Nigeria's Oil, Gas Sector Faces Unprecedented Q2 2023 Capital Drought

According to data analysis from the National Bureau of Statistics (NBS), the oil and gas sector in Nigeria had an unexpected turn of events in the second quarter of 2023.

The oil and gas sector had received zero capital inflow from foreign investors, a dramatic change from its once prosperous status.

Nigeria imported $1.03 billion in capital in Q2 2023, a little decrease from the $1.13 billion in the previous quarter and a substantial decrease of 32.9% from the $1.54 billion reported during the same period in 2022.

Notably, since the second quarter of 2021, this amount marks the lowest capital import.

Examining the NBS data in greater detail reveals that loans made up 74.9% of all capital imports during this time, a sizeable amount of foreign inflows into the nation.

Of the total capital inflow, foreign portfolio investments contributed $106.85 million, or 10.4%, while foreign direct investment contributed $86.03 million, or 8.4%.

Given that Nigeria's oil and gas industry normally contributes about 6% to the country's GDP and is a significant source of funding for the government, the absence of foreign investment in this sector is concerning.

Manufacturing accounted for the largest percentage of capital imports during the examined quarter ($605.04 million), followed by banking ($194.58) and shares ($68.63 million).

Data from the Nigerian Exchange shows a dramatic fall in foreign participation in the Nigerian stock market. As of September 2023, foreign investors made up just 9.51% of all market activity, a decrease from 16.3% in the corresponding period in 2022.

In May 2023, President Bola Tinubu announced that the downstream oil business would be fully deregulated, in accordance with the Petroleum Industry Act signed by former President Buhari.

However, the declaration has not succeeded in drawing foreign investors to the Nigerian oil sector. Rather, international oil corporations are moving their activities out of Nigeria and into neighbouring nations, and foreign investment in the sector has been progressively declining.

An example of this is the deal reached by the Italian business Eni to sell Oando its Nigerian Agip Oil Company (NAOC) subsidiary. According to statistics conducted by the British research and consultancy firm Wood Mackenzie, foreign oil companies have divested £871 million in Nigeria since 2020.

Foreign investor participation in the Nigerian economy has been further deterred by the country's worsening foreign currency (FX) liquidity crisis since many find it difficult to repatriate their profits because of the lack of foreign exchange. The stability and expansion of Nigeria's economy are seriously threatened by this trend.