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Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06
GLOBAL RECESSION, OIL SECTOR AND ECONOMIC GROWTH IN NIGERIA.
BY
S. O. OLADIPO (M.sc)
Department of Economics and Accounting
Bells University of Technology, Ota.
E-mail address: [email protected]
AND
PROF. J. O. FABAYO
Department of Economics, Obafemi Awolowo
University, Ile-Ife
ABSTRACT
This study investigates global recession and
the oil sector, based on its effects on
economic growth in Nigeria. No doubt the
global economy has been experiencing
some disturbances. Major economies of the
world have been affected and so has the
major sectors of these economies especially
the ones that has a direct bearing with
international trade been affected. The oil
sector particularly has been one of the hit.
For a country like Nigeria whose
international trade is majorly in oil, the
effect has become an issue. Empirical
analysis using the Ordinary Least Square
(OLS) reveals that there was a negative
relationship between GDP and oil produced
(domestic consumption and export) which
is significant at 5% lever of significance i.e.
(P < 0.05). The result also showed that there
exists decline in the oil sector due to the
global recession despite all measures given
by government to curb it effects. It was
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recommended that the federal government
needs to deregulate the sector for efficient
performance, and also come up with more
rigorous policies that will reduce this effects
on the real sector most especially the oil
sector whose contribute the largest portion
of income in the Nigerian economy.
Keywords: Gross Domestic Product (GDP),
Oil Price, Oil Export and Domestic
Consumption.
Introduction
Current Global Crisis started as a financial
crisis but now a Global Economic Crisis.
The crisis is unprecedented in severity of
credit contraction (credit crunch & capital
crunch). The roots are in banking rather than
in securities market or foreign exchange.
The Crisis started in the U.S (due to certain
laxities in the US financial system), spread
to Europe, Developing countries and has
become global. Even countries not affected
by the financial crisis are now affected by
second-round effects as the crisis now
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becomes economic issues. The financial
crisis started in the U.S in August 2007 with
sub-prime mortgage crisis as households
faced difficulties in making higher payments
on adjustable mortgages, by the first quarter
of 2008; there was widespread credit
contraction, as financial institutions in the
US tightened their credit standard in light of
deteriorating balance sheets (Kindleberger
and Aliber, 2005, Laeven and Valencia,
2008). In the fourth quarter of 2008,
increased delinquency rates affected not
only sub-prime loans but also spilled over
into real sectors and other credits (Avery
and Zemsky, 1998, Chari and Kehoe, 2004,
Cipriani and Guarino, 2008).
Although, policy makers are still sorting
through the wreckage following the financial
crisis that roiled the world in 2008 and the
ensuing global recession, the deepest in
generations. In Nigeria the policy maker
respond to the likely effects of this crisis
was meek initially, either they did not
understand the crises or underestimated its
magnitude. In general, they thought of the
crisis as a financial issue that could be
solved shortly without leading to economic
crisis; however the effects on the oil sector
cannot be under estimated. The world
economy is estimated to almost come to a
halt in 2009. Its annual growth of 0.5
percent will rely on the growth in the
developing world, which, in turn, has been
gravely hit by the global economic
downturn. For example, the economic
growth forecast for Africa in 2009 is
expected to be only 2.8 percent, barely half
of the 5.7 percent expected before the crisis.
According to the forecasts made in the
African Economic Outlook (AEO) 2009,
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growth is anticipated to rebound to 4.2
percent in 2010. Growth in oil-exporting
countries is expected to fall to 2.4 percent in
2009 compared to 3.3 percent of the net oil
importers. The IMF has projected a growth
rate of 2.9 percent for Nigeria in 2009 and
2.6 percent in 2010, indicating a major
decline from last year‟s growth of 5.3
percent. A decline in the price of oil, which
accounts for about 90 percent of the
country‟s revenue, and the global credit
crunch are some of the reasons adduced for
the country‟s predicament. For instance, the
crash in the oil market has caused grave
concern for Nigeria‟s fiscal policy and the
outlook for income earned from exports of
crude oil. The global financial crisis has led
to a slowdown of growth across the world‟s
economies, resulting in a lower demand for
commodities,
especially
oil.
