Nigeria’s oil sector, once the powerhouse of the nation’s economy, is now grappling with an unprecedented decline in foreign direct investment (FDI).
This downturn has seen FDI plummet from billions of dollars to mere millions.
In the first half of 2023, FDI in Nigeria’s oil industry fell to less than half a billion dollars, compared to the $22.5 billion recorded in 2019.
The once vibrant inflows, driven by international companies eager to exploit Nigeria’s vast oil and gas reserves, have dwindled to a trickle.
The country attracted the largest amount of FDI in Africa in 2014, with inflows exceeding $22.1 billion.
This period of significant investment fueled major projects, including deepwater exploration and the development of new oil fields. However, the landscape has dramatically changed since then.
Carlos Hardenberg, lead portfolio manager of Templeton Emerging Markets Investment Trust, described the collapse as “the perfect storm of falling oil prices.”
The naira depreciated, investors withdrew, and militants in the Niger Delta region escalated their activities, demanding a larger share of the nation’s energy wealth.
Compounding these issues, oil majors such as Shell, ExxonMobil, Eni, and TotalEnergies have exited Nigeria, leaving behind a vacuum that local operators struggle to fill.
The impact of large-scale theft, vandalism, and decades of underinvestment in infrastructure has been devastating.
In April 2023, Nigeria’s oil production fell below one million barrels per day, far short of its 1.8 million barrels per day quota from the Organization of the Petroleum Exporting Countries (OPEC).
March 2023 saw a slight improvement with production rising to 1.23 million barrels per day.
However, experts argue that stabilizing production at two million barrels per day requires $25 billion in annual investments.
Austin Avuru, executive chairman of AA Holdings, stated this during a recent event at the Harvard Business School.
Despite these challenges, the second quarter of 2023 marked a historic low, with zero FDI recorded in the oil sector.
This is the first time on record that Nigeria’s oil industry has failed to attract any foreign investment within a quarter. In the first quarter, FDI stood at a mere $750,000.
Industry insiders point to a series of missteps and political interference in asset sales, which have led to corruption, mismanagement, and the sector’s underperformance.
Avuru noted that political connections, rather than capacity, have often determined the allocation of assets, resulting in prolonged transitions and neglected infrastructure.
