Petroleum Economy Management: Pricing, Deregulation, and Subsidy in Nigeria

Abstract

This research work is an attempt to contribute to the on -going global debate or discussions

on what should be appropriate petroleum pricing and economy management profile in a well

determined macro -economic environment and c apability of regulatory bodies (PPPRA,

PPMC, DPR, PEF, and NNPC ) in the administration of petroleum policies in Nigeria

economy. Most striking is the pricing policy formations implemented downstream sub -sector

of the petroleum industry, pricing components, removal of subsidy. In a bid to achieve these

objectives, the study hope s to employ both traditional , economic, empirical, and qualitative

analysis mechanism s to interpret the political economy of Nigeria’s domestic petroleum

products pricing reform initi ative as adopted since the emergence of crude oil in Nigeria in

1. Furthermore, the approach to this research is considered suitable as it examines

related global economic production of goods and services, wealth distribution against the

need for economic efficiency, and holistic overview in the sustainability and management of

the economy in general. The research will contribute to petroleum economy, downstream

petroleum policy guidelines, and public policy analysis fact book, especially those analysts of

petroleum and gas economics management, energy pricing policy, and government reform

agenda in the exportation of oil by developing countries. While trying to bridge the gaps

through research and knowledge by harnessing the theories of traditional stand ard economic

empirical approach and theories of political economy approach in order to synchronise both

approaches for a better understanding of the role played by macro -economic indices in a

deregulated economy in a natural resource sector that produces e conomic wealth. This

approach will provide a unique theoretical case -study of Nigerian downstream deregulation

regime under a democratic scenario. However, my argument is towards the benefits

associated to a well driven liberalised economy in the long run, more so, my reservation is

our inability to maintain and sustain the policy.

KEYWORDS: Petroleum Sector, Management, Nigeria, Economy.

1.0. INTRODUCTION

Nigeria is the largest economy within the continent of Africa, with a population of about 175

million situated within the West Africa sub -region and a land mass of about 950, 830 square

kilometres. From the “Post oil Boom Era in 1970, Macroeconomic indices has played vital

role in the deter mination of economy development through its components such as level of

inflation, output level of agricultural produces, level of money supply, interest rate vis -à-vis

exchange rates of our country’s currencies etc Especially after the demise of oil boom of the

‘1970, the revenue allocation system remained one of the critical destabilizing factors in the

Nigerian Federal experiment. The choice of oil remind tied to its status as the physical basis

of Nigeria state accounting for over 80 percent of Federal Revenue and 90 percent of foreign

exchange earnings. Beyond this, it feeds into struggles over control of assets and distribution

of various factions of the existing rule class with revenue allocating largely implementing the

allocation of oil revenue. Hen ce, oil remains the central focuses to politics of inter and intra –

government relations. The economic crisis and transcendent of destabilizing tendencies

within the system, the politics of oil determines the political economy of fiscal Federalism,

confronts the power relation that underlines the authoritative allocation of resources among

the various tiers of the Nigeria Federation. By the same logic, it deals with the outcomes the

allocation under which it breads crises.

The Nigeria oil economy started way back, during the colonial era through its cohesive

apparatus; colonial states defined Nigeria territorially and forcefully integrated the various

political forms and pre capitalist modes at different stages of development into a global

economic system. The Nigeria economy was therefore geared towards meeting the demand of

the few internal and large western imperialist through the global capitals flight of natural

resources, export of primary goods and the creation of internal market for imported finished

products. Surprised to state at this point that, Nigerian state was used as a spring -board for

global accumulation for the extraction and transfer of resources of the Metropolis as such; it

exculpated internal differences which spared uneven growth through a vertical channel of

extraction accumulation and transfer of wealth. This situation gave room for regionalism and

the emergence of local elites in the area of where there are concentrations of commerce, it

created cleavages amongst Multinational Corporations (MNCs).1

Over the years, Nigeria participation in the International Polity was as a result of her sudden

strength in economic wealth, which came about due to her discovering of crude oil gains at

export earnings, hence, she seems to have a voice in the global policy, the boost of her

economic might gave her foreign policy a nationalist and international recognition. In order

to sustain such saddle of responsibilities in the international community, at the inception of

Obasanjo’s reign in 1999 there was the strong desire to energised the economy, hence the

introduction of various reforms agenda such as; Privatization of government enterprises,

Liberalization of the economy for full private participation; unbundling of petroleum

upstream and downstream sub sector; and the recapitalization of financial institutions, all

these are macroeconomic driven policies.

