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As Nigeria’s Finance Minister, Wale Edun, addressed the foreign exchange crisis at the World Bank/IMF meetings in Washington, his proposed solution—boosting oil production to stabilise the naira—revealed a troublingly familiar narrative: a return to oil dependency. While the administration’s goal of raising output to two million barrels per day may appear logical in the short term, it ignores the broader structural failings that have tethered Nigeria’s economic stability to oil for decades.
In a country where the naira has depreciated sharply since artificial support mechanisms were removed, the immediate allure of increased crude production seems compelling. But a deeper look reveals Nigeria is gambling on an outdated strategy. Despite the current pressures on foreign exchange reserves, banking on oil to save the naira is a precarious wager, akin to trying to stay afloat in a sinking ship by patching holes with quick fixes rather than addressing the foundational cracks.
Q: “Despite the current pressures on foreign exchange reserves, banking on oil to save the naira is a precarious wager, akin to trying to stay afloat in a sinking ship by patching holes with quick fixes rather than addressing the foundational cracks.”
Nigeria’s attempts to sustain foreign currency earnings by increasing crude output face significant obstacles. Oil production in Nigeria has become mired in sluggish regulatory approvals, bureaucratic inertia, and ongoing divestment challenges with international oil companies (IOCs). The government’s recent move to block Shell’s $2.4 billion sale of onshore assets illustrates how political interference can dissuade investment, further dampening productivity. The broader impact? Oil fields remain underused or idle, reducing Nigeria’s capacity to meet even existing production targets.
Oil rig counts—an indicator of exploration activity—have declined from 17 at the beginning of 2024 to just 14 in the third quarter. This reduced operational footprint coincides with falling investor confidence, as highlighted by Nigerian energy leaders, who warn of rising investments in competing African oil markets like Namibia and Ivory Coast. Nigeria’s oil sector, once a magnet for foreign capital, has become a diminished player in the region, undermining its potential to serve as the economic pillar it once was.
Read also: Nigeria needs high oil production to alleviate FX pressure, says Edun
Political and administrative interference has further undercut Nigeria’s efforts to unlock domestic oil capacity. Approval processes for IOC divestments are bogged down by bureaucracy, with divestment deals languishing in regulatory limbo for years. These delays are more than administrative inconveniences; they send a powerful signal to investors about the country’s investment climate, prompting them to seek more stable environments. Divestment delays, such as ExxonMobil’s recently stalled sale, cost Nigeria opportunities for increased production and, by extension, foreign exchange revenue.
Where previous decades saw billions in foreign direct investment (FDI) in Nigeria’s oil sector, 2024’s total FDI amounted to just $5 million—an astonishingly low figure for Africa’s largest economy. Austin Avuru, the executive chairman of AA Holdings, captured the frustration: the transition of oil assets from international to local hands rather than adhering to transparent guidelines has been politicised. These practices have transformed oil asset transfers into power plays, where political allegiances and opaque dealings are rewarded at the expense of Nigeria’s long-term economic health.
Relying on oil alone cannot address Nigeria’s foreign exchange pressures sustainably. Diversifying revenue streams through sectors such as agriculture, technology, and manufacturing would offer a buffer against oil’s inherent volatility. Furthermore, a more transparent, streamlined regulatory environment could renew investor confidence and attract capital across multiple sectors, thus stabilising Nigeria’s economy.
Edun’s proposition—despite its short-term appeal—underscores Nigeria’s continued dependence on an outdated model. Without a shift to a more diversified economic structure, Nigeria remains vulnerable to oil’s unpredictable swings and political complexities. While oil may ease today’s foreign exchange pressure, it cannot be the keystone of Nigeria’s future.
In an era where global investors seek resilient and diversified markets, Nigeria must confront the limits of its oil dependency. A pivot toward a broader economic vision is essential to building a stable, self-sustaining economy that can withstand both local and global disruptions. Such a shift will require more than incremental changes; it calls for a fundamental rethinking of Nigeria’s economic priorities.
To achieve this, Nigeria should prioritise investments in sectors with high growth potential, such as technology, renewable energy, and agribusiness. By fostering innovation, promoting entrepreneurship, and creating a conducive business environment, Nigeria can attract foreign direct investment and stimulate domestic economic activity. Additionally, the government should implement policies that encourage skill development, education, and healthcare, empowering its citizens to contribute to a more diversified economy.
Only by reducing its oil dependency and embracing a more diversified economic model can Nigeria unlock a more secure and prosperous future.
