Markets

Nigeria’s Non-oil Exports and the Quest for Federalism

Published

7 years ago

July 31, 2017

Nigeria’s Non-oil Exports and the Quest for Federalism

Ugochukwu Joseph Amasike writes that devolution of powers to the states would serve as a catalyst for the development of non-oil exports, restart Nigeria’s industrialisation-drive, create jobs and strengthen the economy as a whole.

The need to diversify Nigeria’s revenue base has continued to gain traction by the day, especially in light of recent economic challenges that were largely occasioned by over-dependence on oil and gas revenue. The drastic fall in oil prices in 2015 and the consequential foreign exchange crisis it triggered, reverberated across the entire spectrum of the Nigerian economy, resulting in job-losses, inflation, and untold hardship for Nigeria’s already beleaguered masses; and ultimately lead to Nigeria’s first economic recession in a quarter of a century. It is generally known that over 70% of government revenue comes from the oil and gas sector, this fact puts Nigeria in a precarious situation, especially in view of emerging global trends that is characterised by a shift away from traditional forms of fossil-fuel based energy, to alternative energy sources, thus under-scoring the critical need for Nigeria to rapidly diversify its revenue base.

It is pertinent to note that contrary to the general impression that the economy requires diversification, what is in fact required is the diversification of Nigeria’s sources of income, and the strengthening of the non-oil sectors of the economy.

This submission is highlighted by a 2016 World Bank report which revealed that the Nigerian oil and gas sector accounts for only eleven percent (11%) of Nigeria’s gross domestic product and employs less than three percent (3%) of Nigeria’s working population, yet disproportionately accounts for more than 90% of foreign exchange earnings. In light of this fact the need for a strategic alternative to oil and gas revenue cannot be over-emphasised. To this end there should be a conscious and deliberate effort on the part of the government to develop the non-oil export sector of the economy and to achieve this there is need to undertake institutional and regulatory reforms necessary to eliminate structures that impede the development of the economy and by extension the non-oil export sector.

It is suggested that incidental to these reforms is the amendment of the fiscal provisions of the 1999 Constitution and other subsidiary legislations, with a view to devolving economic power to the states, in order to encourage and enable their participation in the goal of diversifying the nation’s revenue base. The reality of the Nigerian situation is that the production activities of exporters occurs within the business landscape of the states, thus highlighting the importance of the states in the effort to diversify the nation’s revenue base and for the states to meaningfully contribute; they must do so as unhindered economic agents, not as incapacitated dependent appendages of the government at the centre.

The 1999 Constitution which was bequeathed to Nigeria by its erstwhile military dictators imposed on Nigeria a unitary system, which is today, dishonestly passed off as a federal system by some, in their desperate bid to maintain a status quo that feathers their nests.

The fiscal provisions of the Constitution which concentrates all economic power in the government at the centre is the chief obstacle to the sensible desire and drive to diversify Nigeria’s revenue base, because rather than leverage on the combined capacity of Nigeria’s 36 states, it shackles them and transforms them into dead-weight that hinders the nation’s quest for economic development.

It is noteworthy that Nigeria’s golden economic era in the 50’s and 60’s was largely non-oil export driven, with agro-industrial complexes across the then three nay four federating regions. The then regions, unrestrained by a suffocating unitary structure harnessed their respective comparative advantages, to finance and develop infrastructure, provide social services and aid the rapid growth of the national economy and concurrently facilitated the creation of a diversified revenue base for the nation. This state of affairs was made possible only as a result of the equitable and broad distribution of economic power to the regions by the Republican Constitution of 1963, which permitted the regions to exploit their resources, remitting fifty percent of all revenue generated from their respective region to the central government and retaining the remaining percentage for their upkeep.

However, today, Nigeria’s federating units are glorified appendages and outposts of the federal government, and are constantly locked in a desperate, never-ending struggle for the dwindling revenue generated from the oil and gas sector. If this unhealthy state of affairs is to change, then Nigeria must grow its non-oil exports, and if that is to be accomplished, then the current administration will have to implement its manifesto and as promised, “initiate action to amend our constitution with a view to devolving powers, duties and responsibilities to state and local governments in order to entrench true federalism and the federal spirit.”

