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How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile - Politics - Nairaland

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How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by milann: 10:00am On Apr 02
An overhaul of the NNPC’s operations is inevitable to position it for efficient and competitive business, leading to increased revenues accruable to the federation accounts
By Ode Uduu

Nigeria’s Finance Minister, Zainab Ahmed, in 2019 acknowledged the country had a revenue problem. Mrs Ahmed made the comment while defending the 2020 budget before the National Assembly, where she sought approval for a loan to finance a ₦4.97 trillion deficit in the budget.

Some argued that the minister’s statement was a denial of the huge debt problem the government grappled with, and that it was only meant to play down the unhealthy loan habits and wasteful spending of the government. Yet, some believe the minister’s position that our dependence on declining oil revenue is the problem, not debts in itself.

Debates as this begs the question: Is Nigeria’s revenue woe owing to its limited sources of revenue? History suggests no. In times past, the country’s economy thrived relying on several sources of revenue generation. The advent of crude oil, however, saw the gradual neglect of other sectors as revenue sources for the country.

While the government consistently speaks of reforms to halt the country’s over-dependence on oil revenue, the budgets show the government has its eyes fixated still on oil revenue for survival. The federal government indicated in its budgets from 2010 to 2014 that it expects over 60 per cent of the revenue that will fund its spending to come from oil sales. While it budgeted lower in 2015 and 2016, it has since resumed an increasing reliance on oil to fund its budgets, from 51 per cent in 2017 to 66 per cent in 2019.

Though Nigeria’s budgets are made in expectations of high oil revenue, records show that the country has consistently not been able to generate its proposed target of oil revenue annually.

Why is Nigeria’s Oil Revenue Falling when Crude is sold at a higher price?
As projected from the Federal budgets, the selling price of crude oil indicates how much revenue Nigeria intends to generate from crude oil for the year. However, the final selling price is not determined by Nigeria, the seller, but out in the international oil market.

Fortunately for the country, data from the Budget Office and CBN shows that crude oil’s final average selling price was higher than the projected price in the budget, except in 2015, and ordinarily, these would have meant higher revenue from oil in all the other years than the oil revenue budgeted.

Yet, for the higher selling price of crude to translate to higher revenue, the country must produce at least the budgeted quantity as well. As a practice, the country in her annual budget proposes an amount to be sold to generate the predetermined revenue. This quantity is either met or exceeded for the period. Data accessed from Nigeria’s budget office shows that the government was unable to meet its proposed production target annually, except in 2011.

Although, on the average, there were shortfalls in the actual production of crude oil daily, there was a higher degree of increase in the product’s actual selling price. Thus, due to the favourable international price of crude oil, there was supposed to be a net increase in daily revenue in all the years, except 2016, Dataphyte’s analysis shows.

Surprisingly, while Nigeria has been gaining millions of dollars daily in crude sales more than it budgeted for, the country has been receiving lower oil sales returns from its national oil business handler, NNPC.

The NNPC’s published accounts reveal how its management unilaterally deducts substantial amounts from the oil revenue due for the federation account as costs, before handing the balance it so determines to the Federation Account. These defrayed costs include under-recovery costs (oil subsidy), product losses, pipeline management costs, besides others.

This shows that if NNPC reduces its business cost, the expected budgeted revenue can be achieved and even surpassed. Moreover, data indicates that NNPC is one of the state-owned oil companies operating at loss compared to its peers in other countries. In 2019, when other state owned oil companies declared massive profits in hundreds of billions of dollars, NNPC declared a loss of $0.52 billion, that is, 520 million dollars.

Thus, even if the country meets its expected oil production quota and sells crude at favourable international prices, all these may not readily translate into the expected values of oil revenue, until the country, through the NNPC and its subsidiaries, manages its oil business in an efficient manner.

Decreasing Oil Revenue and Increasing Debt Profile
Nigeria’s budget records over the years show that the federal government has been running all its budgets on deficits. A deficit budget is made when the government expects that its revenue in the new year will not be sufficient to fund its planned spendings. So, the government usually states that it intends to borrow from local and international lenders to fund the deficit, in addition to selling off some of the country’s assets to get money to spend in the present time.

However, in recent times, due to decreasing revenue from NNPC’s inefficient management of oil proceeds, and shortfalls from other non-oil revenue sources, the government has actually been experiencing a deficit more than they planned in the budget. This means, while revenue was decreasing more than planned, the government was borrowing much more than they planned. Dataphyte’s analysis showed a strong positive relationship between decreases in oil revenues and increases in budget deficits, with a 0.83 correlation coefficient.

Furthermore, Dataphyte’s analysis found a 0.71 correlation between Nigeria’s decreasing oil revenue and increasing budget deficits between 2010 and 2019. This means there is also a positive relationship between the degree of decrease in Nigeria’s oil revenue and the degree of increase in the country’s debt burden.

Although it may not be conclusive to say that this decrease in oil revenue is the main cause of the country’s growing debts, Nigeria’s ten year trend (2010-2019) shows strong links between the government’s revenue and its loan habits.