Government over the years had regulated business activities in the past by being major player

in commercial operation of the economy, that is, Governme nt have always had state fiat

monopoly in the operations of various industries. In a market guided economy, price is the

determinant of the performance of the entire economy with respect to level of output,

inflation, and money supply; Government had subsi dized price in certain sectors of the

economy, notable amongst them are: Petroleum sector (downstream), power (electricity),

Agriculture, Telecommunication, etc; This level of subsidy and regulation of the activities of

industries in these sectors had led to in-efficiency and bureaucratic bottleneck in the business

of these industries and the sectors (in so doing the economy as a whole). In the other hand, if

it had been only subsidy without government control of activities of business perhaps market

prices would have been determined first before a guided price is negotiated by Government:

so that the difference between this prices would have only be infected into the sector (market)

by government as a form of subsidy. A market guided economy could be refer red to as

deregulated economy, that is, when an economy is deregulated with or without government

subsidy it leads to increase in national employment and output, reductions in inflation and

money supply will be kept at a level of national output level and level of inflation.

Nigeria is the 7th oil producing country among the OPEC Countries and blessed with so much

natural endowment in solid minerals and agricultural produces. In year 2001-2010, the

petroleum economy contributed about 90 percent to the country’s GDP growth. In year 2012,

1 Onyemaechi .J.O. (2012), Economic Implications of Petroleum Policies in Nigeria: An Overview.

the country’s GDP from $14 to about $130 per barrel of crude oil. This depicts a significant

upward movement in revenue generated that period. However, there was a significant

increase in the annual budge t expenditure from about 490 billion (Naira) to 3.3 76 trillion

(Naira) between the period mentioned above . While Capital expenditure reared at about 40.2

percent of entire budget in year 2001 which amounted to about 350 billion n aira and about

26.6 percent in previous year 2000 totalling to about 1.624 trillion naira. Giving an increased

to recurrent expenditure within the period under study, due to expansion in government

agencies/ministries and salaries increase. The low ratio in capital budgeting of gove rnment

establishment was unable to deploy adequate funds efficiently. The reason is that, most of

these government establishments are still lots of inconsistencies is their accounting

procedures and transparency due to manual operation as against modern ap plication of

computerization. There are other salient issues confronting the Nigerian economy; inadequate

power supply, unemployment, poor social infrastructure, and colossal corruption. Studies

shows that Nigeria has a proven crude oil reserves of about 42 billion barrels (Bb), 5 billion

barrels of condensates, gas proven reserves of about 187 trillion standard cubic feet (Tscf)

averaging daily crude oil production to about 2.9 million barrel per day (Mbpd).2

The major revenue sources of petroleum income are; through royalties and petroleum profit

tax (PPT), sales of petroleum products (crude oil & gas), and licensing fees from the

operation of petroleum business and other incidentals. The main objective of this Tax (PPT)

is accrued derivable proceeds from deals from oil and gas business such as: Exploration of

crude oil, sourcing for crude oil Prospect, Development of this prospect is gotten from oil and

Production and marketing (EPDP) activities in upstream sector of Petroleum industry. Before

2010, Petroleum Profits Tax contributed about 87 percent tax rate on export and about 70.10

percent domestic sales of crude oil and gas products. Previous analysis in the last decade on

Nigeria economy reflects that, petroleum in dustry has play ed a significan t impact on the

economy by taking prominent position in socio economic growth of the economy .3 This

evidently reflects in Federation oil revenue Account in year 2001 to year 2010 amounting to

about 40 trillion naira while non-oil was about 8.3 trillion naira, which is about 86.46 percent

and respectively. The efficacy of petroleum economy activities to economic business

development and growth cannot be under mined.4

Between 1970 and 2006, N igeria added $400 billion fiscal revenue through crude oil

products. Regrettably, the economy has suffered series of setbacks as a result of acute

poverty, corruption, poor inequitable distribution of income, poor human capacity

development, and underdevelopment, cross regional violence, unemployment, and lack of

social a menities. Notwithstanding of her enormous crude oil and gas wealth, Nigeria has

remained one of the most undeveloped economy of world. For instance, Niger Delta produces

and account for about 90 percent of crude oil and gas revenue earnings of the country. Yet,

characterize by so much environmental deficiency and poverty. 5 Nigeria problems could be

traced to successive governments’ policy inconsistency and inappropriate management of

proceeds from excess petroleum revenue in developing other sectors of the economy. This

has led to inefficiency in other GDP contributors ; financial institutions, power sector, poor

energy resource, poor infrastructures, weak political institutions, unconducive investment

environment, and general systemic failure. With large dep osit of fossil fuels in the country,

2 Egbogah, (2009), ‘’50 Years of Oil Production in Nigeria’’

3 CBN Statistical Bulletin (2009), Annual Report and Statement of Accounts.

4 Arabian Journal of Business and Management Review (2012), Income Revenue.

5Ekaette, (2009), ‘‘The State of Petroleum Account in Nigeria.

