Yemisi Izuora
Nigeria may be heading to new economic crisis as expected fall in global oil demand may significantly reduce its revenue stream.
Though the country had made progress in recent times to diversify its economy but its major revenue earning heavily rests on oil exports.
The new report, based on research by the E3G think tank named Nigeria among oil-producing countries that could be heavily affected by the global shift away from fossil fuels because of its heavy dependence on oil revenues and limited economic diversification.
According to the report global oil demand was expected to plateau over the coming decade, with a peak likely in the early 2030s, forcing oil-producing countries to compete for a shrinking pool of buyers.
Unfortunately, this could plunge the country’s oil revenue by more than 60 per cent from 2030 as global demand for crude oil declines, heightening the risk of fiscal and economic instability in the country, a report has warned.
The decline in oil revenue is mainly linked to the expected fall in global oil demand as countries shift away from crude to renewable energy and electric vehicles.
According to earlier report by Resourcegovernance.org while advising the nation on diversifying its revenue stream, it says beyond oil, the federal government should accelerate revenue diversification through trade and domestic production, leveraging other sources of foreign exchange.
Attracting foreign exchange earnings could be done by backing enablers that add greater value to local products, offering greater support to the manufacturing sector, developing Nigeria’s critical minerals in the mining sector to leverage the green economy, boosting regional trade through the African Continental Free Trade Agreement (AfCFTA) 2020 are other ways to improve and leverage domestic production diversification for more jobs and economic growth, key goals of the Nigerian government.
The report co-authored by Tengi George Ikoli in 2022, on ‘Ending Nigerias Oil Dependence’ says Federal Ministry of Finance, Budget and National Planning should devise a comprehensive and inclusive plan with concrete and measurable milestones in collaboration with relevant Ministries, Departments and Agencies that speaks to Nigeria’s context, and accounts for both risks and opportunities to reduce oil dependence. That plan must then be implemented collaboratively. Nigerians’ opinions must be sought on the best approach to wean the country off its dependency on oil.
But the new report by E3G think tank says the cheapest producers with abundant reserves and more advanced infrastructure, including Saudi Arabia and the United Arab Emirates, were likely to maintain their position as demand weakened, while higher-cost and less diversified producers could face severe revenue losses.
The report projected that Algeria could suffer an 87 per cent decline in oil revenue, while Nigeria’s revenue could fall by more than 60 per cent from 2030.
It warned that the loss of oil income could leave affected countries struggling to fund basic public services and service their debts, potentially creating fiscal crises with wider security implications.
Beth Walker, a co-author of the report, was quoted by The Guardian as saying governments were not adequately preparing for the consequences of declining oil demand.
“Governments are not thinking about and not prepared for these outcomes. The transition becomes riskier for everyone when oil producers are left to adjust on their own and oil markets are left to manage themselves. Producer fragility becomes a global security risk,” Walker stated.
The report disclosed that oil revenue accounted for more than 40 per cent of government income in 17 countries globally, with the figure reaching between 70 and 90 per cent in countries such as Iraq and Libya.
The report states that for Nigeria, declining oil revenue could weaken the state’s capacity to provide public services and create wider economic and security challenges across Africa.
Walker said the expected problems would not necessarily come as a single global crisis but through a series of national fiscal crises that could develop into unrest, migration and security problems.
She cited Nigeria as a particular concern because of its population and influence in Africa. “Most of these problems are on a much larger scale than Venezuela, and they could all unravel just as the UK and Europe’s capacity to contain live conflicts is drained,” she said.
The report added that the global transition away from oil was already under way, with the growth of renewable energy contributing to declining oil consumption in several countries.
China, previously the dominant source of rising global oil demand, was also experiencing a downward trend in consumption, partly due to the rapid adoption of electric vehicles.
It added that India’s future oil demand remained uncertain and could become pivotal in determining how quickly global demand declines. The researchers, however, warned that delaying the energy transition would not solve the problem, given the worsening climate crisis.
“None of this is an argument for slowing the transition. A slow but chaotic transition can be just as destabilising as a fast one, maybe even more so,” another co-author of the report, Maria Pastukhova, said.
The E3G study was reportedly compiled over two years and included “war-gaming” of different scenarios involving declining oil demand with more than 100 public servants and experts from around the world.
It called for governments, the International Monetary Fund, the World Bank and private financial institutions to work together to help oil-dependent economies prepare for declining revenues