By Sunny Chuba Nwachukwu, PhD
The nation’s economic efficiency could get better if the the Nigerian National Petroleum Corporation (NNPC) restrategizes its petroleum products importation policy by admitting more investors from among SMEs that can process crude with local refining techniques, within standards approved by the Department of Petroleum Resources (DPR), through aggressive in-country provision of the products, that helps to lower the national oil company’s imports. Otherwise, things will not get better, especially with the present high inflation in the economy. This is because a larger percentage of imported goods into the economy is refined petroleum products, which is seriously affecting GDP growth, considering the fact that we do not produce more than 10 percent of all imports that we consume annually.
This is reflected, for instance, in the 2021 national budget of N13.6 trillion, which will see imported refined products significantly consume N5.004 trillion (roughly 36.8% of the budget). From available national financial records and the annual international trade data with all trading partners, it is a known fact that the oil sector still contributes well over 50 percent of the entire national income accruals, and over 80 percent of Nigeria’s foreign exchange earnings to the economy. This places the oil sector and its businesses as very relevant and strategic in the nation’s macroeconomic matters; not minding the innovative impact of the other cleaner, alternative energy sources on the global environment (towards fighting the climate change challenge). Based on these facts, the overwhelming influence of the oil sector over the nation’s economy, and the impact on GDP, ought to be critically handled with passion, care and utmost caution.
The huge direct impact on the economy of importing refined products calls for serious adjustments on the import’s coefficient, by reducing its negative impact on the nation’s economic efficiency, as visibly seen from the angle of the GDP formula along with its other factors (Consumer Expenditure, Investment and Government Expenditure); using the economic tools of fiscal and monetary policies.
The low GDP profile has an inverse relationship with high volume of imports. GDP oscillates in the opposite direction with importation in economics. With the above economic principles and the relative operational mechanisms of Importation, Investment, Consumer/Government Expenditures to GDP, importation of petroleum products under a subsidy regime, with the analytical data on the 2021 national budget showing that imported petroleum alone gulps 36.8%, such a development cannot sustain economic efficiency as a chronic consumer economy, unless the NNPC takes a radical action that will favour in-country refining operations.
Looking at the other positive factors (increasing consumer expenditure and increasing investment), government expenditure through capital projects can help push up productivity. The subsidy regime has been proven to be counter productive, as it supports importation and at the same time, it does not clearly give convincing transparency on its spendings.
Citing the fiscal policy of a prosperous neighbouring economy within the subregion, the tax holiday offered to manufacturing companies impacts positively on economic growth, making for an ever rising GDP. In the case of Nigeria, such incentives given to local entrepreneurs are not sincerely and judiciously applied sustainably. It is rather applied to further increase massive importation. The situation continues to mount pressure on foreign exchange demands, without balancing its accruals through international trade with our trading partners hence, the constant weakening and devaluation of the local currency, the naira.
If local refining techniques in the oil sector receive the needed boost and recognition for further research and development, the economy will not only fight inflation but will continually contribute in no small measure towards high standard of living in the society. We must not continue to rely only on the orthodox westernized refining modules and fully established refineries, which cost billions of dollars. Let the indigenous technology be equally promoted and supported, to further let in smaller operators that could function as a cluster within the crude oil value chain; and support the fight against inflation, poverty, unemployment, and improve the national economic growth by shrinking massive imports of foreign made goods. It will also help to change the narrative of Nigeria from being a ‘consumer economy’ to ‘a net exporter’ of multiple locally manufactured goods.
Sunny Nwachukwu,PhD, a pure and applied chemist with an MBA in management, is an Onitsha based industrialist, a fellow of ICCON, and vice president, finance, Onitsha Chamber of Commerce; and can be reached on +234 803 318 2105 (text only) or email@example.com