Nigerian economy is struggling to develop, what economic ironing that in the means of

plenty vast number of Nigerian lives below $1 daily.

Generally, the abundance of natural resources in a community is supposed to enhance growth

and development. But, the case of o il and gas in Nigeria has aided so much economic

depression and underdevelopment. Various reasons are adduce to this strange phenomenon.

As situation have turned out to be contentious between interest groups, such as; government

officials, stakeholders in oil and ga s, and oil & gas industry in the battle of crude oil

supremacy and who get what and how. Instead of focusing on development of human capital,

social infrastructures, improved standard of living of the populace, r eal gross d omestic

product, domestic oil and gas utilization, sustainable alternative sources of energy and

international trade liberalization via agricultural prod uces. From the above analysis, t his

study has proved so far, that there had not been adequate empirical analysis on the impact of

petroleum economy management o n Nigeria economy.6 Thus, this research work is

authoritative with a view to provide pragmatic paradigm shift in re solving some salient

challenges confronting the economy of Nigerian.

1.1 Statement of the Problem

Nigeria had the problem of not being on the core of global economic activities but also of

being subordinated to external economic forces, which can be controlled or minimized, t he

regional apparatuses and tremendous economic resources available to them were formidable

additional source of economic strength. But the reverse is the current situation (symbols of

weakness).

Petroleum economy management is a relationship and a determinant between human capital

management, political strength being greatly influenced by economic power, wealth creation

through conversion of natural resource to economic goods leading to economic g rowth and

development. over decades, petroleum products Pricing in Nigeria is bedevilled with complex

scenarios emanating from her weak socioeconomic and policy direction and corruption,

creating heavy dependency on foreign consumables goods when she has t he all it takes

economically to chart her development path.

This research work therefore examines the c riticalities, influence and salient economic

challenges that have moderated the Nigerian oil and gas economy over the years . The se

challenges are , there fore, on how Nigerian can attain sustainable political/socioeconomic

independence, promote professional industrial integration, develop a strong oil and gas

business management portfolio that can trigger international trade competency, and formulate

a self-sustaining economic development policy plan for the economy. Attitudinal Problems of

Nigerian leaders are of grave concern in this study. That is, the problem of realism and

distinguishing between the declaratory and operational aspect of Nigerian leaders , attitudes

towards economic policy, yawning gaps between what an African leaders says and what he

exactly does about his external and internal environments. Finally, this study also intends to

review past and existing oil and gas policies in the area of p roducts pricing with a view to

identify possible bottle -necks associated with the implementation of Petroleum sector. And,

to identify relevant economic indices that will facilitate the realisation of the policy.

6 (Nwezeaku, 2010)

1.2. Study Objectives

The study objectives of this research are listed as follows:

• To examine the macroeconomic indices that will fast tract Nigerian petroleum

economic development globally

• To be able to promote a strong, effective and mutually beneficial industry -integration

and interaction professionally.

• To be able to analysis existing challenges associated to Nigerian petroleum economy

management with a view to giving it a nationalist approach

• To holistically review various existing petroleum products pricing and legal

framework policies o ver the years, changes in petroleum products pricing policy in

Nigeria, an attempt to show how the periods of economic changes coincided with

change in Nigerian economy.

• To examine investment opportunity in the oil and gas economy.
• And h ow crude oil influ ences Nigerians behaviour on international issues and its

impact on the exercise of political power with other nations in the international polity.

1.3. Hypothesis

The petroleum industry is a complex organization to manage; hence it requires strate gic

management process to actualize macroeconomic policy processes in order to optimiz e

business environment in areas of transportation, marketing, production, with a view to

satisfying policy regulations in the economy. The government and petroleum indust ry with

collaborating interest in the sector can only meet up with these challenges where high quality

human capacity development is attained and sustained through managerial capabilities,

improved technological growth, increase economic proficiency, inves tment business

development skill, leadership skill, policy initiation and implementation. However, Nigerian

petroleum economic policy began at the emergence of crude oil in 1956 to date , and it has

become a function of change in the structure in Nigeria macro and micro economic activities

including her political sphere in global polity. However, the hypothesis of this study is as

follows:

• There is a strong indication between the chan ges in economic factors, policies,

political structures, and managerial capabilities of the oil and gas sector.

• Nigerian political economy management adoption policy is a radical position that will

strengthen industrialisation if its implementation would recognise necessary systemic

changes highlighted by this study as re gards structural deficiency in socioeconomic

values of Nigerians.

