Nigeria’s revenue from the oil sector dropped by 60 per cent to N308.07 billion in February 2023, according to the Central Bank of Nigeria Monthly Economic Report.
The report, released on Thursday, showed that the country’s revenue from the oil sector slipped from N774.15 billion in January to N308.07 billion in February, reflecting the volatility and vulnerability of Nigeria’s economy to global oil price fluctuations.
The trend worsened with a similar drop in non-oil revenue, which declined by 3.7 per cent to N730.2 billion during the period.
As a result, revenue accruing to the Federation Account in February declined by 32.3 per cent to N1.038 trillion, below the budget of N1.580 trillion by 34.3 per cent.
The report attributed the decline to a fall in collections from Petroleum Profit Tax and Royalties, which decreased by 60.5 per cent in February.
The report also stated that the fiscal deficit of the Federal Government rose by 22.8 per cent to N513.05 billion in February, due to an increase in recurrent and capital expenditures.
Nigeria’s dependence on crude oil makes its economy vulnerable to external shocks and exposes it to the “resource curse” phenomenon, which refers to the paradoxical situation where countries with abundant natural resources tend to have lower growth and development than those without.
According to experts, some of the causes and effects of the resource curse in Nigeria include:
- Poor governance and weak institutions that fail to manage the oil revenues transparently and accountably, leading to corruption, waste and misallocation of resources.
- Lack of diversification and industrialization of the economy, resulting in over-reliance on oil exports and neglect of other productive sectors such as agriculture, manufacturing and services.
- Dutch disease effect, whereby the appreciation of the local currency due to oil inflows reduces the competitiveness of non-oil exports and discourages domestic production.
- Environmental degradation and social conflicts arising from oil exploration and exploitation activities, especially in the Niger Delta region, where oil spills, gas flaring and pipeline vandalism have caused pollution, health problems and violence.
- Revenue instability and unpredictability due to fluctuations in global oil prices and demand, which affect government budget planning and execution, as well as macroeconomic stability.
To overcome the resource curse and achieve sustainable development, Nigeria needs to implement comprehensive reforms in its oil sector and diversify its economy.
Some of these reforms include:
- Strengthening the regulatory framework and institutions for managing the oil sector, such as the Nigerian National Petroleum Corporation (NNPC), the Nigerian Extractive Industries Transparency Initiative (NEITI) and the Petroleum Industry Bill (PIB).
- Enhancing transparency and accountability in the collection and allocation of oil revenues, as well as ensuring effective oversight by the National Assembly, civil society and media.
- Promoting local content development and value addition in the oil sector, by encouraging domestic participation and investment in upstream, midstream and downstream activities.
- Investing in renewable energy sources such as solar, wind, hydro and biomass, which can reduce dependence on fossil fuels and lower greenhouse gas emissions.
- Diversifying the economy by developing other sectors such as agriculture, ICT, creative industries, tourism and manufacturing, which can create jobs, income and export opportunities for Nigerians.
- Improving infrastructure and human capital development by allocating more resources to education, health, power, transport and water sectors, which can enhance productivity and competitiveness of the economy.
- Addressing environmental and social issues related to oil operations, by enforcing environmental standards and regulations, compensating affected communities and resolving conflicts peacefully.