Nigeria’s economy has been significantly impacted by the volatility of oil prices. The country’s heavy reliance on oil production and export has made it particularly vulnerable to fluctuations in global oil prices. The drop in oil prices, exacerbated by the COVID-19 pandemic, led to a decline in government revenue and negatively affected the country’s GDP. This drop caused Nigeria to slip into a recession in November 2020.
The World Bank and the Natural Resource Governance Institute have both highlighted the implications of the declining oil sector on Nigeria’s economic recovery post-COVID-19. The country’s dependency on oil production and the volatility of the oil industry have made it clear that Nigeria cannot depend solely on the oil industry for economic recovery.
The impact of oil price volatility has also led to a decline in government revenue, negatively affecting the country’s GDP and leading to budget deficits. The lack of investment in downstream industries has further compounded the impact of oil price volatility on Nigeria’s economy, as the country’s oil and gas sector mainly focuses on upstream activities such as exploration and production, with little investment in the refining and petrochemical industries. This has resulted in Nigeria exporting crude oil and importing refined petroleum products, further exposing the country to the impact of oil price volatility.
Foreign investors in Nigeria’s emerging market face several challenges. One of the most significant challenges is the lack of access to foreign exchange, which reduces the ability to import necessary inputs and equipment and to service external debt.
The foreign exchange is tightly controlled by the Central Bank of Nigeria (CBN) and must be requested by companies. Requests are regularly met with a fraction or none of the requested currency, which forces many companies to look for alternative and more expensive sources from the parallel market.