2.0. OVERVIEW OF PETROLEUM ECONOMY MANAGEMENT IN NIGERIA

This study intends to holistically approach the context of study subject matter in order to

provide analytical tools for future references. Generally, policy is an action-plan of corporate

organization or government directed to wards achieving set targets’ of an organization or a

country’s economic goals with concerted effort in describing the intended objectives of the

initiator and how to a ttain them. However, one of the cardinal focuses of economic policy is

that, it is most welfaric in nature, (improve standard living). Economic policy implementation

could be short or long periods depending on the nature of the policy. Furthermore, one of the

benefits of economic policy is a trade -off theory which the economists calls “alternative

foregone”. This implies that, economic indices dictate policy priorities. Indeed, this is the

essence of managerial-based strategic policy advocacy and implementation. Economic policy

formulation policy entails data c ollection, analysis, and interpretation. The quality of data

collated determines quality of policy formulation and implementation, critical to evolving

policies that will im pact positively on the growth and development of the economy for

maximum benefit to citizenry.

The formulation of economic policies becomes critical, t o identified and analysed possible

challenges confronting the economy amidst sets goals over a specific period of time. The

implication of this is that, it becomes an a berration of self -interest motivat ed economic

policies, common with government functionaries and leadership style. However, this study,

view economic policy from three broad perspecti ves of macroeconomic theories: fiscal,

monetary and commercial policies. Alternatively, policy could be viewed as specific

economic programmes that are formulated to be implemented over course of time. Hence,

this study adopted the connectivity theory between the formulation periods of these policies

and implementation stage through state of the world oil economic environment. The focuses

therefore, implies corrective measure or allow internal consistency of the policies

implementation; rather than, mere probing on how developments in the crude oil business

could h ave triggered policy initiation in anticipation of the possible outcome of oil

projections for economic development.7

The Nigerian petroleum economy is characterized by long protracted and staggered political

instability, colossal sectorial corruption, poor macroeconomic management, mal-functioning

and inefficiency of the four state own refineries in the country, and o bsolete legal framework

for the sector . The country’s economy dependence largely on petroleum revenues , which

provides about 20 percent GDP, about 95 percent of foreign exchange earnings and about 65

percent government revenues. While ag ricultural sector is nagging behi nd due to bloated

population growth in terms of food sufficiency, forcing the country into heavy importation of

food products to sustain its large population. Surprisingly, Nigeria successfully convinced the

Paris Club to buy back the bulk of its debts owed to the Paris Club for a cash payment of

about $12 billion (USD) in 2006.8

As economic recession continued to have its negative impact on the economy among its

abundance wealth in fossil fuels, coupled with the inconsistence in the international crude oil

prices, decline in OPEC supply benchmark, c rushed the economy further downward creating

heavy circles of economic deprivation that had its negative impact on about 70 percent of the

population of country , while eliminating middle class in the society . Economists see this

negative impact as worrisome and a fallacy to economic principles and theories. For example,

natural endowment ought to be a source of wealth creation, growth and d evelopment like it is

7 University of Ghana (2014), Economic Policy Management (EPM) Programme.

8 Centre for Global Development, (2008).

in other countries of the world, except, Nigeria who sees theirs as “resources curse”. As

against it blessings, this scenario indicates strong economic deprivation, sickness, chronicle

poverty, and a decline in per capita income of an average Nigerian adduce to massive

corruption in the system. Nigeria’s exports of crude oil and natural gas —at a time of peak

prices—have enabled the country ’s post merchandise trade and current account surpluses in

recent years. About 80 percent of Niger ia’s energy revenues flows to the government, 16

percent cover opera tional costs, and 4 percent go to investors. However, World Bank

estimated that 80 percent of energy revenues benefit only 1 percent of the population due to

corruption. Furthermore, in year 2005, Paris Club eliminated Nigeria’s bilateral external debt

liabilities. This was a lauda ble achievement for the country. Under the debt elimination

agreement, Nigeria paid off the balance with a portion of the proceeds from energy revenues.

This scenario created serious inefficiency in the economy outside the sector. Furthermore, the

underdevelopment of human capital resources was ranked 155 out of 177 of countries of

world by United Nations Development Index in mid-2004.9

Between 2007 and 2007, t here were economic reform programmes; one of such is NEEDS

