OPEC Deal Good For Oil-Dependent Nigeria, But Its Economy Needs To Diversify

OPEC Deal Good For Oil-Dependent Nigeria, But Its Economy Needs To Diversify

Low oil prices oil-dependent
A new OPEC deal to cut output is good for oil-dependent Nigeria, but its economy needs to diversify to become less dependent on volatile oil prices. Image: African Energy Chamber

Nigeria is Africa’s largest oil producer, and its over-dependence on oil continues to hinder economic growth in the West African country.

Nigeria has not been able to translate its oil wealth into rising living standards for its growing population of around 205 million people.

In 2018, Nigeria overtook India as the country with the largest population of people living in extreme poverty, with 87 million citizens living on less than $1.90 a day (compared to 73 million people in India), according to The Brookings Institution.

That is expected to grow to 100 million Nigerians in extreme poverty by 2022, Africa Portal reports.

The Organization of the Petroleum Exporting Countries (OPEC) — of which Nigeria is a member — agreed on April 12 to cut global oil output by 9.7 million barrels a day in May and June, according to CNN.

This is a positive move for Nigeria. Oil prices are expected to steadily rise once the coronavirus shutdowns and travel restrictions are lifted and global demand returns.

The price of Brent crude oil was $23.75 per barrel on April 21, down 67 percent versus the same time in 2019.

Nigeria’s over-dependence on oil has been a problem for years. This was exposed once again in early April when the oil price slumped due to reduced global demand.

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Global travel restrictions and stay-at-home orders imposed to try and stop the spread of the deadly coronavirus have translated into less oil needed to fuel cars and planes.

Oil consumption in the U.S. — the world’s largest consumer of oil — has dropped by a third, according to Reuters. Global demand is down by 30 percent.

The price of Brent crude oil fell to around $20 a barrel at the end of March, the lowest level since 2002, CNBC reported.

That oil price collapse meant that Nigeria, Africa’s largest oil producer, was projected to suffer economic losses of around $15.4 billion, representing about 4 percent of the country’s GDP, according to the Atlantic Council.

The country planned for an oil price of $57 in 2020, not the slashed prices of around $22 per barrel.

Diversification of Africa’s largest economy is necessary for Nigeria to become less dependent on oil, according to the World Bank.

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Agriculture is a major Nigerian sector which employs two-thirds of the entire workforce.

Dealing with issues including poor access to markets, the high cost of farming inputs, outdated land tenure systems, and inadequate storage facilities could make Nigeria’s agriculture sector more productive, according to the U.N.’s Food and Agriculture Organization.

Nigeria exports around 780 mineral resources that are naturally found in the country, the World Bank reports.

Expanding the ability to process raw materials like iron ore and manufacture finished goods can turn Nigeria into a country capable of manufacturing and exporting goods. Nigeria could manufacture car parts, for example, rather than just exporting the materials needed to manufacture them.