The decline in earnings was worsened by the impact of COVID-19 which dampened the global demand, plummeting crude oil prices in the international market and the recent OPEC reduction of Nigeria’s production quota.
Crude oil contributes half of the government’s income and about 90 percent of Nigeria’s foreign exchange earnings. By implication, Nigeria would likely continue to face revenue pressure with declining oil prices, leaving it with no other choice than to borrow in a bid to meet budget deficit and service existing debts.
Mele Kyari, group managing director, Nigerian National Petroleum Corporation (NNPC), at a recent media parley in Abuja said the country had to beg buyers for its crude oil at a meagre price of $9 in April this year.
According to the Central Bank of Nigeria’s latest data export for the first half of this year, the value of crude oil exports declined by 42.7 per cent and 42.2 per cent to $13.79 billion (6.6 per cent of GDP) in the first half of 2020, relative to $24.07 billion and $23.87 billion in the second and first halves of 2019, respectively.
This was attributed to the slump in crude oil prices, with the average price of Nigeria’s reference crude, the Bonny Light, falling to $39.98 per barrel during the first half period, compared with $65.69 and $68.00 per barrel in the preceding and the corresponding halves of 2019, respectively.
Today, crude oil prices have recovered from its low of US$19 per barrel in April 2020 to US$45 per barrel in November 2020; but it is yet to return to pre-pandemic levels of over US$60 per barrel as of January 2020. GDP growth in the oil sector in the third quarter remained subdued due to the OPEC restrictions on oil output.
According to Femi Adewale, an economist, diversifying the revenue base by reducing our dependence on oil is the only way out.
“Oil is our major foreign exchange earner, so if the oil price falls, we get less forex and scarcity leads to a price increase. It happened in 2015 and it is happening again now,” Adewale said.
“There is a huge gap between our import and export (balance of payments) leading to trade deficit which puts so much pressure on the naira. Get the list of top imported items from CBN and start finding ways to support its local production, one item after the other.”
Nigeria’s imports almost doubled from 2017 causing a more negative balance of payment which puts pressure on the naira.
Nigeria’s balance of payment in the third quarter of 2019 stood at N1.4 trillion; fourth quarter 2019: N579 billion; Q1 2020: N421 billion; Q2 2020: N1.8 trillion.
Non-oil receipts, which constituted the remaining 16.5 per cent of total exports, also declined significantly by 46.2 per cent and 25.9 per cent, to US$3.26 billion in the review period, compared with the $6.01 billion and $4.40 billion in the second and first halves of 2019, respectively.
The main drivers of non-oil exports included cashew nuts, cocoa beans, and sesame seeds, with The Netherlands, Ghana, Brazil, and the US as the major destinations.
A disaggregation of non-oil exports by-products revealed that agricultural, other products, manufactured, semi-manufactured and mineral products accounted for 69.1 percent, 11.2 percent, 9.1 percent, 7.0 percent and 3.5 percent of the total, respectively.
– The Cable