(National Economic Empowerment Development Strategy ), whose objectives is to improve

living standard of Nigerians through various economic activities, such as: job creation, better

social infrastructures, improve energy supply (electricity), li beralization of all government

own enterprises for private partnership, deregulation of the downstream and upstream

petroleum sector with a view to strengthen the macro and microeconomic performances. The

government anticipation and economic projection of NEEDS policy, was that about 7 mi llion

new jobs will be created, diversification of the economy that will subseque nt trigger

economic boom, energised non-energy export goods and services, create enable environment

for investment opportunities, and reawaken the agricultural sector for foreign revenue

derivation.10

In the determination for political economic empowerment, the United Nations (UN) policy

support for development National Millennium Goals for Nigerian, was a program initiated to

cover year 2000 to 2015. The aim was to achieve wider policy coverage, determined to attain

set objectives which involve: reduction of poverty, enhancement of education profile, gender

inequality, upgrading of the health sector, ecological improvement, and developing economic

international integration among countries of the world . In 2004 and 2005 , Nigeria made

substantial progress in the above sectors including oil and gas sector through gains from

crude oil export. But the country was lagging behind in extreme poverty reduction, hunger,

high child mortality ratio, lack of political will to combat diseases (polio, malaria

HIV/AIDS), systemic endemic corruption, and other socioeconomic vices which has hindered

economic growth and development in Nigeria’s business environment.

In September 2005, Nigeria, in conjunction with World Bank, recover ed about $459 million

of Nigerian money residing in Swiss Banks by A late military dictato r, who ruled Nigeria

9 Michael .O. & Adeusi S.O. (2012), Impact Of Capital Market Reforms on Economic Growth: The

Nigerian Experience.

10 Abdu .J. B. (2011), National Economic Empowerment Development Strategy & Poverty Reduction I n

Nigeria: A Critique.

from 1993 to 1998. However, while broad -based progress has been slow, Nigeria corruption

profile have become of economic concern in the international community. This ranked

Nigeria as number 147 corrupt country of the world out of 180 most corrupt nations of the

world in 200i by Transparency International, and subsequently and progressively declined to

108 index profile out of 175 corrupt countries of the world in 2007 respectively.11

2.1. MACROECONOMIC TREND OF OIL AND GAS ECONOMY IN NIGERIA

Nigeria has experienced laudable economic growth from post amalgamation in 1914 till date.

This progress though untold, yet it is experienced in various sphere of the economy

advancement in different sectors which include s; manufacturing sector, investment and

foreign trade, information and communication technology, agricultural sector, transport

sector, and petroleum industry. The economic prospect of Nigeria as the largest black nation

of the continent, earned her the gian t of Africa and also, one of the fastest developing

economy in Africa with huge investment opportunities in oil and gas business,

communication, agriculture, manufacturing sector, trade and commerce, solid minerals, and

transportation.12

Figure1.1 below represent economic trend of Gross Domestic P roduct (GDP), US ($) dollar

exchange rate, inflationary index and per capita income of Nigerians. See figure 1.1.

Figure 1.1. Source: World Bank (2015), Trading Economic.13

11 The World Bank (2014), Nigeria Economic Report: Improved Economic Outlook in 2014, and Prospects for

Continued Growth Look Good.

12 Okechukwu .E. (2014), The Economic Development of Nigeria from 1914 to 2014

13 World Bank (2015), Trading Economic.

Year Gross Domestic Product US ($) Dollar Exchange Inflationary Index Percapital Income (%)

1980 50849 0.78 Naria 1.3 7.22

1985 98619 2.83 Naria 3.2 1.87

1990 2863748.94 Naria 8.1 1.49

1995 192864254.36 Naria 56 1.28

2000 4676394102.24 Naria 100 1.11

2005 1489445413101 Naria 207 1.96

2010 80185 120 Naria 14.8 949.01

2015 241938196.5 Naria 8.5 1097.98

Figure 2.1. A line graph representing the above data in figure 1.1.

In the 1960s, Nigeria per capita Gross Domestic Product (GDP) expanded to about 132

percent and reached its peak growth with about 283 percent in 1970. But it was unsustainable

and consequently declined by 66 percent in 1980. This scenario continued till 1990 when the

economy was diversified, and economic growth was finally restored by 10 percent.

However, as a result of inflationary trend in 1960, per capita GDP was relatively low,

reflecting about 57 percent of Nigeria population living within a benchmark of one US dollar

($1) per day. In year 2005, Nigeria gross domestic product composers are: agriculture sector

contributing about 26.8 percent; industry sector contributing about 48.8 percent and services

sector contributing about 24.4 percent to the economy, while the rate of inflation was

estimated at about 15.6 percent. This situation infers the important of National Economic

Empowerment Developm ent Strategy (NEEDS) goal in compressing Nigeria inflationary

trend to a single digit. There was a budgetary deficiency of about 5 percent in 2005 as the

central government of Nigeria over shoot its budgetary provision with about US$13.56

billion against its revenues of about US$12.86 billion, thereby, creating big challenge for tax

authorities to nip tax invaders, motivated by corruption and poor quality of services. In year

