Declining Oil Revenue: Time for Purposeful Agric Sector Reforms

crude oil exploration

BEVERLY HILLS, May 16, (THEWILL) – The challenges arising from Nigeria’s over-dependence on oil have brought to the fore the urgent need to diversify the economy through agriculture as the nation’s revenue challenge worsens. The talks about agriculture sector reforms have filled the media space over the years. It is high time the nation moved to actualise the scheme through purposeful and aggressive actions in that sector.

 

Beginning of A Smooth Journey of Pains

Oil, which was first discovered in 1956 in Oloibiri, Bayelsa State, has since the 1970s, when it created a boom in Nigeria’s economy, remained the mainstay of the nation’s economy contributing about 80 percent of her revenue. This is by no means a small impact. It suggests that the economic development we have recorded as a nation since then, including the building of Abuja as the nation’s capital (from a virgin land), is attributed to oil.

As a result of the oil boom, Nigeria now depends almost solely on the commodity as the source of her foreign exchange earnings. Money generated from oil is used to finance about 70 percent of the country’s annual budget. Indeed, everything regarding foreign exchange earnings and spending in the country revolves around oil, thereby placing the country on the perils of a mono-economy.

Today, Nigeria is the largest oil producing nation in Africa and 11th in the world, exporting mainly to Europe, Asia and America. According to reports, Europe has been Nigeria’s main trade partner of crude oil, even during the COVID-19 pandemic. In the fourth quarter of 2020, the export value of crude oil to Europe amounted to about N853 billion, approximately 2 billion U.S. dollars.

Overall, the exports of crude oil experienced a sharp fall in the second quarter of 2020. The country’s economy was significantly impacted by the COVID-19 pandemic during the period. Oil prices experienced a sharp fall due to an attendant low demand amid the country’s decreasing daily crude oil production.

 

Counting the Cost

Rather than being a blessing to Nigeria, oil is now seen as a curse.  The managers of the country’s resources have continued to mismanage the proceeds, leaving the citizens to wallow in abject poverty. The result includes dilapidated road networks, no electricity, poor health care facilities and a poor educational system.  To worsen the situation, there is a high unemployment rate and galloping inflation, coupled with the hydra-headed insecurity challenge across the country. Protests and agitations for better welfare are frequently registered virtually in every sector of the economy.

Unfortunately, Nigeria’s over-dependence on the commodity has made her so vulnerable to any price shock in the international oil market. In the last decade, the country experienced two recessions between 2014 and 2020 which created untold hardship for the citizens. This was mainly as a result of oil price shock in the international market which resonated at home.

The COVID-19 pandemic has also impacted severely on Nigeria as oil prices dipped in the international market, thus contracting the nation’s revenue in such a way that allocation to the three tiers of government dropped sharply.

During this period, Nigeria recorded low oil sales in the international market as prices of crude crashed to the lowest point per barrel, making the country to witness a drastic reduction in foreign exchange earnings, as already highlighted.

Nigeria’s crude oil production was reported at 1,481.000 barrel/day in March 2021. This is an increase from the previous figure of 1,474.000 barrel/day for Feb 2021. All the same, there is little to cheer about this because the figures remained on the low level.

Similarly, available data from relevant sources shows that from April 2020, Nigeria’s oil production continued to be on the decline– from a record high of 1.7 million barrels per day (bpd) in April 2020. Since then, it has been on the downward trajectory to as low as 1.3m bpd in November 2020 and 1.3m bpd in January 2021. It managed to climb to 1.4m bpd in March 2021.

 

Time for a Shift

The low figures, largely due to COVID-19, aggravated the concerns of citizens, who pointed out that the country cannot continue to depend on oil for her foreign exchange earnings and to grow the economy. They agree there should be a paradigm shift.

Furthermore, there are fears that many of the industrialised countries that import Nigeria’s oil are beginning to look for alternative supply sources to power their plants and drive their automobiles.  The coming of electric cars, which will have no need for fossil fuel, is a pointer to the fact that Nigeria’s oil will soon witness less patronage in the international market. Indeed, there are reports that some countries have started developing cars that run on electricity, targeting between years 2030-2050 for its actualisation.

Additionally, the Department of Petroleum Resources has advised the Federal Government to intensify the search for other sources of revenue as it predicts a total depletion of the nation’s oil reserves in 49 years at the current level of production.

 

Then, the Question

With all this in perspective, the question then will be what steps is the government taking to shore up the economy without oil in the coming years? There is no choice other than to diversify the economy towards a strategic agricultural reform that targets industrialisation, employment and backward integration.

Other areas to explore include aviation, textile, mining, information technology, telecommunication, manufacturing, tourism and many others. But agriculture remains a priority because of its strategic position in our economic development.

The emphasis on the agricultural sector is mainly due to its value chain. Again,the country is blessed with vast arable land and good weather for cultivation of crops. This makes the way for mechanised farming fluid. Mechanised agriculture will enhance productivity, create employment and boost foreign exchange earnings.

Obviously adequate focus on agriculture will also ensure food security in the country and conserve foreign exchange spent on food importation.  It will provide raw materials for local manufacturers and for export as mentioned.

When job increase occurs, it will lead to development in other sectors through its value chain. This was the case in Nigeria in the 1960s, prior to the oil boom. The agricultural commodities that sustained the economy then still abound today.  They include cassava, yam, cocoyam, maize, sorghum, millet, cowpea and groundnut.  Others are cocoa, oil produce, cotton, groundnuts, ginger and sesame.

Similarly, potatoes, rubber, shea-nut, cashew nut, groundnut, guinea corn, cowpeas, rice, corn have maintained their relevance. The country should shift attention to these commodities to boost employment, earn revenue and begin the process of industrialisation.

 

Data, and Data

It is on record that agriculture played a crucial role in pulling Nigeria out of the last recession.  For example, Crop Production’s GDP grew in the 4th quarter of 2020  by 3.42 percent compared to 1.39 percent in the previous quarter — nearly double quarter-on-quarter.

From Q3 of 2019 to Q4 2020, the contribution of the agric sector has been hovered between 29-26 percent. In Q3 2019 it was 29.25 percent,and thendropped to 26.09 percent Q4 2019. In Q2 2020 it went down further to 24.65 percent, Q3 2020 witnessed the highest rise to 30.77 percent and dropped again to 26.95 percent in Q4 2020. This shows that the potential is still there.

Adding value by processing before export will boost revenue earning of the country. This is where the Standards Organisation of Nigeria comes in to certify and ensure that these processed crops meet international standards to compete favourably in the international market.

Nigeria could take advantage of the African Continental Free Trade Area to penetrate the African food market. Relevant previous and current programmes meant to boost agriculture should be revisited and the necessary reforms introduced. The focus should be to boost local production, feed manufacturing companies, fill the relevant value chain gap, and meet international standards for export.

However, before Nigeria can reap the benefits of this agricultural revolution, efforts must be intensified to address the lingering infrastructure deficit, such as poor electricity and bad road network. Engaging technology-based windows to address storage, processing is imperative. Of course, development of human capital along that line should be part of the paradigm shift