Why Nigeria should no longer be called an 'oil based economy'

Jan 27, 2022|Carl T. Macaulay

Deep in the middle of declining oil production and revenues, the Nigerian government still hopes to earn over $42.5 billion from oil in 2022.

For context, implementing the approved 2022 budget will cost $26 billion. In an ideal, oil-based economy, these figures would suggest that Nigeria’s oil revenues could cover the country’s needs. But Nigeria is not an ideal country and unfortunately, we no longer have an oil-based economy.

Some takeaways:

The government is losing its oil addiction, with about 50% revenue from oil, compared to 80% plus revenues in the past. This shows Nigeria is not an oil-based economy, and the oil addiction is a government revenue issue, not a macroeconomic issue.
Oil & gas is the 5th largest sector in the Nigerian economy—a far cry from its position number one for most of the 80s and 90s.
The shift is not just data-based, but the mindset of Nigerians has also shifted. Tech is the new darling of young aspirational Nigerians; oil has lost its lustre.

There was a time when Nigeria was undoubtedly an oil economy. In the 1970s, there was a global boom in oil prices, and oil-producing countries benefited from the sharp spike in the price of crude oil. A new cash cow had emerged.

In November 1973, crude oil was $23 a barrel, but the price surged to $60 a barrel two months later. The cost of crude oil remained above $23 for the next two decades. Most of the time, the price was above $40 and went over $130 during a short period. These prices translated to a lot of cash flowing into the Nigerian economy and the government.