The government predicts economic growth of 6.75% this year, roughly in line with growth in both 2012 and 2013, although lower than the 7.8% and 7.7% achieved in 2010 and 2011 respectively. Each year has been roughly in line with the government’s Vision 20:2020 target of 7-8% GDP growth each year up to 2020.
Yet apart from crude oil and liquefied natural gas (LNG), Nigeria exports relatively little for a country with 170m inhabitants. Moreover, oil production is lower than it should be because of a combination of oil theft and projects that have been postponed because of the poor security situation in the Niger Delta.
With a string of multibillion-dollar LNG projects either delayed or shelved because of the uncertain investment environment and vast amounts of natural gas literally going up in smoke every day through routine flaring, it is difficult not to describe the Nigerian economy as anaemic.
With insecurity continuing to affect investor sentiment, it is easy to paint a depressing picture. While militants and oil gangs plague the oil industry in the far south, Boko Haram is destabilising the north.
The Petroleum Investment Bill
The government of President Goodluck Jonathan promised to sort out the various ills that have long depressed the country’s key oil, gas and power sectors. It drew up a list of widely admired reforms and clubbed them together in a single – albeit long – piece of legislation known as the Petroleum Investment Bill (PIB). Yet the bill has been marooned in legislative disputes for most of Jonathan’s time in office. Far from resolving a difficult situation, it has merely added another layer of uncertainty to worry investors.
International oil prices are not expected to increase over the next two years, partly because economic growth in many industrialised countries is weak, but also because unconventional oil and gas production is rising in North America.
The curtailment of oil theft and associated violence in the Niger Delta would certainly help oil production to recover but output should increase in any case over the next few years as several big deepwater projects are brought on stream.
Deepwater projects are relatively sheltered from the Delta problems and could help to push production above 3m b/d for the first time. This could help to sustain economic growth and buoy government finances, while the country even has the potential to achieve 4m b/d if the problems of the Delta can be settled.
Some progress has been made on improving national infrastructure in recent years. Nigeria’s main ports are operating more efficiently than previously and new ports are planned in conjunction with industrial zones, although far too many containers that bring goods into the country leave empty because of the lack of exports.
The mobile telecoms sector is in relatively good health and national generating capacity has increased over the past three years, although it is still far below the targeted 10 GW. Finally, as we discuss below, the prospects for domestic oil companies and the agriculture sector are better now than they have been for decades.
While the PIB remains unimplemented, low regulated gas and power tariffs have depressed domestic gas demand but greater effort has been put into identifying non-power sector outlets for gas. The NNPC group executive director for gas and power, David Ige says: “The Ogidigben Industrial Park will have a fertiliser plant, a petrochemical plant, a central processing facility and a power plant of 350 MW capacity. There will be big commercial and residential areas. It is going to be the biggest gas-based industrial park in Africa.”