In the letter of intent submitted by the Nigerian government to the International Monetary Fund (IMF) requesting for assistance to tackle the impacts of the Covid-19 pandemic on its economy. The government highlighted three key decisions it would undertake as part of efforts to kickstart the much-clamoured need for economic reforms.
First was the removal of petroleum subsidy which the Group Managing Director of the Nigeria National Petroleum Corporation (NNPC) announced a week ago. Second is the reduction of federal government workforce through the implementation of the Orosanye Report which will see to the collapsing of agencies, especially those whose mandates overlap. Third, which many say will be harder, is the floating of the exchange rate of the naira, which may lead to the abolishment of the multiple exchange rates.
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These formed the basis of engagement with the IMF because the global lender has been pressuring the Nigerian government on these issues for over a decade running. Interestingly, the government chose to embark of the much needed reforms on a bended knee.
One organization that has been at the forefront of bringing the need for economic reforms to the attention of the government and stakeholders is the Nigerian Natural Resources Charter (NNRC). The NNRC, a not for profit policy institute that champions the need to ensure that Nigeria’s natural resource wealth is utilised in ways that it will be for general good of the citizenry has urged the Nigerian government to act quickly on a number of reform items, long on the drawing board, if the country “is to minimize the effects of the inevitable recession contributed by falling oil prices, depreciating revenues, and rising debt ratio,” that are aggravated by the rampaging global pandemic known as the Novel Coronavirus Disease 2019 (COVID-19 for short).
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Drawing on the the gaps identified in its recently published 2019 Benchmarking Exercise Report (BER), the Charter acknowledges the government’s recent steps; “to deregulate the downstream sector, re-open bid rounds of marginal fields, cut the 2020 budget, contemplate privatization of the refineries and others”.
But “to optimize the opportunities from oil and gas exploitation to withstand the prevailing COVID-19 shocks and its after effects”, the Charter urges, “Nigeria must consider the following policy options to stabilize the sector, maintain revenue flows, attract investment and drive growth. To achieve this, the group calls for the maintainpeace and stability in the Niger Delta to sustain revenue flows from oil production. Sustaining benefit transfer schemes by NDDC, MNDA and other interventions will support the government’s stabilization efforts.
It also demands for improved coordination between federal and Niger Delta state governments on the response to the COVID-19 pandemic including the design and implementation of stimulus plans and liberalize the downstream sector to allow market forces determine pump prices for petroleum and other products. This will ensure the availability of revenues necessary for more critical areas of the economy. Equally important on its menu is the need to improve the efficiency of the downstream oil sector by reviewing its policies, regulations and operational guidelines to ensure profitability, improved private sector participation and improved employment, especially at a time job losses have become the order of the day.
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And to ensure that Nigeria doesn’t find itself in a situation where it would be going cap in hand from one multilateral organization to another begging for funds to mend its leaky roof in the next rainy day, the NNRC calls for the adoption and constitutionalization of a savings mechanism with clear and transparent operational rules. This, it emphasises, could be by retaining the more effective sovereign wealth fund (SWF) in the NSIA and transferring funds from the Excess Crude Account, the stabilization fund and other similar funds to the SWF. This will help fortify the Nigerian economy from oil price volatilities and other economic shocks.
To aid the economic diversification dream, it calls for the ramping up of, and prioritizing domestic gas-based industrialization projects, to diversify Nigeria’s energy supply, increase local employment and reduce domestic demand and Nigeria’s reliance on oil and to support a major and urgent shift to gas in terms of investment focus. Gas supply to domestic market for power, industrial & manufacturing feedstock and enabler to economic development. Emphatic shift to the gas value chain offers Nigeria the leverage for socio-economic development in the medium to long term.
Nigeria, according to experts, will not have full benefits of its natural resource wealth, especially oil and gas if the Petroleum Industry Bill (PIB) is not passed and signed into law. The Bill which unfortunately, has become a contentious issue between government and stakeholders going to two decades holds the key to Nigeria’s economic growth. To this end, the need to fast-track the passage of the Bill to bring about the fiscal, governance and regulatory clarity required to monetize Nigeria’s 200 Trillion cubic feet of gas reserves cannot be overstated.
A speedy passage of the Petroleum Industry Bill will provide a clearer strategic direction to the entire industry, re-engender trust, thereby increasing investments which will in turn increase national revenues required for development. It will also help for the review of the existing fiscal framework to ensure competitiveness and support Nigeria’s ability to attract investments into the upstream sector, effectively shoring up Nigeria’s diminished reserves.
The PIB will institutionalize cost management strategies within the sector with the overall objective of reducing the high unit production cost of crude thereby improving governments revenue from the sector. And immediately privatize refineries as stated by NNPC to improve Nigeria’s access to finished products in country, reducing potential for over reliance on external support for products, to preserve Nigeria’s sovereignty. The need for immediate sell off of unviable government owned oil assets to raise revenue and boost efficiency in the short to medium term is of utmost importance.
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“Adopting these reforms will improve Nigeria’s competitiveness, revenue inflows and improve her ability to survive and subsequently recover from the effects of COVID-19 on the global economy”, so says the NNRC Program Coordinator, Tengi George-Ikoli, asking that the government be consultative in its approach to reforms, transparent and inclusive to increase likelihood of acceptance and implementation.
“Prioritizing these reforms are necessary while Nigeria considers other medium to long term reform plans simultaneously. The NNRC’s 2019 Benchmarking Exercise Report (BER) outlines other sector gaps to be focused on in the medium to long term to improve Nigeria’s oil sector performance”, she added.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry