Investment strategy for economic efficient Nigerian oil sector
THE NATION’S LOW PRO DUCTIVITY level or gross domestic products (GDP) from all the commercial and economic activities in the country is a clear indication that a very big vacuum exists within its market economy. Presently, Nigeria produces virtually nothing in the oil sector in the form of refined petroleum products. From the monthly economic calculation records, the daily consumption expenditure on refined products (petrol precisely), is approximately N165 multiplied by 60 million liters of product (by NNPC/ PPMC figures), plus the monthly under recovery expenditure of N120 billion for petroleum subsidy by the Nigerian National Petroleum Corporation (NNPC). This figure roughly comes to about N417 billion (using a 30 days figure per month). In one year, this comes to a total figure of N5.004 trillion.
This N5.004 trillion is a reflection of Nigeria’s estimated total annual “Consumer Expenditure” on petrol alone. This amount spent is a significant figure when compared with the nation’s budget for 2021; N13.6 trillion+. Referring to Reuters’ report of 21st December 2020, Nigeria’s parliament approved the government’s 2021 budget of 13.6 trillion naira ($35.66 billion), assuming 3% annual economic growth, oil prices of $40 a barrel and 1.86 million barrels a day of crude production. This gives an estimate of about 36.8% of the nation’s budget.
From the analysis made, this singular expenditure is so significant that more than one third of the nation’s budget is being spent on just one imported perishable item into the economy! The annoying aspect of it is that Nigeria, as an oil rich country, exports the raw material (crude oil) to those countries from where petrol is imported! The GDP is known as a common denominator of factors like, imported items (IM), investment (I), expenditures of the government (GE) and that of consumers (CE) (looking at it mathematically as, I + GE + CE IM = GDP). Can one imagine the impact of this 36.8% of the annual budget utilized on importation of PMS, if spent as capital expenditure, while we internally sustain our daily care for petrol consumption by sourcing this refined petroleum product locally?
The present national GDP profile, which is less than 10% of the total consumed goods, is made up of 90%+ of imported goods into the economy. This 36.8% proportion on imported petrol would skyrocket the GDP to an all time high of 47% if petrol becomes a locally refined item, to bring down the total imported items (from 90%+ to something in the neighborhood of 54%); by the same proportion of 36.8% on the imported petrol. Applying business growth strategy for an improved national income, requires that government promotes and encourages investors to key into local refining of petroleum products, to enhance productivity/GDP rise, and reduce the importation gap created by not optimally utilizing the unemployed potential capital stock (crude oil) for local production of petroleum products. Economic growth among businesses (government and individual investors alike) ought to be managed in a manner that excessive financial involvements are cut down to the barest minimum because, good investment strategy under any circumstance, should be considered alien to wasteful spendings (inclusive of unnecessary overheads and other financial charges).
This is yet another dimension of the failure to achieve national economic efficiency due to low GDP that keeps plunging the national economy deeper, just like the oil sector’s plagued policy of petroleum subsidy. What is needed are proactive measures to checkmate the unending cycle of this low productivity in the economy that can drastically reduce imports.
Business ventures are legitimized economic activities that deploy limited resources to achieve organisational objectives with an ultimate aim to make profit (financial gains) after delivery of goods for supply or services rendered. From human psychology on social interaction about economic activities, the profit or financial gain made, is the major attractive driving force that further sustains a continued reoccurring efforts put in, towards achieving “growth”. New investors should leverage the performance advantages on unused and available national output capacity, which is substantially unattended to. The essence being to fill up the huge remaining gap on the national output to impact positively on national economic efficiency.
New entrants to the oil sector can strive to make real progress and record substantial financial breakthroughs, now that crude oil resource is still relevant in the global energy equation; while the local currency is continuously depreciating in value. Such development will go a long way in improving the lives of the citizens through wealth creation and energy security, through seamless running of daily economic and commercial activities within the available space in the economy.
Nwachukwu, a graduate of pure and applied chemistry with an MBA in management, is an Onitsha based industrialist, a fellow of ICCON, and vice president, finance, Onitsha Chamber of Commerce.
Sunny Chuba Nwachukwu (FICCON, LS) Onitsha, +2348033182105