The oil and gas sector in Nigeria is currently reeling from the substantial impact of approximately $21 billion in divestments by multinational oil companies, leading to a decline in upstream capital expenditure. The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) attributes these divestments primarily to regulatory uncertainty in the sector prior to the enactment of the Petroleum Industry Act (PIA) 2021, as well as the fossil fuel divestment schemes prompted by energy transition and the COVID-19 pandemic.
Recent reports indicate a significant decline of over 74 per cent in Nigeria’s annual upstream capital expenditure over the past eight years. The country’s total yearly upstream capital expenditure has plummeted from $27 billion in 2014 to less than $6 billion in 2022. Prominent investors such as Shell, ExxonMobil, Total, Chevron, and Eni have been gradually withdrawing their investments in the country through various divestment strategies since 2010.
Nigeria heavily relies on oil revenue, with a substantial portion of its national budget funded by oil-related income. The divestment by IOCs threatens to erode the country’s revenue base, leading to huge budget deficits, reduced public spending on critical sectors, and economic instability. This scenario further exposes Nigeria to the volatility of global oil prices, making it susceptible to external shocks.
The divestment trend can have dire consequences for the Nigerian workforce. The oil industry is a significant employer, supporting both direct and indirect employment opportunities. With divestments come job losses, impacting the livelihoods of thousands of Nigerians and potentially exacerbating social challenges, including poverty, inequality, and social unrest.
The departure of IOCs creates an investment and infrastructure gap in the oil sector. These companies possess the financial capacity and technological expertise to explore and develop oil fields, build infrastructure, and implement sustainable practices. The reduced presence of IOCs could hamper Nigeria’s ability to tap into its oil reserves efficiently and exploit the sector’s potential for economic growth and diversification.
Nigeria’s oil industry has faced criticism for its environmental impact, including pollution, oil spills, and damage to ecosystems. The divestment trend may hinder the implementation of environmental remediation measures and the adoption of greener practices. This could prolong the environmental degradation associated with oil extraction, jeopardizing the health of local communities and Nigeria’s international standing in environmental conservation efforts.
To address the dangers posed by the divestment trend in Nigeria’s oil industry, several key actions can be taken:
Dauda Ibrahim, a lecturer at Nasarrawa State University, said Nigeria must accelerate efforts to diversify its economy beyond oil. Promoting sectors such as agriculture, manufacturing, renewable energy, and technology can reduce dependency on oil revenue and create new avenues for economic growth and job creation.
“The Nigerian government should implement policy reforms that enhance the ease of doing business, attract investment, and foster an enabling environment for both local and foreign companies. This includes addressing regulatory bottlenecks, ensuring contract sanctity, and providing fiscal incentives to attract new players to the oil industry.
“Encouraging the growth of indigenous oil companies and promoting local participation in the industry can mitigate the impact of divestment. This can be achieved through capacity building, favorable policies, and increased access to financing for local entrepreneurs.
“Nigeria must prioritize sustainable practices in the oil industry, including environmental conservation, community engagement, and responsible resource management. This approach can attract socially conscious investors and improve the industry’s reputation, creating long-term sustainability and reducing environmental risks,” he said.
Festus Soludo, a wealth manager at Cashlinks Ltd., said, “The divestment of $21 billion by IOCs in Nigeria’s oil industry raises red flags for the country’s economy and future prospects. It underscores the urgent need for Nigeria to diversify its economy, attract new investments, and adopt sustainable practices in the oil sector. By implementing robust policy reforms, promoting economic diversification, and addressing environmental concerns, Nigeria can navigate the challenges posed by the divestment trend and chart a path toward a more resilient and sustainable future. Failure to do so risks leaving Nigeria vulnerable to economic volatility, social unrest, and missed opportunities for inclusive growth.
Also speaking, a lecturer at the Department of Insurance, Ebonyi State University, Dr. Nelson Nkwo, told NATIONAL ECONOMY that Nigeria should accelerate efforts to diversify its economy beyond oil. According to him, this includes investing in sectors such as agriculture, manufacturing, renewable energy, technology, and tourism. By promoting non-oil sectors, Nigeria can reduce its overdependence on oil revenue and create new sources of income and job opportunities.’
He added that The Nigerian government should prioritize improving the ease of doing business by addressing regulatory bottlenecks, streamlining bureaucracy, and reducing corruption.” Creating a business-friendly environment will attract both local and foreign investments, encouraging companies to stay and invest in the country,” he said.
An economic affairs analyst in Lagos, Julius Ajero, stated that Nigeria should strengthen the capacity and capabilities of indigenous oil companies to fill the gap left by the divesting IOCs. He said this can be achieved through targeted policies, access to financing, and training programs to empower local players in the oil and gas industry. “Additionally, partnerships between local and international companies can facilitate knowledge transfer and technology sharing.
“The Nigerian government should actively seek to attract new investors to the oil industry. This can be achieved through competitive fiscal incentives, stable regulatory frameworks, and transparent licensing processes. Encouraging exploration and production activities will help offset the impact of divestments and maintain a steady revenue stream,” he said.
He also said investing in critical infrastructure, such as transportation networks, power generation, and refining capacity, is crucial to attract investments and improve the overall competitiveness of the Nigerian economy. “Adequate infrastructure will reduce operational costs for businesses and create an enabling environment for sustainable economic growth,” he noted.