The devolution of power to states would serve as a catalyst for the development of non-oil exports, restart Nigeria’s industrialisation-drive, create jobs, strengthen the economy, and expand the nation’s income streams, whilst engendering sustainable economic growth through greater exports and import-substitution, and simultaneously transforming Nigeria from a seemingly mono-product economy, to a full-fledged industrial economy.

It is prayed that Nigeria’s leadership will see the urgent need to take the ostensibly hard decision of devolving economic power to the states in order to deliver Nigeria from poverty and under-development and to usher in a new era of economic growth and prosperity for Nigeria and Nigerians.

– Amasike, a Lawyer, wrote from Abuja

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Samed Olukoya

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Oil Prices Climb on Renewed Middle East Concerns and Saudi Supply Signals

Published

2 days ago

May 6, 2024

Samed Olukoya

As global markets continue to navigate through geopolitical uncertainties, oil prices rose on Monday on renewed concerns in the Middle East and signals from Saudi Arabia regarding its crude supply.

Brent crude oil, against which Nigeria’s oil is priced, surged by 51 cents to $83.47 a barrel while U.S. West Texas Intermediate crude oil rose by 53 cents to $78.64 a barrel.

The recent escalation in tensions between Israel and Hamas has amplified fears of a widening conflict in the key oil-producing region, prompting investors to closely monitor developments.

Talks for a ceasefire in Gaza have been underway, but prospects for a deal appeared slim as Hamas reiterated its demand for an end to the war in exchange for the release of hostages, a demand rejected by Israeli Prime Minister Benjamin Netanyahu.

The uncertainty surrounding the conflict was further exacerbated on Monday when Israel’s military called on Palestinian civilians to evacuate Rafah as part of a ‘limited scope’ operation, sparking concerns of a potential ground assault.

Analysts warned that such developments risk derailing ceasefire negotiations and reigniting geopolitical tensions in the Middle East.

Adding to the bullish sentiment, Saudi Arabia announced an increase in the official selling prices (OSPs) for its crude sold to Asia, Northwest Europe, and the Mediterranean in June.

This move signaled the kingdom’s anticipation of strong demand during the summer months and contributed to the upward pressure on oil prices.

The uptick in prices comes after both Brent and WTI crude futures posted their steepest weekly losses in three months last week, reflecting concerns over weak U.S. jobs data and the timing of a potential Federal Reserve interest rate cut.

However, with most of the long positions in oil cleared last week, analysts suggest that the risks are skewed towards a rebound in prices in the early part of this week, particularly for WTI prices towards the $80 mark.

Meanwhile, in China, the world’s largest crude importer, services activity remained in expansionary territory for the 16th consecutive month, signaling a sustained economic recovery.

Also, U.S. energy companies reduced the number of oil and natural gas rigs operating for the second consecutive week, indicating a potential tightening of supply in the near term.

As global markets continue to navigate through geopolitical uncertainties and supply dynamics, investors remain vigilant, closely monitoring developments in the Middle East and their impact on oil prices.

Crude Oil

Oil Prices Drop Sharply, Marking Steepest Weekly Decline in Three Months

Published

4 days ago

May 4, 2024

Samed Olukoya

Amidst concerns over weak U.S. jobs data and the potential timing of a Federal Reserve interest rate cut, oil prices record its sharpest weekly decline in three months.

Brent crude oil, against which Nigerian oil is priced, settled 71 cents lower to close at $82.96 a barrel.

Similarly, U.S. West Texas Intermediate crude oil fell 84 cents, or 1.06% to end the week at $78.11 a barrel.

The primary driver behind this decline was investor apprehension regarding the impact of sustained borrowing costs on the U.S. economy, the world’s foremost oil consumer. These concerns were amplified after the Federal Reserve opted to maintain interest rates at their current levels this week.

Throughout the week, Brent experienced a decline of over 7%, while WTI dropped by 6.8%.

The slowdown in U.S. job growth, revealed in April’s data, coupled with a cooling annual wage gain, intensified expectations among traders for a potential interest rate cut by the U.S. central bank.

Tim Snyder, an economist at Matador Economics, noted that while the economy is experiencing a slight deceleration, the data presents a pathway for the Fed to enact at least one rate cut this year.

