Despite various attempts by the Nigerian government to boost foreign investment in the oil and gas sector, there has been a dramatic decrease in such investments. The amount of foreign capital invested in the industry dropped sharply from $720 million in 2016 to just $3.64 million for the entire year of 2023.
This decline in investment is not only striking when viewed over a span of several years but also alarming when examining recent data. According to a report from the National Bureau of Statistics, Nigeria recorded no foreign investment in the oil sector during the first quarter of 2024. This report highlighted that out of the total $3.38 billion in capital importation into Nigeria during these three months, the petroleum industry received no investment whatsoever.
Capital importation refers to the influx of foreign capital into a country, which can come in various forms, including direct investments, loans, or other financial resources. These investments might include Foreign Direct Investment (FDI), portfolio investments like stocks and bonds, or temporary capital inflows such as short-term loans and deposits.
The complete absence of foreign capital in the oil sector during the first quarter of 2024 suggests a significant lack of investor confidence. This could have serious repercussions for the development and growth of the sector, which is crucial for Nigeria’s economy. Despite a substantial increase in total capital importation by 198.06 percent—from $1.13 billion in Q1 2023 to $3.38 billion in Q1 2024—the oil sector, which historically has been a major source of revenue for the country, attracted no foreign investment during this period.
In contrast, other sectors received notable foreign capital inflows. The banking sector saw the highest investment, with $2.07 billion, representing 61.24 percent of the total capital imported in Q1 2024. The trading sector followed with $494.93 million (14.66 percent), and the production/manufacturing sector garnered $191.92 million (5.68 percent). The marketing, consultancy, and construction sectors also attracted investments of $60,000, $300,000, and $610,000, respectively. However, the oil and gas sector, despite its critical importance to the economy, received no investment.
A closer look at the historical data reveals a concerning trend. Foreign investment in the petroleum sector has been steadily declining over the years. In the first quarter of 2023, the sector managed to attract $750,000. However, this was followed by a complete lack of investment in the second quarter. The sector then saw $850,000 in the third quarter and $2.04 million in the last quarter of 2023, bringing the total for the year to $3.64 million.
This figure represents a stark decrease from previous years. For instance, in 2022, the petroleum sector attracted $6.37 million in capital importation. This amount was significantly lower compared to the investments recorded in one quarter of 2021. According to the National Bureau of Statistics, Nigeria’s oil sector received $57.25 million in the first quarter of 2021, $340,000 in the second quarter, $940,000 in the third quarter, and $32.31 million in the fourth quarter, totaling $101 million for the year.
The sector’s investment figures for previous years further illustrate the decline. In 2014, the sector attracted $208 million, and in 2015, it saw $29.76 million. The peak was in 2016, with a high of $720 million. However, the investment decreased to $331.36 million in 2017, $133.51 million in 2018, $216.23 million in 2019, and $53.51 million in 2020.
Experts have weighed in on the reasons behind this sharp decline. Professor Wumi Iledare explained that the drastic drop in foreign investment in Nigeria’s oil sector was anticipated due to skepticism about the Petroleum Industry Act (PIA). He argued that the PIA, which was intended to create incentives for investors, was poorly implemented by the previous administration under Muhammadu Buhari. According to Iledare, the current administration, led by President Bola Tinubu, has not yet addressed the implementation errors from the previous administration.
The professor highlighted that investors are primarily concerned about the stability and predictability of the business environment. He criticized the implementation of the PIA, noting that it was meant to offer incentives but failed to do so effectively. Instead, investors perceive Nigeria’s business environment as unchanged, continuing the “business as usual” mentality.
Iledare also suggested a need for clearer separation of roles within the sector. He emphasized that the Nigerian National Petroleum Corporation (NNPC) should function as a commercial entity rather than a government agency. According to him, there should be a distinct separation between the NNPC, the regulators, and the Minister of Petroleum, who is responsible for driving policy and ensuring stability in governance. He argued that the NNPC’s role should be more focused on commercial activities, and regulatory bodies should be seen as impartial.
Additionally, Mele Kyari, the Group Chief Executive Officer of NNPC, has attributed the lack of investment in the oil sector to ongoing issues with oil theft and vandalism. During a meeting with the Chairman of the Economic and Financial Crimes Commission (EFCC), Ola Olukoyede, Kyari explained that illegal connections and theft of oil are significant deterrents for investors. He pointed out that these activities involve large, sophisticated pipelines, which discourage investment due to the perceived risk and lack of assurance that the produced oil will reach its destination.
Kyari’s comments underscore the broader challenges facing Nigeria’s oil sector, including the need to combat economic crimes and improve security to attract and retain foreign investment. He stressed the critical role of the EFCC in addressing these issues and supporting a more stable investment environment.
The substantial drop in foreign investment in Nigeria’s oil sector reflects a range of issues, including poor implementation of policy reforms, concerns about governance, and ongoing security challenges. The lack of investment in the first quarter of 2024 and the overall downward trend in recent years highlight the urgent need for comprehensive reforms and targeted efforts to restore investor confidence and ensure the sector’s sustainable growth.