The
transmission of the impact can be traced
through several stages of the Nigerian
economy especially through the impact on:
(a) earnings and revenue of governments,
(b) the balance of payments through a
narrowing of the current account balance, as
well as (c) the widening of the deficit on the
capital account through the reduction of
capital flows because of a re-appraisal of
planned investment or the complete
stoppage
of
previously
committed
investment programs, and (d) contraction of
the scope of fiscal policy (Ajakaiye and
Fakiyesi 2009). While speculative behavior
and investment activities had helped to buoy
up crude oil prices internationally, the
reality of the global recession is beginning
to be fully appreciated across the globe. The
adverse impact of the crisis is more direct
and more evident on the international price
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of oil. The recent movement of the oil price
is apparent in its unprecedented decline from
record highs of about USD 147 per barrel in
July 2008 to about USD 50 per barrel in
January 2009 before a marginal increase to
about USD 72 per barrel in August
2009.The declines in oil prices and export
volumes have led to a decrease in export
revenue. With exports falling faster than
imports, the trade balance has worsened in
Nigeria. The expected merchandise exports
prior to the crisis were USD 89.1 billion and
USD 99.5 billion in 2009 and 2010,
respectively, but now revised to USD 50.4
billion and USD 55.3 billion. The current
account balance is also expected to dip into
deficit in the amount of 9.05 percent of GDP
in 2009, from a small surplus of 0.61 percent
of GDP before the crisis
The current global financial crisis is
as a result of a number of factors that
include in the main: (a) the collapse of the
housing market in the United States, (b) the
lax financial regulatory conditions, and (c)
the lack of implementation of strict
corporate governance conditions in the
United States and most of the developed
economies (Krugman, 2008). Avgouleas
(2008), (wikipedia, 2008) enumerated the
causes of the crisis as: breakdown in
underwriting standards for subprime
mortgages; flaws in credit rating agencies‟
assessments of subprime Residential
Mortgage Backed Securities (RMBS) and
other complex structured credit products
especially Collaterized Debt Obligations
(CDOs) and other Asset-Backed Securities
(ABS); risk management weaknesses at
some large at US and European financial
institutions; and regulatory policies,
Jan 2012
including
capital
and
disclosure
requirements that failed to mitigate risk
management weaknesses. In the 19th and
early 20th centuries, many financial crises
were associated with banking panics, and
many recessions coincided with these
panics. Other situations that are often called
financial crises include stock market crashes
and the bursting of other financial bubbles,
currency crises, and sovereign defaults
(Kindleberger and Aliber, 2005, Laeven and
Valencia, 2008). Some economic theories
that explained financial crises includes the
World systems theory which explained the
dangers and perils, which leading industrial
nations will be facing (and are now facing)
at the end of the long economic cycle, which
began after the oil crisis of 1973. While
Coordination games, a mathematical
approach to modeling financial crises have
emphasized that there is often positive
feedback between market participants'
decisions (Krugman, 2008). Positive
feedback implies that there may be dramatic
changes in asset values in response to small
changes in
economic fundamentals,
Minsky‟s theorised that financial fragility is
a typical feature of any capitalist economy
and financial fragility levels move together
with the business cycle, but the Herding and
Learning models explained that asset
purchases by a few agents encourage others
to buy too, not because the true value of the
asset increases when many buy (which is
called "strategic complementarity"), but
because investors come to believe the true
asset value is high when they observe others
buying (Avery and Zemsky, 1998, Chari and
Kehoe, 2004, Cipriani and Guarino, 2008.
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This study tends to look at the
performance of the oil sector before the
recession and during the recession, and its
effects on economic growth in Nigeria. The
paper is structured as follows; session two
discusses the history of Nigeria oil sector.