2007, Average wage of a Nigerian hover around $4-5 per day.14

In 2014, Nigeria expanded its Gross Domestic Product (GDP) by 5.95 percent in the fourth

quarter, slightly down from a 6.24 percent increase in the previous period. While GDP

Annual Growth Rate averaged was ab out 6.14 percent in 2005 and remained so til l 2014,

attaining a height of about 8.61 percent at the tail end of 2010 and declined to about 3.47

percent in the first quarter of 2012 The Service sector recorded about 6.16 percent in 2014 as

14 Wikipedia, the free Encyclopedia (2015), Economy of Nigeria.

-400

-200

0.78

Naria

2.83

Naria

8.94

Naria

54.36

Naria

102.24

Naria

Naria

Naria

196.5

Naria

50849 98619 286374 1928642 4676394 14894454 80185 241938

1980 1985 1990 1995 2000 2005 2010 2015

Economic Trend of GDP in Nigeria

Inflationary Index Percapital Income (%)

Linear (Percapital Income (%))

against 7.61 perc ent rise in in 2013, as internal trade went up by 5.33 percent, showing a

slight increase of about 6.81 percent in third quarter of 2014; insurance and finance had an

upward growth of about 8.15 percent and real estate activities grew by 5.98 percent

respectively.

Furthermore, there was about 7.90 percent growth in the industrial sector, thereby advancing

the Manufacturing Sector to about 13.49 percent, energised by textile goods, footwear and

apparel; tobacco, food, cement and beverage. Power sector gre w by 2.86 percent, these

include; gas, electricity, steam and water supply and steam, recuperating from an initial drop

of 21.56 percent in the previous quarter; quarrying and mining recovered to about 1.37

percent, while construction rise to about 12.68 percent.15

There was a slow growth on agriculture sector to about 3.62 percent in the third quarter of

1. And the oil and gas sector experienced an upward movement of about 1.20 percent, as

against about 3.5 percent drop in the third quarter. And daily a verage production of crude oil

increased to about 2.16 million barrels per day (Mbpd) from 1.5 million s of barrels per day

(Mbpd). This reflects a multiplier growth of about 3.90 percent to the economy, as against

8.64 percentage increase in previous perio d. The summary of 2014 GDP growth shows that

Nigerian economy grew by 6.24 percent. But, for 2015 official statistical forecasts growth

shows 5.56 percent, a likely decline in GDP an oil and gas sector is hindered by decline in

production and persistent downward movement in crude oil prices at international market.

Every economy prospect is largely dependent on global curries movement. In year 2010, the

dollar exchange rate was about N120 to $1. That is, one hundred and twenty naira is been

exchanged for one US dollar.16 While in 2015, dollar moved upward against the Naira to $1

to N196.5 (one hundred and ninety seven naira approximately to one dollar) official exchange

rate Inflationary trend in Nigeria between 2010 and 2014 was about 14.80 percent, while in

2015 it declined to about 8.50 percent respectively. These include corn inflationary items

such as energy and a non-core inflation items on food.17

In 2010, World Bank Development Report placed per capita income of an average Nigerian

at about $2,746, crushing behind that of Cameroun and Ghana with about $10,757 and

$10,747 singly. While in year 2015 per capita income stood at about $2,624, a slight

downward shift as against 2010.18

An average American per capita income is about $511,613; t he Briton per capita income in

dollar is about UK, $408,743 while Sweden has Sweden $523, 423. Other countries like

France per capita income is about $458, 025, Netherlands per capita income is about

$432,378, Japan per capita income is about $483,242, Ger many per capita income is about

$476, 427, Australia $463, 082, and China $9,376 respectively. Studies show that, Nigerians

who live on $1.26 per day make bulk population of about 30. 4 percent and those who lives a

within the range of $2 are 84.5 percent of the population of Nigerians. This implies that, life

expectancy of an average Nigerian (male) is 46 years and female is 47 years. This implies

that, a quarter developed countries population lives below $1.26 per day and the multiplier

impact is that, about one billions people around the globe lack portable clean water, about 1.7

billion people don’t have access to electricity, quarter of the global children are suffering

15Joana .T. (2014), Nigeria National Bureau of Statistics .

