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Since the discovery of crude oil in Nigeria, the sector is currently facing one of its most daunting challenges due to the recent divestments by international oil companies in the upstream sector. The immediate consequence is already telling on the economy as foreign investment inflows into the sector has dropped by a massive 97 per cent. This is contained in the recent report from the National Bureau of Statistics (NBS).
Relying on the Nigerian Capital Importation Report for the second quarter (Q2) 2022, the Bureau said inflows of foreign investments into the oil and gas industry which stood at $68.6 million (about N30billion) in the first half of 2021, crashed to $2.5million(N1billion) in the first half of 2022, representing a 97 per cent drop. Besides, the NBS report showed that the flow of foreign funds into the petroleum industry in the first six months of 2022 was 92 per cent lower than the $33 million inflow recorded in the last six months of 2021. Perhaps more dampening is the fact that the oil and gas sector accounted for only 0.1 per cent of the total foreign capital inflows into the Nigerian economy in the first half of 2022, compared with 2.5 per cent and 0.8 per cent, respectively, in the first half of 2021 and the second half of 2021.
A breakdown of the inflows revealed that in the Q1 of 2022, $1million foreign capital was imported into the oil and gas sector, while $2 million foreign capital came in during the Q2 of the year. Comparatively, in the Q1 and Q2 of 2021, $57million and $11million foreign capital inflows were imported into the sector, while in the Q3 and Q4 of 2021, foreign investment in the sector stood at $1million and $32million, respectively.
In all, the NBS noted that the total value of foreign capital inflows into the oil and gas industry between January and June 2022 stood at $3billion, up by 12 per cent, but lower than $4billion inflows recorded in the Q2 of 2021. This is an indication that all is not well with the sector. Considering that oil remains the mainstay of the economy, the government should design new strategies to attract foreign investment inflows into the sector. The governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, at a recent forum in Washington DC, urged foreign investors to consider Nigeria as a choice investment destination. However, Nigeria is becoming a hard sell to foreign investors despite its large market and growth opportunities. This is largely due to insecurity, poor Ease of Doing Business and other factors. In July this year, the NBS stated that foreign investment into Nigeria had declined by 8.46 per cent, representing $6.91billion from $8.49 billion in the Q1 of 2019 to $1.57billion in the corresponding quarter of 2022. According to the Bureau, since Q1 2019, 2020, 2021, and 2022, Nigeria had recorded a steady decline in capital inflows into the economy. This is more obvious in the oil and gas sector.
According to data from the Nigerian Upstream Regulatory Commission (NUPRC), crude oil production for September 2022 dropped by 24.73 per cent to 937, 766 bpd, compared to 1.246 million bpd recorded over the corresponding month in 2021. Early this year, former Secretary-General of the Organisation of Petroleum Exporting Countries (OPEC) Mohammad Sanusi Barkindo, shortly before his demise, foresaw the danger ahead and advised the government to address the oil sector challenges.
No doubt, the global oil industry is currently facing severe challenges. This has been worsened by the Russia/Ukraine war. Experts have opined that it will require a hefty investment of $11.8 trillion in the upstream, midstream and downstream sector within the next 23 years to address the challenges of the oil sector.
This also requires adequate investment in strategic sectors of the economy. Government’s policymakers should enunciate concrete fiscal and monetary policies that will check inflationary pressures, insecurity, oil theft estimated at 400,000 bpd daily, foreign exchange regime and other alternative sources that will put the economy in good stead. Nigeria can still earn much money outside oil by fully regulating the solid minerals sector, worth billions of dollars.