Section three considers the quarterly trend of
the oil sector during the recession. While
section four gives the methodology and
empirical findings. Section five conclude
and gives recommendations.
2.
History of Nigerian oil
Nigeria
became
politically
independent in October 1960, agriculture
was the dominant sector of the economy,
contributing about 70% of the Gross
Domestic Product (GDP), employing about
the same percentage of the working
population, and accounting for about 90% of
foreign earnings and Federal Government
revenue. The early period of postindependence up until mid-1970s saw a
rapid growth of industrial capacity and
output, as the contribution of the
manufacturing sector to GDP rose from
4.8% to 8.2%. This pattern changed when
oil suddenly became of strategic importance
to the world economy through its supplyprice nexus, Crude oil was first discovered
in commercial quantities in Nigeria in 1956,
while actual production started in 1958. It
became the dominant resource in the mid1970s. On-shore oil exploration accounts for
about 65% of total production and it is found
mainly in the swampy areas of the Niger
Delta, while the remaining 35% represents
offshore production and involves drilling for
oil in the deep waters of the continental
shelf. Nigeria has proven reserves of about
Jan 2012
32 billion barrels of predominantly low
sulphur light crude, which at current rate of
exploitation could last other years. The
intention is to expand the reserves to 40
billion barrels and production capacity to 4
million barrels per day (mbd). The massive
increase in oil revenue as an aftermath of the
Middle-East war of 1973 created
unprecedented, unexpected and unplanned
wealth for Nigeria, and then began the
dramatic shift of policies from a holistic
approach to benchmarking them against the
state of the oil sector. Now, in order to
make the business environment conducive
for new investments, the government began
investing the newfound wealth in socioeconomic infrastructure across the country,
especially in the urban areas. As well, the
services sector grew. The relative
attractiveness of the urban centre‟s made
many able-bodied Nigerians to migrate from
the hinterland, abandoning their farmlands
for the cities and hoping to partake in the
growing and prosperous (oil-driven) urban
economy. This created social problems of
congestion, pollution, unemployment and
crimes.
The national currency, Naira,
strengthened as foreign exchange inflows
outweighed outflows, and foreign reserves
were built up. Up until 1985, the Naira was
stronger than the US Dollar; this encouraged
import-oriented consumption habit that soon
turned Nigeria into a perennial net importer,
which became a major problem when oil
earnings decreased with lower international
oil prices. External reserves collapsed, fiscal
deficits mounted and external borrowing
ensued with the “jumbo loans” taken in
1979. Most of Nigeria‟s macro-economic
indices became unstable and worrisome.
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Several policy initiatives to address the
defective structure and inefficiencies were
taken, but poorly implemented and
sometimes contradictory (with cases of selfinterest motivated reversals). These created
new distortions and further weakened the
inchoate
institutions
for
policy
implementation. The average Nigerian
therefore, became so sensitive to petroleum
oil and all the variables surrounding it, to the
extent that any development in the
international oil markets invites an almost
instantaneous reaction from domestic
economic agents and policy makers alike.
The Nigerian oil sector can be
categorized into three main sub-sectors,
namely, upstream, downstream and gas. The
most problematic over the years has been
the downstream sector, which is the
distribution arm and connection with final
consumers of refined petroleum products in
the domestic economy. The incessant crisis
in supply of products culminated in the
decision by Government in 2003 to
deregulate the downstream sub-sector.
However, the manner of its implementation
has been controversial because it ignores the
economic realities in Nigeria
Oil is a major source of energy in
Nigeria and the world in general. Oil being
the mainstay of the Nigerian economy plays
a vital role in shaping the economic and
political destiny of the country. Although
Nigeria‟s oil industry was founded at the
beginning of the century, it was not until the
end of the Nigeria civil war (1967 - 1970)
that the oil industry began to play a
prominent role in the economic life of the
country. Crude oil discovery has had certain
impacts on the Nigeria economy both
positively and adversely. On the negative
side, this can be considered with respect to
the surrounding communities within which
the oil wells are exploited. Some of these
communities still suffer environmental
degradation, which leads to deprivation of
means of livelihood and other economic and
social factors. While on the positive side it
gives about 90% of the total revenue of the
country, create employment opportunities
and increase the foreign exchange reserves;
and the supply of energy to industry and
commerce.