16 Desgied (2010), Nigeria Exchange Rate to Dollar History.

17 CBN (2015), Nigerian Naira Exchange Rate.

18 Akinboade .l. A. (2010), Nigeria’s per capita income drops now $2,748.

from poverty and malnourished, while about 3 billion of global population are residi ng in an

un-sanitized environment, making economic growth and development in developing

countries almost impossible.19

2.0.1. Agriculture

Nigeria’s form produces is ranks twenty fifth in the globe and one of the first ranked in

Africa. The sector has suffered series of policy setbacks since the emergence of crude oil in

1956 and years of mismanagement, poor policies’ direction. Despite its ordeals, the sector has

continued to account for two-thirds of employment and over 26.8 percent GDP. Nigeria was a

major exporter of cocoa, groundnuts (peanuts), rubber, and palm oil in 1960. But, no longer

prominent in this regards. The South West were predominantly cocoa formers whose prides

were in the business of exporting about 300,000 tons of cocoa for export gains 40 years ago,

now struggling with about 180,000 tons of cocoa annually. Most surprising, is the dramatic

decline in groundnut and palm oil p roduction in the country . While the biggest poultry

producer in Africa residing in Nigeria, h as been slashed from 40 million birds annually to

about 18 million in 2008 . One salient challenges is i mport constraints . That is, large

importations of processed agricultural produces, mostly poultry consumables flood the

country thereby edging out domestic farmers out of business. The implication is that it

enhances the foreign market econ omy while it cripples the domestic economic market.

Fisheries business in Nigeria was equally neglected until recently in 2002 when it picked up

again due to market awareness. Most disturbing, is the land tenure system in Nigeria which

does not encourage long -term investment , either in technology or modern production nor

does it encourage small loan scheme for rural farmers to develop. The major a gricultural

products in Nigeria include: cassava (tapioca), palm oil, corn, cocoa, millet, peanuts, rice,

rubber, sorghum, yams and livestock production. . In 2003 the total fishes caught was about

605.8 metric tons.

The agricultural sector suffers extremely low patronage , reflecting reliance on antiquated

methods. Although its overall production rose to about 28 percent in 1990, creating a window

for per capita out put to rise to about 8.5 percent within the same year. However, the sector

has failed to keep pace with the rapid population growth in Nigeria, forcing the country to

dependent heavily of imported goods and service while the domestic economic dies gradually

due to lack of competitive investment . Recognizing the above challenges, Government have

decided to modernize agricultural sector to measure up with g lobal standard, by applying

Global Trade Analysis Project (GTAP) framework techniques to enhance growth potential.

The sector shows an indication of 1 percent technological progress in the oil and gas sector

gives value benefits of about $142.72 million. Furthermore, there are much more economic

benefits with several agricultural and food sectors, higher t han that of oil and gas sector. The

agricultural subsectors comprises of cattle, fruit and vegetables, could outstrip oil and gas

sector and manufacturing sectors in terms of return on investment if its potentials are well

harness and managed.20

19 Ruhl .O. (2009), World Bank: National Climate Change Awareness and Global Climate Agreement Process.

20 Ehui .S. K. Tsigas,. M. E. (2014), The Role of Agriculture in Nigeria’s Economic Growth: A General

Equilibrium Analysis.

2.0.2. Industry

In mid 1970, Nigeria was ranked 44th in the globe and 3rd in Africa when it comes to

industrial output. The neglect of this sector was as a result of the oil boom of 1970 . This

unhealthy dependence on crude oil and gas exports accounting for more t han 98 percent of

export earnings and about 83 percent of federal government earnings in year 2000 . This

scenario, created new oil wealth which concurrently led to the downward movement of other

sectors of the economy. Meanwhile, there was statist economic migration into the cities and

increasingly widespread of poverty, especially in rural areas, collapse of basic infrastructure

and social services which has accompanied this trend since early 1980 . However, in 2000,

Nigeria’s per capita inc ome had plunged to abo ut one-quarter of its mid -1970 height, below

the level at independence in 1960 , along with the endemic disorder of Nigeria’s non -oil

sectors, the economy of the ‘‘informal sector’’ continues to witness economic growth and

development, estimated at about 76 percent of the total economy activities.

Nigerian informal sector contributes about $178.5 billion that is 36 percent of Gross

Domestic Product (GDP) to the economy and also, contributes about 80 percent of human

resources in Africa. The informal economy could be referred to as economic resources and

income activities that are partially outside government control , while taxation and

observation are often misunderstood to be black market conceptualization. The black market

is not equal to the informal economy, rather a subset of the informal economy dealing with

contraband goods or services which is significant to economic growth. In 2012, the informal

sector contribution to GDP growth was estimate to about $48.2 billion, and about 90 p ercent

of urban and rural job creation in Africa.