Lessons Learnt
An overhaul of the NNPC’s operations is inevitable to position it for efficient and competitive business. This will enable increased revenues accruable to the federation accounts and minimizes revenue leakages.

Moreso, Nigeria has the potential of improving her revenue position if it looks beyond oil to other non-oil taxes. As it stands, the tax system does not cover the entire labour force, as less than 30% pay taxes, according to a BBC report. This situation is compounded by the fact that not less than 65% of her working population works in the informal sector. This accounts for her inability to meet the required standard of 15% tax revenue to GDP, and reporting 6.1% tax revenue in 2019.

The Medium-Term Economic Framework (MTEF) may also incorporate expenditure benchmarks, rather than identifying only revenue benchmarks. This will regulate government expenditure, which will in turn improve the budget deficit situation, and by extension, reduce the country’s debt burden to the overall benefit of the citizenry.
https://www.premiumtimesng.com/news/headlines/451383-analysis-how-nigerias-overdependence-on-oil-revenue-increases-its-debt-profile.html

1 Like

Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by habsydiamond(m): 10:08am On Apr 02
Agriculture as being the way forward, but the government is not doing anything towards that... Empower the youths and experienced farmers with the required machineries needed to move agriculture forward in this country... Only crude oil will not solve our problems ooo. Agriculture is the way forward.... some countries can not boast to have the resources we are blessed with yet they are far richer than us. It's only in Nigeria u will extract the crude oil as byproduct and sell it out to be refined when we have 3 refineries that can be repaired but because of greed they left the refineries at bad state and exporting the crude oil, buying the refined products back as high cost and making life difficult for the masses.. This is not fair at all. If there is no gain at something, u will never find a Nigerian there..... Which makes me think that some people are gaining from the suffering of the masses... I pray nemesis will catch up on them soonest

1 Like

Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by milann: 10:29am On Apr 02
NNPC is corrupt

2 Likes

Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by brosom(m): 10:29am On Apr 02
Nigeria as a nation have had visionless leaders right from the very first day of independence and still counting.

I wonder what future will say to Nigeria when oil will be less valued nation wide..

10 Likes

Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by DoctorDree(m): 10:30am On Apr 02
Make the oil just dry sef,maybe we go get sense do the right thing for ourselves,Budget just dey increase every year and poverty rate isn’t decreasing either.......
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by Pavicx(m): 10:30am On Apr 02
Forget dividing this country for now

Just share this country!!!!!
Let's just collect like terms
Now it's early, let all man go his way...

1 Like 1 Share

Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by Oyiboman69: 10:30am On Apr 02
We know the problem you idiots... The solution to this unending debacle is what we need...bunch of dunce...

Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by Llight101: 10:31am On Apr 02
K
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by ec0malchemist(m): 10:31am On Apr 02
This is the resultant effect when you allow analog leaders man the affairs of a digital economy.

What do you expect ?


Agriculture, Crypto, Forex, Digital Media and Tourism should be looked as alternative ways to generate income for the dwindling economy.

3 Likes

Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by ictjobber: 10:32am On Apr 02
We are a race that believes the supreme God is white and the devil is black... A race that places greed above every other thing including patriotism.
And for some reason some people still think say we get the mental capacity to run our own country.. I lol in swahili

Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by sulaiboy20(m): 10:34am On Apr 02
This country is not Balance. but we thought agriculture already replace oil.
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by pickatyou1: 10:35am On Apr 02
I don't think it's over dependence on oil. It is our leaders corrupt and embezzling mindset that is the problem.





Check my signature if you have a car and interested in installing a tracking device. It might interest you

1 Like

Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by Hugomexis(m): 10:35am On Apr 02
Over reliance on oil is killing this country.Why not diversify the economy into yahoo business?

I mean,support up and coming yahoo boys by buying them laptops and offering welfare packages that will serve as incentive for them to rip their respective clients of massive funds.
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by lexy2014: 10:35am On Apr 02
habsydiamond:
Agriculture as being the way forward, but the government is not doing anything towards that... Empower the youths and experienced farmers with the required machineries needed to move agriculture forward in this country... Only crude oil will not solve our problems ooo. Agriculture is the way forward

If nigeria focuses on agriculture, how will our corrupt leaders chop?
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by Codes151(m): 10:36am On Apr 02
That's not true.
It's mismanagement.
Fraud.
Corruption.
Nnpc is useless. Dpr doesn't even know it's need.
These organizations are wayward.

1 Like

Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by paulolee(m): 10:37am On Apr 02
I remember seeing this same problem of overdependence of oil and the need to switch to agric sector on d pages of punch dailies right from when I was small and its decades gone and the problem still persist..
i have seen countless economic analysts voicing the need for Nigeria to diversify rom oil to other sectors but it seems the country is just filled with leaders that talk more and do less...
maybe the change is a gradual one, maybe its a long term process but I dont think its good for a blessed country like us to keep depending on just oil because they are so many resources in d country.