Nigeria joined the Organization of
Petroleum Exporting Countries (OPEC) in
1971 and established the Nigerian National
Petroleum Company (NNPC) in 1977; a
state owned and controlled company which
is a major player in both the upstream and
downstream sectors Blair
(1976). Following the discovery of crude oil
by Shell D‟Arcy Petroleum, pioneer
production began in 1958 from the
company‟s oil field in Oloibiri in the Eastern
Niger Delta. By the late sixties and early
seventies, Nigeria had attained a production
level of over 2 million barrels of crude oil a
day, although production dropped in the
eighties due to economic slump. Despite the
NNPC utilizes maximum installed capacity
in the face of recent government efforts to
make for adequate supply and distribution of
petroleum products in the country, it is still
doubtful if the product would be effectively
and adequately distributed even if they are
released largely into the market in the faces
of effective allocation /distribution even if
the products are locally available.
Theoretically, price mechanism is adjudged
Jan 2012
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to be the most efficient means of
distributing/allocating scarce resources in
the community. Given this adjudgement, the
distortions that existed in the Nigerian
pricing system, probably created by the
dissolved subsidization policy of the 1970s
to 1980s, gave rise to misallocation of scarce
resources with its attendant economic
inefficiency, particularly in the Public
Enterprises (PEs) sectors (Ayodele and
Falokun 2003). In fact, the Structural
Adjustment Programme (SAP) introduced in
July 1986, was among others, aimed at
redressing such distortions. One of the spinoffs of SAP is the privatization and
commercialization of the PEs. Currently, the
Nigerian National Petroleum resources in
Nigeria, is one of the several PEs being
considered for privatization.
During 2003–2007 Nigeria has
attempted to implement an economic reform
program called the National Economic
Empowerment
Development
Strategy
(NEEDS). The purpose of NEEDS is to raise
the country‟s standard of living through a
variety
of
reforms,
including
macroeconomic stability, deregulation,
liberalization, privatization, transparency,
and accountability. NEEDS addresses basic
deficiencies, such as the lack of freshwater
for household use and irrigation, unreliable
power supplies, decaying infrastructure,
impediments to private enterprise, and
corruption. The government hope that
NEEDS will create 7 million new jobs,
diversify the economy, boost non-energy
exports, increase industrial capacity
utilization, and improve agricultural
productivity. A related initiative on the state
level is the State Economic Empowerment
Development Strategy (SEEDS).
3.
Empirical Findings and Result
Ordinary Least Square (OLS) was used to
analysis the effect of oil activities on gross
domestic product between 1990-2006, data
were sourced from the CBN Statistical
Bulletin. For robustness of the work a unit
root was conducted and a quarterly trend
analysis was captured for the effect of
global recession on oil sector between
2008-2009. For the successful examination
of the relative impact of crude oil on the
Nigerian economy, with regards to the work
of Milbourne, Otto and Voss (2003), which
is based on studies by Mankiw, Romer, Weil
(1992), we specify our model in an attempt
to determine the impact of crude oil
production ultimately on economic growth
in Nigeria.
Assuming linearity among our variables, the
model to be used can be explicitly specified
as follows:
GDP= α + β1domc + β2price + β3expo + µ
Where GDP is the gross domestic product
Domc= Domestic consumption
Price= Oil price
Expo= Oil export
α = constant
β= coefficient (slope)
µ = error term
3.1 Time Series Properties of the Data
Jan 2012
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Table 1.1 below presents the estimates of
the Augmented Dickey Fuller (ADF) test.
