The recent decision by the Federal Government of Nigeria to allow the sale of crude oil in naira to the Dangote Petroleum Refinery has sparked controversy and raised concerns about the potential negative impact on the Nigerian economy. Olufemi Adewole, the Executive Secretary of the Depot and Petroleum Products Marketers Association of Nigeria (DAPPMAN), has voiced strong opposition to this policy, arguing that it poses significant risks to Nigeria’s foreign exchange stability and could deter foreign direct investment. His primary concern revolves around the volatility of the naira, traditionally a weaker currency compared to the US dollar, the globally accepted currency for crude oil transactions. Adewole emphasizes the potential for this policy to isolate Nigeria from international markets, discourage investment, and exacerbate existing economic challenges.
Adewole’s argument centers on the established global practice of conducting crude oil transactions in US dollars due to its stability and widespread acceptance. He cautions that deviating from this norm could alienate Nigeria’s trade partners and investors who rely on the predictability of the dollar. This, he believes, could lead to diminished trade opportunities and a decline in foreign investment, hindering Nigeria’s economic growth and the development of its oil and gas sector. Furthermore, he argues that “reactionary policies” that favor specific industry players, like the naira-for-crude arrangement, can create skewed economic benefits that do not benefit the wider economy. Instead, he advocates for policies that recognize the unique nature of the oil and gas sector and promote sustained national competitiveness.
The historical instability of the naira, marked by inflationary pressures and fluctuating exchange rates, is another key element of Adewole’s critique. He contends that linking crude oil transactions to the naira could worsen these existing challenges, potentially triggering capital flight as foreign investors seek more stable markets. This could further weaken the naira and create a vicious cycle of economic instability. He warns that the Central Bank of Nigeria (CBN) might struggle to maintain currency stability amid reduced dollar inflows resulting from the naira-for-crude policy, placing additional strain on the nation’s foreign exchange reserves. This, he explains, could lead to a depletion of reserves and further weaken the naira, ultimately hindering Nigeria’s economic growth and the sustainability of the oil and gas sector.
While the Federal Government has argued that naira-for-crude transactions could enhance economic sovereignty and strengthen the local currency, Adewole disagrees. He maintains that policy decisions should prioritize sustainable economic impact over short-term gains. While acknowledging the government’s intention to bolster the naira, he stresses that such strategies must be part of broader economic reforms that address the root causes of the naira’s weakness. He advocates for a balanced approach that considers both national interests and global market realities, emphasizing the importance of aligning policies with long-term economic sustainability rather than sector-specific demands.
To underscore the potential risks of the naira-for-crude policy, Adewole cites Venezuela’s failed attempt in the early 2000s to replace the US dollar with its local currency in oil transactions. This move, he argues, contributed to severe economic destabilization in Venezuela, serving as a cautionary tale for Nigeria. He advises the government to proceed cautiously and learn from historical precedents, stressing that policies that disrupt established international trade norms without adequate safeguards can have unintended and negative consequences. He emphasizes the need for policies designed to maximize benefits for all Nigerians, ensuring long-term economic stability and growth.
Adewole concludes by reiterating DAPPMAN’s commitment to collaborating with regulators and stakeholders to promote efficiency and access to reliable and safe solutions in the downstream sector. He advocates for policies that align with international market realities while ensuring long-term economic stability for Nigeria. He emphasizes the importance of creating an enabling environment for private-sector participation to achieve a sustainable energy landscape that benefits the entire economy. Ultimately, he believes that the future of Nigeria’s oil and gas sector hinges on pragmatic policies that encourage investment, foster transparent competition, and protect the nation’s foreign exchange reserves.
