A 50,000-barrel rise in Nigeria’s refining capacity will raise GDP by 0.4%.
This is a position stated by Ibukun Omoyeni, Sub-Saharan Africa Economist with Vetiva Capital Management during a December 6 interview via Arise News.
Omoyeni reacting to the Foreign Trade in Goods Statistics report recently released by the National Bureau of Statistics (NBS).
Recall that it was reported that during the third quarter of 2023 (Q3/2023), the majority of Nigeria’s export trade was dominated by crude oil exports.
These crude oil exports were valued at ₦8,535.61 billion, making up about 82.50% of the total exports during that period.
According to Omoyeni, Nigeria needs to refine its oil locally. He said that the country can produce as much crude oil as it wants and send it to the local refineries because OPEC quotas only cover crude oil exports and not what is refined locally.
He said: “We did our modeling and we discovered that a 50,000-barrel increase in our refining throughput will lead to a 0.4% increase in our GDP and what that implies is that the kind of growth that we want to see will only happen when we manufacture. Once we begin to see refining figures pick up next year, that should improve the manufacturing export in terms of refining because refining is not subject to OPEC quota.”
He mentioned that ever since the fuel subsidy was removed, there’s been less motivation to import oil because the profit margin has shrunk.
Although there’s been an increase in oil production from one year to another, the oil prices were higher in 2022 compared to 2023.
Even though the country isn’t producing as much oil this year as it did last year, the amount of oil sold to other countries, when measured in dollars, has decreased.
He pointed out that having a growing service industry is great, but without a strong manufacturing base, a country won’t make as much needed money.
Take India, for example, they went through that phase of building up their industries. If a country skips that step, it’s hard to see the financial benefits.
For Nigeria, the lack in its manufacturing sector indicates that there’s still a lot to do in terms of fixing issues around infrastructure, which is a major problem in Nigeria.
He also highlighted the ongoing challenges the country faces, particularly with power supply (a persistent issue) and insecurity.
Intra-African trade
Omoyeni also highlighted the fact that since many African countries have no refining capacity, when the local refineries become active, a lot of these African countries will find it cheaper to buy petroleum products from Nigeria.
According to him, oil imports are a major aspect of African trade and whoever can provide refined petroleum products on the continent will tap into that opportunity and increase trading partnerships on the continent.
He also said that there is a need for investments before this can become a reality for Nigeria.
He said: “By the time we start refining crude oil, there will be a huge market for refined petroleum products and from there, we will begin to see more African countries come up on our trading list.”
Speaking on the ongoing COP28 conference and the possibility of Africa transforming into a completely green economy, Omoyeni said that fossil fuels are not going away anytime soon, especially in Africa which still struggles with energy access on various levels.
He also stated that looking at the dynamics around emerging economies, it is clear that fossil fuels cannot be eradicated even in the next 2 years.
Meanwhile, he noted that the reasonable thing to do is to look at how to mitigate the impact of climate change, but crude oil will still be quite relevant in the medium term.