Evidence from the results shown in the
table, confirmed that, all the variables
(domestic consumption, oil export, oil
produced and gross domestic product) were
not stationary at level. However they
became stationary after first difference
since the series were integrated of order
one i.e. I (1) at five percent level of
significance. It should be noted, that all the
variables are in log form.
Table 1.1: ADF Statistics for Testing Unit Roots in the Variables
Variables
Series
At Levels
At First differences
Domestic consumption
DOMC
-2.41
-4.33
Gross domestic product
GDP
-2.90
-4.68
Oil price
PRICE
-2.45
-3.61
Oil export
EXPO
-2.98
-4.91
Critical Value
1%
-3.96
-3.98
5%
-3.12
-3.12
Sources: computed from study
The results of the unit root test shows that
all the variables were random walk
processes. It does not however imply that
in the long-run the variables could not
express long-run convergence i.e. long run
equilibrium. Hence the need to subject the
residuals generated from their long run
Jan 2012
static regression to Dickey – Fuller test or
Augmented Dickey – Fuller test to see if
they are stationary. The stationarity of the
residuals is potent evidence that there is
evidence of convergence to long-run
equilibrium among the integrated variables
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Table 1.2: THE RESULT OF OLS WITHOUT TIME SERIES PROPERTIES
Dependent Variable: LOG(GDP)
Method: Least Squares
Date: 08/02/10 Time: 14:22
Sample: 1990 2006
Included observations: 17
Variable
Coefficient Std. Error
t-Statistic
Prob.
C
LOG(DOMC)
LOG(PRICE)
LOG(EXPO)
12.59171
-0.370550
0.080664
-0.594935
74.34331
-4.145999
1.893870
-5.666855
0.0000
0.0011
0.0807
0.0001
R-squared
Adjusted R-squared
S.E. of regression
Sum squared residue
Log likelihood
Durbin-Watson stat
0.993443
0.991930
0.094619
0.116386
18.24253
1.136007
The result from table 1.2 is spurious due to
the problem of autocorrelation as shown by
the Dubin-Waton(1.14) and the coefficient
of oil price is statistically insignificant at 5%
level. However in table 1.3 below all the
coefficients are statistically significant at 5%
level and the autocorrelation as been taking
care of after first difference as suggested by
the Augmented Dickey Fuller (ADF) test as
shown in table 1.1.
From table 1.2, -0.4 is the partial
regression
coefficient
of
domestic
consumption which shows that with the
influence of export and oil price held
constant, as domestic consumption
increase, i.e. 1 percentage on average, GDP
goes down by 0.2 percent the coefficient
Jan 2012
0.169372
0.089375
0.042592
0.104985
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
F-statistic
Prob(F-statistic)
15.08211
1.053286
-1.675591
-1.479541
656.5636
0.000000
0.08 shows that holding the influence of
domestic consumption and export constant,
on average, GDP goes up by about 0.08
percent as oil price increases by one
percentage. More also, if the influence of
domestic consumption and oil price is held
constraint, on average given the coefficient
of export to be -0.6, GDP goes down by
about 0.6 percent. The intercept value of
about 12.5, mechanically interpreted that if
the values of all explanatory variables were
found at zero, the mean GDP would be
about 12.5 percent per 1 percent. The R2
value of about 99 means that, 99 percent of
the variation in GDP is explained by
domestic consumption of oil, oil produced
and oil export.
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Table 1.3 THE RESULT OF OLS WITH TIME SERIES PROPERTIES
Dependent Variable: DLOG(GDP)
Method: Least Squares
Date: 08/02/10 Time: 14:35
Sample(adjusted): 1991 2006
Included observations: 16 after adjusting endpoints
Variable
Coefficient Std. Error
t-Statistic
Prob.
