Smart Policy Options Will Safeguard Nigeria’s Economy from COVID-19 Shocks

The Nigerian Natural Resources Charter (NNRC) has urged the Nigerian government to act quickly on a number of reform items, long on the drawing board, if the country “is to minimize the effects of the inevitable recession contributed by falling oil prices, depreciating revenues, and rising debt ratio,” that are aggravated by the rampaging global pandemic known as the Novel Coronavirus Disease 2019 (COVID-19 for short).

Drawing on the benchmarks and the gaps identified in its recently published 2019 Benchmarking Exercise Report (BER), the Charter acknowledges the government’s recent steps; “to deregulate the downstream sector, re-open bid rounds of marginal fields, cut the 2020 budget, contemplate privatization of the refineries and others”.

But “to optimize the opportunities from oil and gas exploitation to withstand the prevailing COVID-19 shocks and its after effects”, the Charter urges, “Nigeria must consider the following policy options to stabilize the sector, maintain revenue flows, attract investment and drive growth:

  • Maintain peace and stability in the Niger Delta to sustain revenue flows from oil production. Sustaining benefit transfer schemes by NDDC, MNDA and other interventions will support the government’s stabilization efforts;
  • Improve coordination between federal and Niger Delta state governments on the response to the COVID-19 pandemic including the design and implementation of stimulus plans;
  • Liberalize the downstream sector to allow market forces determine pump prices for petroleum and other products. This will ensure the availability of revenues necessary for more critical areas of the economy;
  • Improve the efficiency of the downstream oil sector by reviewing its policies, regulations and operational guidelines to ensure profitability, improved private sector participation and improved employment;
  • Adopt and constitutionalize a savings mechanism with clear and transparent operational rules. This could be by retaining the more effective sovereign wealth fund (SWF) in the NSIA and transferring funds from the Excess Crude Account, the stabilization fund and other similar funds to the SWF. This will help fortify the Nigerian economy from oil price volatilities and other economic shocks. Ramping and prioritizing domestic gas-based industrialization projects, to diversify Nigeria’s energy supply, increase local employment and reduce domestic demand and Nigeria’s reliance on oil;
  • Support a major and urgent shift to gas in terms of investment focus. Gas supply to domestic market for power, industrial & manufacturing feedstock and enabler to economic development. Emphatic shift to the gas value chain offers Nigeria the leverage for socio-economic development in the medium to long term; ·
  • Fast-track the passage of the petroleum industry bill to bring about the fiscal, governance and regulatory clarity required to monetize Nigeria’s 200 Trillion cubic feet of gas reserves. Speedy passage of the Petroleum Industry Bill will provide a clearer strategic direction to the entire industry, re-engender trust, thereby increasing investments which will in turn increase national revenues required for development;
  • Review the existing fiscal framework to ensure competitiveness and support Nigeria’s ability to attract investments into the upstream sector, effectively shoring up Nigeria’s diminished reserves;
  • Institutionalize cost management strategies within the sector with the overall objective of reducing the high unit production cost of crude thereby improving governments revenue from the sector;
  • Immediately privatize refineries as stated by NNPC to improve Nigeria’s access to finished products in country, reducing potential for over reliance on external support for products, to preserve Nigeria’s sovereignty; and
  • Sell off unviable government owned oil assets to raise revenue and boost efficiency in the short to medium term.

“Adopting these reforms will improve Nigeria’s competitiveness, revenue inflows and improve her ability to survive and subsequently recover from the effects of COVID-19 on the global economy”, the NNRC  explains, asking that the government be consultative in its approach to reforms, transparent and inclusive to increase likelihood of acceptance and implementation.

“Prioritizing these reforms are necessary while Nigeria considers other medium to long term reform plans simultaneously. The NNRC’s 2019 Benchmarking Exercise Report (BER) outlines other sector gaps to be focused on in the medium to long term to improve Nigeria’s oil sector performance. These can be found on the NNRC website on www.nigerianrc.org/2019-benchmarking-exercise-report.”

 



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