1 Like

Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by LikeAking: 10:37am On Apr 02
Scament.

They always have on excuse.

Blah, blah,blah.
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by AlphaAlex: 10:37am On Apr 02
Nigerian Leaders will not hear this one to then anything that doesn’t speak to their greed is rubbish. Nigeria would have used oil as a tool to boost other areas of her economy and we would’ve been a force to contend with globally.

But what we have today is a country being ruled by unforgiving backward minded overly religious And ironically hypocritical simps And buffons
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by Oizatobad(m): 10:37am On Apr 02
NIGERIA IS A JOKE INCLUDING PEOPLE LIVING IN NIGERIA _____PHYSICALLY CHALLENGES PEOPLE LIVING IN NIGERIA FAR BETTER THAN NON PHYSICALLY CHALLENGE PEOPLE WHO HAVE SERIOUS MENTAL CHALLENGES____ NO REFINERY WORKING AND NIGERIAN ARE OK WITH !!!
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by Nobody: 10:38am On Apr 02
Fulani herdsmen, bandits, oil spillage and terrorism are the major concerns of agriculture. Until the government fix this we are going no where in agricultural sector
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by Elsueno: 10:39am On Apr 02
brosom:
Nigeria as a nation have had visionless leaders right from the very first day of independence and still counting.

I wonder what future will say to Nigeria when oil will be less valued nation wide..

Nope, actually during early independence we had some of the best and most incorruptible leaders in Africa, Highly educated too. Till the military & thier dunder heads decided to do coup, screw everything up & kill them all. In all seriousness, d military usher in the era of corruption in Nigeria

1 Like

Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by wink2015: 10:39am On Apr 02
Buhari is talking about GAS OPPORTUNITIES all to drain the Niger Delta region.
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by Duplexxx: 10:40am On Apr 02
Wen una don looted all the oil money finish

What are you expecting left




ZERO





NNPC my ASS
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by Dymaco(m): 10:43am On Apr 02
The problem of Nigeria no dey finish at all.
Nigeria is a country that have everything in abundance yet their short sightedness, greediness or corruption will never allow them to utilize it.

Do you know how much custom and seaport will benefit us if we invest in making all our 80% efficient. Even if the government don't have resources to do build seaports or manage one, why can't they just form or grant 20 years BOB to investors who are willing to invest. Custom alone can generate at least 3 trillion naira to Nigeria if manage efficiently.
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by oie(m): 10:48am On Apr 02
Interested in learning a programming language...see my signature....
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by younglleo: 10:48am On Apr 02
Can someone pls help me out on this Nairaland!!!! angry angry angry
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by bigdammyj: 10:49am On Apr 02
Noted
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by habsydiamond(m): 10:50am On Apr 02
lexy2014:


If nigeria focuses on agriculture, how will our corrupt leaders chop?
the corrupt leaders are the sole reason why this country has remained stagnant since the 60s.... Only God can save us from their hands
Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by Tcwork: 10:55am On Apr 02
habsydiamond:
Agriculture as being the way forward, but the government is not doing anything towards that... Empower the youths and experienced farmers with the required machineries needed to move agriculture forward in this country... Only crude oil will not solve our problems ooo. Agriculture is the way forward
I always disagree whenever I see people pointing to agriculture as solution to Nigerians economic problems.
Did you know that more than 1 out of every 3 employed Nigerians is in the agricultural sector? That is already too much.
Did you know that both this administration and the last spent billions in rice cultivation yet we remain rice dependent and the cost of rice keeps going up?
Also not a single developed country has agriculture as the main stay of its economy.
What we need is less corruption, a free market economy and an economy that isn't dependent on a single sector..
We need agriculture, oil, mining, manufacturing, high tech and the service sector.
Let's stop making the same mistake by thinking that government should invest or empower anybody. Instead let us encourage a free market. Let people, private citizens and businesses invest.
Let's make it easier for competition and growth.
Let government stop wasting our money in the name of giving loans to farmers.we waste billions each year doing that.
Let government instead tackle corruption and the ease of doing business and infrastructure. Then they can leave agriculture and other businesses to investors.

1 Like 1 Share

Re: How Nigeria’s Overdependence On Oil Revenue Increases Its Debt Profile by Tcwork: 11:03am On Apr 02
Elsueno:


Nope, actually during early independence we had some of the best and most incorruptible leaders in Africa, Highly educated too. Till the military & thier dunder heads decided to do coup, screw everything up & kill them all. In all seriousness, d military usher in the era of corruption in Nigeria
Our 1960 leaders were equally corrupt and inefficient. There was nothing amazing about their style of governance.
They couldn't even agree on how to move the country foward.
Just 3 years into independence, the country was already embedded in crisis.
Funny, in our anthem, we sing, the labour of our heroes past shall never be in vain. But as a country do we even have heros? Definitely not among our leaders and politicians past and present.
We give praise to men who failed their country.
Soon after the British left, nepotism, tribalism and corruption took over.
Our 1960 leaders build that evil foundation that is affecting us till today

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