The Fed’s decision to keep rates unchanged this week, despite acknowledging elevated inflation levels, has prompted a reassessment of the anticipated timing for potential rate cuts, according to Giovanni Staunovo, an analyst at UBS.

Higher interest rates typically exert downward pressure on economic activity and can dampen oil demand.

Also, U.S. energy companies reduced the number of oil and natural gas rigs for the second consecutive week, reaching the lowest count since January 2022, as reported by Baker Hughes.

The oil and gas rig count fell by eight to 605, with the number of oil rigs dropping by seven to 499, the most significant weekly decline since November 2023.

Meanwhile, geopolitical tensions surrounding the Israel-Hamas conflict have somewhat eased as discussions for a temporary ceasefire progress with international mediators.

Looking ahead, the next meeting of OPEC+ oil producers is scheduled for June 1, where the group may consider extending voluntary oil output cuts beyond June if global oil demand fails to pick up.

In light of these developments, money managers reduced their net long U.S. crude futures and options positions in the week leading up to April 30, according to the U.S. Commodity Futures Trading Commission (CFTC).

Crude Oil

Oil Prices Rebound After Three Days of Losses

Published

6 days ago

May 2, 2024

Samed Olukoya

After enduring a three-day decline, oil prices recovered on Thursday, offering a glimmer of hope to investors amid a volatile market landscape.

The rebound was fueled by a combination of factors ranging from geopolitical developments to supply concerns.

Brent crude oil, against which Nigeria oil is priced, surged by 79 cents, or 0.95% to $84.23 a barrel while U.S. West Texas Intermediate (WTI) crude climbed 69 cents, or 0.87% to $79.69 per barrel.

This turnaround came on the heels of a significant downturn that had pushed prices to their lowest levels since mid-March.

The recent slump in oil prices was primarily attributed to a confluence of factors, including the U.S. Federal Reserve’s decision to maintain interest rates and concerns surrounding stubborn inflation, which could potentially dampen economic growth and limit oil demand.

Also, unexpected data from the Energy Information Administration (EIA) revealing a substantial increase in U.S. crude inventories added further pressure on oil prices.

“The updated inventory statistics were probably the most salient price driver over the course of yesterday’s trading session,” said Tamas Varga, an analyst at PVM.

Crude inventories surged by 7.3 million barrels to 460.9 million barrels, significantly exceeding analysts’ expectations and casting a shadow over market sentiment.

However, the tide began to turn as ceasefire talks between Israel and Hamas gained traction, offering a glimmer of hope for stability in the volatile Middle East region.

The prospect of a ceasefire agreement, spearheaded by Egypt, injected optimism into the market, offsetting concerns surrounding geopolitical tensions.

“As the impact of the U.S. crude stock build and the Fed signaling higher-for-longer rates is close to being fully baked in, attention will turn towards the outcome of the Gaza talks,” noted Vandana Hari, founder of Vanda Insights.

The potential for a resolution in the Israel-Hamas conflict provided a ray of hope, contributing to the positive momentum in oil markets.

Despite the optimism surrounding ceasefire talks, tensions in the Middle East remain palpable, with Israeli Prime Minister Benjamin Netanyahu reiterating plans for a military offensive in the southern Gaza city of Rafah.

The precarious geopolitical climate continues to underpin volatility in oil markets, reminding investors of the inherent risks associated with the commodity.

In addition to geopolitical developments, speculation regarding U.S. government buying for strategic reserves added further support to oil prices.

With the U.S. expressing intentions to replenish the Strategic Petroleum Reserve (SPR) at prices below $79 a barrel, market participants closely monitored price movements, anticipating potential intervention to stabilize prices.

“The oil market was supported by speculation that if WTI falls below $79, the U.S. will move to build up its strategic reserves,” highlighted Hiroyuki Kikukawa, president of NS Trading, owned by Nissan Securities.

As oil markets navigate a complex web of geopolitical uncertainties and supply dynamics, the recent rebound underscores the resilience of the commodity in the face of adversity.

While challenges persist, the renewed optimism offers a ray of hope for stability and growth in the oil sector, providing investors with a semblance of confidence amidst a volatile landscape.