Anderson: Why Nigeria’s Oil Sector Will See Significant Growth in 2023
*Predicts devaluation of the naira to close gap between black market, official rates
Emmanuel Addeh in Abuja
A report by Andersen Nigeria has stated that the global financial advisory firm expects Nigeria’s oil and gas sector to record significant growth this year due to several measures by the government to address oil thefts, pipeline vandalism and illegal refining.
Andersen in Nigeria prides itself as an independent tax, transfer pricing and accounting advisory services firm with a worldwide presence through the member firms and collaborating firms of Andersen Global.
Anderson noted that measures by the federal government to combat the menace were expected to boost oil production levels in quarter 4 of 2023.
Furthermore, the report stated the commencement of the Port Harcourt Refinery by end of quarter 1, 2023, and the Dangote Refinery by the second half of 2023, were expected to increase domestic processing of the crude oil produced by the country.
It stressed that the development would thereby reduce demand for foreign exchange to purchase refined fuel products from abroad and help strengthen the naira against the dollar.
“Finally, the external reserves which continuously depleted in 2022 is also expected to grow marginally in H2 2023 as a result of the commencement of local refinery of the crude oil.
“It will be further enhanced by the proposed subsidy removal which will ensure that money spent on subsidy payment are either retained or invested, increase in oil production levels in Q4 2023, and the rising brain drain which is expected to increase foreign remittances,” Anderson pointed out.
But the report stated that although 2022 started with a plethora of positive expectations due to the post Covid recovery, the year brought unexpected global economic disruption amidst existing economic challenges such as rising inflation rates.
Specifically, the firm said the Russia- Ukraine war and its attendant supply chain disruptions led to a spike in oil prices rising above $100/barrel which put an upward pressure on inflation, noting that almost all economies reacted by tightening monetary policies to curb the rising inflation.
However, the report stated that 2023 still shoulders some of the burdens in 2022 and was set to face its ripple effects.
With the ongoing Russia-Ukraine war, oil prices, it said, was expected to remain at a relatively high price above its peak in 2021.
Although, this was supposed to be an advantage to Nigeria due to its status as the largest oil producer in Africa, the Nigerian oil sector, it added, had been plagued with pipeline vandalism and oil theft which have hampered the sector growth and also led to low oil productions.
On the growth of the economy, Anderson reported that the economy was expected to slow down in 2023 as a result of the overarching domestic and global economic challenges and uncertainties.
Continued high inflation rates way above the Central Bank of Nigeria (CBN) benchmark target of 9 per cent it stated, means that the Monetary Policy Rate (MPR) will remain high even if it reduces marginally in the second half when the high inflation rates are expected to taper off and start a gradual decline.
“The relative high cost of borrowing means investments by businesses will be hampered contributing to the slow down of economic growth. Furthermore, global uncertainties such as the end of the Russian-Ukraine war and economic performance of major trading partners such as China could hamper growth in the economy.
“Finally, from a sectorial perspective, the continued high performance of fast growing sectors such as the telecommunication and financial services sectors as well as key sectors that contribute more significantly to the Gross Domestic Product (GDP) such as agriculture, trade and manufacturing will be critical in driving economic growth,” the firm added.
From a socio-economic impact perspective, the rising inflation rate, the report said, has led to a negative impact on cost of living for citizens as the prices of goods and services have increased without a commensurate increase in wages whilst unemployment rate remains high.
“It is not surprising that Nigeria’s ranking has worsened in global socio-economic rankings such as the Human Development Index (HDI) with Nigeria currently ranking 163rd out of 191 countries in United Nations Development Programme (UNDP)’s HDI.
“Other pressures such as the foreign exchange fluctuations and scarcity still persists and the Naira is expected to see a devaluation in the official rate especially, to help close the significant gap between the official and parallel exchange rates.
“The country is also expected to witness significantly increased migration of skilled workers which will lead to further brain drain thereby reducing the productivity of the workforce and contribute to the slowing down of economic growth,” the firm said of the country’s 2023 outlook.