C
DLOG(DOMC)
DLOG(PRICE)
DLOG(EXPO)
0.046752
-0.525391
0.057512
-0.225412
2.423047
-7.562692
1.942655
-2.847975
0.0321
0.0000
0.0459
0.0147
R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
Durbin-Watson stat
0.932565
0.915706
0.057466
0.039627
25.30356
1.722019
From table 1.3, -0.5 is the partial regression
coefficient of domestic consumption which
shows that with the influence of oil export and
oil price held constant, as domestic
consumption increase, i.e. 1 percentage on
average, GDP goes down by 0.05 percent the
coefficient 0.06 shows that holding the
influence of domestic consumption and export
constant, on average, GDP goes up by about
0.05 percent as oil price increases by one
percentage. More also, if the influence of
domestic consumption and oil price is held
constraint, on average given the coefficient of
export to be -0.23; GDP goes down by about
0.23 percent. The intercept value of about 0.4,
mechanically interpreted that if the values of all
explanatory variables were found at zero, the
mean GDP would be about 0.4 percent per 1
percent. The R2 value of about 93 means that,
93 percent of the variation in GDP is explained
by domestic consumption of oil, oil price and oil
export.
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0.019295
0.069471
0.029605
0.079148
Mean dependent var
S.D. dependent var
Akaike info criterion
Schwarz criterion
F-statistic
Prob(F-statistic)
0.196057
0.197929
-2.662944
-2.469797
55.31614
0.000000
4.0
The impact of the financial crisis on
Nigerian oil sector
The impact of the financial crisis on
Nigerian economy has thus far been limited
as most commercial banks in the region
refrained from investing in the troubled
assets from the US and other part of the
world.
Also
the
interventions
of
government to rescue most of the affected
banks have really helped the economy as a
whole. The Nigerian stock market for
instance has been experiencing a
continuous downward trend in prices of
stocks since the beginning of the crisis.
Moreover, expected impact of the
financial crisis on oil markets and the
anticipated impact of the crisis on oil
demand, supply and prices are presented.
This was obtained from data prepared by
the Economist Intelligence Unit (EIU) in its
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Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06
latest report on the Middle East and North
Africa region, and the United States
Department of Energy. Indeed, current
events suggest that EIU estimates appear to
be the most plausible. It is still too early to
predict the full impact of the crisis on oil
prices, but the margin of error of these
forecasts should not be negligible. Crude oil
prices reached a record high of US$ 147 per
barrel (US$/b) in July 2008 on the back of a
six-year commodity boom cycle driven
mostly by demand from developing
countries. However, as of August 2008, oil
prices plunged rapidly as demand from the
Organization for Economic Co-operation
and Development (OECD) countries came to
a sudden halt and recession loomed as the
financial crisis severely impacted the global
economy (IDS, 2008, p. 5). In an attempt to
curb falling prices, the Organization of
Petroleum Exporting Countries (OPEC)
introduced a series of cuts in output. At the
time of writing, oil prices have begun to
stabilize at levels ranging in the mid US$ 40
per barrel.
According to the EIU, world oil
demand is falling. It is estimated that
demand fell by 0.2 per cent in 2008 and
expected to fall by 0.4 per cent in 2009.
Plummeting world demand is largely driven
by falling consumption in developed
countries. Indeed, preliminary estimates
point to a decline of 2.9 per cent in oil
demand in OECD countries in 2008. A
further drop of 1.8 per cent is also forecast
in 2009. Reduction in demand in OECD
countries is largely due to falling demand in
North America, estimated at about 2 per
Jan 2012
cent in 2009, and in Europe, estimated at
1.7 per cent. Non-OECD demand for oil is
forecast to grow by 1.4 per cent in 2009 and
by 2.3 per cent in 2010. Underpinning these
estimates is the expected increase in
demand in developing countries. However,
even if demand is expected to increase, it
will not be sheltered from the
consequences of the global economic
turmoil, as it is forecast to grow at a slower
pace over the short-to-medium term.
