know there’s fire on the mountain.

In June 2022, Angola surpassed Nigeria for the first time as the biggest oil producer in Africa. It’s even worse that this happened at a time when Angola was reporting declining figures.

So why’s Nigeria not earning from oil?

Well, we can think of a few reasons.

Subsidy

In September 2022, The Economist wrote a report on how Nigeria was failing badly while its classmates were flying high. The newspaper identified several reasons why Nigeria wasn’t remitting forex earnings from oil.

A major issue highlighted is what economists describe as “price control”. It’s what happens when instead of allowing the market to dictate the price of a commodity, the government intervenes by introducing price caps. The intervention allows consumers to buy the product at a lesser price than it would ordinarily cost. If that sounds familiar, that’s because it’s what Nigerians know as oil subsidy. 

The NNPC pays the difference from its profits and sends whatever’s left to the government as remittance. So zero remittance means there’s nothing to declare because subsidy has gulped everything and subsidy is a glutton. By next year, subsidy payments by the Buhari administration since 2015 would hit ₦‎11 trillion.

Oil theft

You could write 1,000 books about the scale of oil theft in Nigeria and they wouldn’t cover the depths of the problem. The unending large-scale theft of oil has gone on for decades in Nigeria and depleted our output. Between January and July 2022, for instance, Nigeria lost $10 billion to oil thieves. The reason Angola can buga for us is because we’ve not been shining our eyes. As a result, we’re not producing enough to meet our quota and be profitable.

Cash shortage

Everyone knows you need money to make money. But the NNPC is so short of cash after paying for subsidies that it struggles to cover production costs for pumping crude oil. Remember that our oil refineries don’t work, so the cost of refining our oil is also part of what gulps money and ensures that the CBN’s vault remains cold and lonely.

What can be done about this?

The buck stops at Buhari’s table. It doesn’t look like he has the will to solve the crisis as he’s already decided to unlook the current fuel scarcity that has seen marketers sell petrol at wild prices. 

Clearly, leakages need to be plugged and we have to come to terms with the fact that subsidies are unsustainable. Already, the Buhari administration has announced the move to end subsidy payments by June 2023 — when it would no longer be in power. Things could get very tough before they get better.

ALSO READ: Nigerians Cry About Another Fuel Scarcity but Buhari Unlooks

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