Nigeria’s Export Receipt Declining, GDP Growth Threatens

Nigeria’s Export Receipt Declining, GDP Growth Threatens

In Nigeria, there is a strong connection between oil revenue receipts and economic growth due to over reliance on hydrocarbon exports. Other than hydrocarbon export receipts, Nigeria’s non-oil revenue remains unimpressive to fund an economy with about $450 billion gross domestic product size.

Now, Nigeria has given up as the leading exporter of crude oil in Africa due to non-performance. As a result, the fiscal gap has widened while Federal Government revenue was 56% below target in the first half on pro-rata basis.

Due to the latest development in the market, analysts have projected a bleak outlook for the Nigerian economy as oil production touches a new low – higher crude theft and weak investment in the sector being key drivers.

In the first half of 2022, Budget Office reported that Nigeria’s revenue dipped significantly from expectation, thus widening fiscal deficit on a pro-rata basis.

Oil accounts for large chunk of Nigeria’s export receipt but there have been pressures on production level at the time when uncertainties have mounted on global oil prices.

Crude prices were down by more than 5% this week, giving back about half of the past two weeks gains, following the latest reports for the U.S. inflation and retail sales, which showed that the central bank was barely winning in its year-long battle against the increasing price pressure.

The U.S. inflation data released on Thursday came in higher than expected, and growing expectations that the Fed will hike interest rates by 75% bps during its next meeting. Thus, the Brent decreased by 6.42% in the week to close at $91.63 per barrel, while the WTI also plunged by 7.59% to close at $85.61.

The latest report shows that Nigeria’s crude oil production continues to touch new lows, declining for the third consecutive month in September, a number of industry reports show.

According to the Nigerian Upstream Regulatory Commission, aggregate crude oil production (including condensates) declined by 3.6% month on month to 1.14 million barrels per day in September compared to 1.18mbpd in August – the lowest level since at least 1990.

The Organisation of Petroleum Exporting Countries reported that Nigeria has not been meetings its quota, making Angola becomes to exporter of crude in the Africa region.

According to Cordros Capital analysts, the persistent low crude oil production volume reflects the pass-through impact of infrastructure decay, massive oil theft and pipeline sabotage, and International Oil Companies’ divestments, given the challenging business environment and the move to cleaner energy sources.

Nigeria’s crude oil production declined significantly across the Bonny, Forcados and Escravos production terminals.  In September 2022 production from Bonny declined by more than 77%, Forcados was 73.4% behind targets while Escravos pushed higher by more than 17%.

Cordros Capital said the consistent low crude oil production volume suggests that the oil gross domestic product (GDP) could drag overall growth in 2022 amid the continued resilience of the non-oil sector.

“… We do not expect a significant improvement in crude oil production over the short term, given the nature of challenges hampering production. Despite the rally in crude oil prices, we expect the government’s oil revenue performance to remain underwhelming over the short term”. READ:Price Instability Threatens CBN’s Single Digit Inflation Target

In the World Economic Outlook, the International Monetary Fund (IMF) lowered its growth projection for Nigeria by 0.2 percentage points apiece for 2022 and 2023 to 3.2% year on year and 3.0% year on year, respectively.

Analysts noted that the downward forecast primarily reflects tighter monetary conditions, lower trading partners’ growth, low oil inflows amid reduced crude oil production, and elevated inflationary pressures.

Cordros Capital projected that Nigerian economic growth will slow to 3.01% in 2022 versus 3.40% reported in 2021 driven by a sharper decline in crude oil production compared to the prior year and a slowdown in the non-oil sector’s growth as domestic activities normalise fully after the initial post-COVID boost.

Accordingly, analysts said they expect the non-oil sector’s growth to moderate to 4.19% year on year compared with 4.44% year-on-year growth reported in 2021, projecting that the oil sector will contract further by 12.11% in the year versus 8.30% year-on-year decline reported last year.

# Nigeria’s Export Receipt Declining, GDP Growth Threatens#