EFFECTS OF OIL PRICE SHOCKS AND DEREGULATION OF DOWNSTREAM OIL SECTOR ON THE NIGERIAN ECONOMY
This research work attempted to evaluate the economic logic behind Nigeria’s government policy of deregulation of the oil downstream sector. Thus, this work assessed the effect of deregulation of downstream oil sector on the economic performance of Nigeria using annual time series data from 1981 to 2015. The main focus is on the relationship between changes in oil prices as a result of deregulation and two macroeconomic variables namely; economic growth and public investment expenditure. The main instrument of the data analyses were multiple linear regression models and linear trend model. The results revealed a significant inverse impact of oil price shock on economic performance in Nigeria. Results also revealed a significant positive impact of deregulation on economic performance in Nigeria while the impact was supposedly inverse on non-oil exports.The result of the linear trend model suggested that there is a downward direction of movement between oil price shock and investment expenditure variables. The study recommends thatthe government should facilitate the maintenance and building of new refineries by interested investors (including those who have not utilized their licenses since 2004). The existing refineries should be appropriately priced and sold to investors who will make them work. The study concludes that the reasons advanced by federal government for the deregulation of the downstream sector of the oil and gas industry fail to add up to the realities on ground.
Background to the Study
In the beginning Nigeria largely operated an agriculture-driven economy. It cultivated major cash crops such as cocoa, groundnuts, palm oil, cotton, rubber and cashew nuts for export. The regional governments thrived on these, as well as solid minerals, cattle rearing, fishing, and other forms of livestock production which also fetched incomes.Though crude oil had newly been discovered in commercial quantity it wasn’t a major revenue earner for the government. Suddenly, it became a major source of income and indeed a game changer. It accounted for more than 80 per cent of the nation’s budget revenues and over 90 per cent of its foreign exchange earnings (Isangediok, 2016).
With the windfall, the government altered its initial policies that had been agriculture driven, and with enormous resources at its disposal, it indulged its fancies which were the importation of anything and everything. It abandoned the hitherto mainstay of the economy, became import-dependent, encouraged consumption patterns that altered contempt for local products and a strong desire for white collar jobs. That sounded the death knell on agriculture. Clearly, before the Nigerian civil war, crude oil was not a dominant commodity. The economy did not suffer from the Dutch Disease- the crowding out of the traditional export sector by a new booming export sector and the non-tradable goods sector.