Understanding the Linkages Between the Economy of Nigeria
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Added on 2020-04-01
Understanding the Linkages Between the Economy of Nigeria
Added on 2020-04-01
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Understanding the Linkages Between the Economy of Nigeria and its Oil sectorThe following paper seeks to understand the links between the economy of Nigeria and its crude oil sector. The importance of oil revenues for the GDP of Nigeria is often highlighted. However, there may also be a reverse link between the GDP and the oil sector. The paper seeks to understand if endogenous factors of Nigerian economy have any kind of effects of the demand for oil exports from Nigeria. The endogenous factors are represented by the variable Real Effective Exchange Rate.Secondary Research Project
Contents1.Introduction.........................................................................................................................................41.2Justification of the research.........................................................................................................41.3Aim..............................................................................................................................................51.4Research Question.......................................................................................................................61.5 Scope of the Research.......................................................................................................................62. Background to Research..........................................................................................................................621. The Linkages between the Economy of Nigeria and The Oil Sector.................................................62.1.1 The Effect of the economy on the sector.....................................................................................62.1.2 Importance of Oil Exports to the Nigerian Economy.................................................................72.2 Key Oil Production and Economic Indicators for Nigeria.................................................................83. Methodology...........................................................................................................................................94. Literature Review..................................................................................................................................125. Tests and Results...................................................................................................................................125.1 Data.................................................................................................................................................125.2 Results.............................................................................................................................................135.2.1 Co-relation and Co- Variance between GDP and REER...........................................................135.2.2 Regression................................................................................................................................146. Conclusion.............................................................................................................................................14Bibliography..............................................................................................................................................15Table 1Key Economic Indicators for 2016..................................................................................................6Table 2 Current Account Balance of Nigeria since 2012.............................................................................7Table 3 Total Value of Petroleum Exports of Nigeria since 2012 (in Million USD)..................................7Table 4 Production Capacity of Nigeria......................................................................................................8Table 5 Total Number of Rigs and Oil Wells in Nigeria Since 2012. These reflect the fluctations of demand for crude oil in the international market.........................................................................................9Table 6 Data for Research..........................................................................................................................12Table 7 : Test Results................................................................................................................................13Graph 1 Real Effective Rate of Exchange of Nigeria since 2000...................................................................5
1.Introduction Oil is one of the mainstays of the Nigerian Economy as revenues from oil dominate the exports as well as the fiscal revenues of the country.[ CITATION Int172 \l 1033 ].The economic growth of Nigeria and the oil exports of the country are closely linked. Nigeria is one of the fastest growing economies in the African country and has showed tremendous growth performance in the last decade.[ CITATION Int171 \l 1033 ] It would be interesting to know theeffect of the recent uncertainty in the global oil market and its impact on the economy of Nigeria and vice versa. 1.2Justification of the research: The Nigerian economy has a very tricky relationship with the crude oil sector of the economy. If the oil prices in the global market are lower, it would imply that there will be availability of cheaper oil in the economy, which would lead to greater energy sufficiency. As the GDP grows, the energy requirement of the country will grow. The demand for domestic consumption of oil has increased drastically.[ CITATION Sun12 \l 1033 ] Energy sufficiency is one of the key targets of the economic growth plan of the country in the near future. [ CITATION Fed17 \l 1033 ]. Energy efficiency can help increase the overall productivity of the Nigerian economy, especially the manufacturing sector, other exports like agricultural exports etc. This, in turn, will reduce the dependency of the economy on oil exports. If Nigeria seeks to achieve balanced economic growth, actions concerning the domestic market are important [ CITATION Nig07 \l 1033 ] However, in spite of such importance of oil in the domestic sector, the IMF has expressed concerns over the low oil revenues as one of the reason for the fall in economy. The shrinking of GDP in the last two years has been linked to the decline in the global crude oil prices. However, The Annual Statistical Bulletin of Organization of the Petroleum Exporting Countries, (2016) revealed that the total value of petroleum exports for Nigeria has been falling since 2014. The same trend was observed for other OPEC countries too. However, the difference between other countries and Nigeria is that there is no limit to the production of oil for Nigeria imposed byOPEC, which allows it to grow exports at will. [ CITATION Org173 \l 1033 ]This indicates that the price of crude oil is an important factor other than just the total quantity of supply of oil.
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