THE ROLES OF PETROLEUM INDUSTRY ON ECONOMIC GROWTH IN NIGERIA
CHAPTER ONE
GENERAL BACKGROUND OF THE STUDY
1.0 Introduction
In Nigeria the quest for better standard of living has resulted to a swift in the Nigerian economy. The contribution of oil industry to the development of the country’s economy therefore is a broad and extensive functional activity which embraces a wealth of task such as oil exploitation, share of industry, petroleum production account and external debt. These functions centers on the petroleum industry as survival of Nigeria, economically.
Background to the study
Nigeria is situated in West African sub-region with a land mass of 923,768 sq km and a population that is presently more than 123 million people in 2009 as shown census. The global perception of Nigeria is that of a rich oil producing nation but with a growing poverty index (Yakub, 2008). Between 2000-2009, the price of crude oil which has contributed about 80% of the country’s GDP rose from $13 per barrel to a high of $125 per barrel. This also resulted in significant increase in revenue generated. The annual budget expenditure between the period under review increased from 470 billion (naira) to 2.676 trillion(naira).
Petroleum provides for the imposition of tax on the chargeable profits of companies that are engaged in petroleum operations in Nigeria. Petroleum operations is defined as “the winning or obtaining oil in Nigeria by or on behalf of a company for its account by any drilling, mining, extracting or other like operations or process, not including refining at a refinery, in the course of a business carried on by the company engaged in such operations, and all operations incidental there to and any sale of or any disposal of chargeable oil by or on behalf of the company”. Nigeria economy is dependent on oil, as it cannot finance social and economic growth in the absence of a large oil revenue base. Oil accounts for about 90-95% of the export revenue, over 90% of foreign exchange earnings and about 80% of government revenue. The petroleum industry is thus the hub of the development of Nigeria economy, and needs to be sustained if the country is to achieve real economic growth. According to Nwete (2003), the oil glut of the 80’s that greatly impacted on global oil prices and the low OPEC quota, foisted on the country various fiscal regime for petroleum especially the petroleum profit tax of 85% and 20% royalty regime, all in a bid to get more revenue to oil the nation’s economy. Since then Nigeria has had lofty aims for its oil industry, including the desire to increase reserve from 34billion barrels to 40billion barrels by 2010 and subsequently its OPEC quota, optimization of oil revenue, increase in the industry’s local content, and continuous attraction of foreign investment as a way of promoting and sustaining investment in the oil industry. If we compare it with other economic activities, the petroleum industry has wider attraction because of its special nature, which stems from the fact that till date, it remains the largest and most important industry in the world. It has continuously provided the world’s energy and industrial needs, from transportation to agriculture. It has also been a monet spinner just for the oil production companies, providing them with the opportunity of economic and social development.
However, as our faces are different so is our vision and methodology; all the presidents Nigeria has had have their own goal before becoming the president of Nigeria; these differences ranges from the time of general Sani Abacha to the time of Buhari; all these are still for the better things to come for Nigeria. These changes in political administration has significant effect on the economic development of Nigeria through shift in vision and methodology of ruler-ship.
Nigeria; under the administration of president Jonathan, had the vision of actualizing the transformation of Nigeria economic through to her largest economy which was petroleum; this program was not completed.
President Muhammadu Buhari’s primary goal is to fight corruption and Economic development of Nigeria through economic diversification into different sectors; petroleum for instance. Under the Buhari administration, a lot has happened, for instance, one amongst them was removal of petroleum subsidy in order to improve and develop Nigeria economic.
Under Buhari regime, the major sources of petroleum income are sale of crude oil and gas (oil revenue), Petroleum profits tax and royalties, licensing fees and other incidentals as shown in CBN Statistical Bulletin (2015 and 2018). The main focus of Petroleum Profits Tax (PPT) is the upstream sector of the petroleum industry, which deals with oil exploration, prospecting, development and production (EPDP). In 2018 Petroleum Profits Tax attracted 85% tax rate on export and 65.75% on domestic sale of oil and gas.
Previous studies on the Nigeria economy in this Buhari regime shows that the petroleum industry has been playing a dominant role and occupies a strategic position in the economic development of Nigeria (Atinu, (2018). This is evidenced by the total oil revenue generated into the Federation Account from 2015 to 2018 which amounted to N34.2 trillion while non-oil was N7.3 trillion, representing 82.36% and 17.64% respectively. The mean value of oil revenue for the four year period is N3.42 trillion compared to non-oil revenue at N732.2billion previous administrations. (CBN Statistical Bulletin 2018). Therefore, importance of petroleum to the economic development of Nigeria cannot be over emphasized, as it has engaged in extraction, and by extension the industrialized market to which the earnings of economical improvement of Nigeria.
THE ROLES OF PETROLEUM INDUSTRY ON ECONOMIC GROWTH IN NIGERIA