Broadly speaking, growing oil demand in
developing countries has recently been
driven by two major components, namely
increasing demand in both China and India
and Arab oil-exporting countries. Hence,
the extent to which oil demand in
developing countries will be impacted
largely depends on the underlying elements
in each of the above-mentioned
components. The expected slowdown in the
demand for oil in emerging countries is
greatly dependent on the demand outlook
in China and India which is, in turn, related
to their growth prospects. Source: The
Arab Petroleum Research Center, 2009; EIU,
2008.
OPEC countries introduced largescale cuts in output as the sharp fall in oil
prices began to bite into the revenues of
major oil-exporting countries. These cuts
were made in two stages: (a) first, the
production target was cut by 1.5 million
barrels per day (b/d), effective from
November 2008; and (b) a further cut of 2.7
million b/d became effective on January
2009, amounting for a cumulated cut of 4.2
million b/d. Taking into consideration the
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production cuts made in late 2008, the EIU
estimates that global crude production has
averaged around 86 million b/d in 2008,
equivalent to an increase of only 1.2 per
cent, when compared to 2007. Also, as
shown in table 2, it expects a fall in global
output by 1.15 per cent in 2009. The
anticipated fall is largely driven by the steep
decrease in OPEC production (estimated at
6.2 per cent), whereas non-OPEC
production is expected to grow by 2.7 per
cent. However, EIU prospects for 2010 are
less gloomy as it forecasts an increase of 2.6
per cent in world oil production. Such an
increase is likely to result from an expected
recovery in worldwide demand by the end
of 2009.
Nigerian’s crude oil production,
including condensates and natural gas
liquids was estimated at 1.70m barrels per
day (mbd) or 154.70m barrels (mbd) per
day during the second quarter of 2009,
compared with 1.78mbd or 160.20mbd in
the preceding quarter. This represented a
decline of 4.5 percent. The development
was attributed to the continued disruption
in oil production in the Niger- Delta region
as a result of militant activities. Crude oil
export was estimated at 1.25mbd or
113.75m barrels in the review period,
compared with 1.33mbd or 121.03m in the
preceding quarter.
The development was attributed
to the continued attacks on oil export
facilities including the Trans –Ramos
pipeline facility belonging to the Shell
Petroleum
Development
Company
Jan 2012
(SPDC).At an estimated average of US
$61.14 per barrel, the price of Nigerian’s
reference crude, the bonny light (370API),
rose by 32.5 per cent over the level of the
preceding quarter. The average prices of
other competing crude namely; the west
Texas intermediate, the U.K. Brent and the
forcados also rose by 45.5, 36.8 and 29.2
percent to US $59.44, US $59.76 and US
$60.32 per barrels respectively. The average
price of OPEC’s basket of eleven crude
streams also, rose by US $15.79 to US
$58.25 over the level in the preceding
quarter. The increase in the price was
attributed to the high expectations of global
economic recovery as well as the falling
inventories in top oil consuming nations,
the united state of America.
5. Conclusion and policy recommendation
In spite of the impressive growth
performance of the Nigerian economy prior to
the global financial crisis, the country is still
faced with serious socio-economic challenges at
different levels of government (state, local),
corporate and financial institutions. High
dependence on oil and gas, which are
exhaustible, as the major source of government
revenue, inadequate pass-through of the
benefit of growth to a larger segment of the
population, the need to link the growth
attained with good economic policies as well as
the capacity to implement policies that will
translate into poverty reduction and the
attainment of Millennium Development Goals
(MDGs), continue to remain economic issue.
However, government can increase their
budget at different level so as to increase the
demand side as it was done during the 1930’s
depression, it should be noted that this was
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Asian Transactions on Basic and Applied Sciences (ATBAS ISSN: 2221-4267) Volume 01 Issue 06
postulated by keyn’s which solved the problem
then. Also government should diversify its
sources of revenue rather than relining on the
oil sector solely since the sector has not been
contributing positively to economic growth as
shown by the result. This notwithstanding,
Medium-term fiscal policy must be guided
by considerations of fiscal and external
stability and deregulation should be
encourage due to many factors like
misappropriation
of
public
funds
(corruption) and poor administration.
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