However, the sector is characterized by lack of structure resulting from zero employment

benefits, low unsecure income, and lack of soc ioeconomic protection. Opinion holds that

legalizing the informal sector could impact positively on economic growth. Inappropriately,

some operators of informal sectors prefer to diversify their businesses interests rather than

attempting to become formal for several reasons. This will energised Nigerian government to

develop a framework on code of conducts that will regulate the activities of the informal

businesses in order to assimilate into formal sector, which will assist government for national

planning and generate revenue through taxation while ensuring the protection of its

citizenry.21

2.0.3. Service

Nigerian service sector is adjudged to be ranked 63 among global services sector and ranked

fifth in Africa. But, inefficient power supply and telecom density has bedevilled the growth

of this sector in mid-1990. Nigerian banking sector has witnessed tremendous growth over

21 Bismarck .R. (2014), Nigeria’s Informal Sector Accounts for $178.5bn, 35% of GDP.

the last decade as a result of various reforms initiated by Central Bank of Nigeria (CBN) to

recapitalize the commercial banks in the country for efficient performance and a better

service delivery to N igerians. This situation placed most financial institutions in the security

market. Other policies by the apex bank were to absorb excess cash liquidity from the

economy making business activities cumbersome f or commercial bank operator whom

engages in cur rency arbitrage (round -tripping) activities , that is generally illegal banking

practices. Furthermore, p rivate sector -led economic growth was characterised by high

operative cost of doing business in the country, threat of crime and insecurity, political policy

instability ( lack of effective due process ), and non -transparent economic decision s/plans,

especially within government/private participatory joint ventures. It was in this light, that

addressed by the Central Bank of Nigeria (CBN) reiterated its reform initiative on monetary

policy for commercial banks . Studies show that, prior to 2007, 29 percent of urban dweller

did not own bank accounts , while the rural dwellers were completely ignorance of the

banking activities.

Economic reforms are process policy incentives that rightly pursued by key implementation

institutions. As part of economic reforms, financial sector focuses mainly on the restructuring

of financial institutions and markets through several policy measures for economic

sustainability and growth. One of the major objectives of this reform is create enabling

playground for the backing system to lead in economic policy drive an economy

development. The financial institutions contribute about 24.03 per cent to the real sector of

the economy through bank loans and advances. Further studies indicates that, funding from

the financial institutions in Nigeria banks accounts for about 14.4 per cent of total funds in

2006, about 13.5 per cen t in 2007, 18.8 per cent in 2008 and 49.7 per cent in 20 09. This

implies that, real sector enterprises can a ttracting bank credits, and that banks satisfied an

average of only 15.8 per cent of the number of loan requests made by real sect or firms in

2007, and 26.3 in 2008 and 2009 respectively.22

From the foregoing, economic reforms ethics ensures every sector of the economy functions

efficiently in order to ascertain achievement of full employment, macroeconomic goals of

price stability, high economic growth and internal and external balances. Thus, banking

reform in Nigeria was to integral country’s reform program wi th a view to reposition the

Nigerian economy to achieve the objective of becoming one of the 20 largest economies by

the year 2020. As part of CBN reform objective, commercial banks are expected to

effectively carry out its statutory responsibilities among global players of the sector . With a

view to making the system more efficient and strengthening its growth potentials. The fact

that business activities of banks are largely through customers’ deposits, there is a need for

periodic review of the statutory responsibilities of financial institution depositors in order to

foster financial stability and confidence in the system. For example, t he recent global

financial crisis further underscored the imp ortance for countries to embark on banking

reforms on regular basis. I n 2007 -2009, the world economy was hit by an unpre cedented

financial crisis, forcing most global giant financial institutions into liquidation and causing

global economic recession. The bandwagon impact took its toes on Nigerian econom y,

subsequently led to a decline of investment portfolio in Nigerian Security Market to about 71

per cent in year 2008 – 2009. The resultant impact was strongly felt by the indigenous banks

also, recorded huge financial casualty, as a result of their exposu re to capital market and

downstream oil and gas business. This recession was addressed by Central Bank of Nigeria

22 Cajetan M. Anyanwu (2012), An Overview of Current Banking Sector Reforms and the Real Sector of the

Nigerian.

through recapitalization and liquidity injections . Afterword, Management of these rescued

banks prosecution and confidence and sanity were restored to the sector.23

2.0.4. Human Capital Development

The economic development of any growing economy depends on its human capital

sufficiency and development. There are different viewpoints to economic growth, that is,

when hu man capital is increased, control of material assets, improve on their intellectual

capabilities and ideology, and being able to have basic necessities of life like clothing, food,

employment, shelter, etc. hence, some school of thoughts sees economic growth theory as

improvement in standard of living of the peoples expanding their desires, dignity and

freedom. Nigeria started recognizing human capacity development since pre -colonial and

post-colonial eras, 1956 -1961 through Development plan, with the objective to grow the

economy. The importance of knowledge in this regard is to attract intellectualism

development that will impact on the work force of the country that will reflect on the GDP

growth of the economy.

In year 2005 Nigeria human resources was estimated to about 57.2 mill ion, with an

unemployment of about 10.8 percent in 2003; unemployment ratio in the urban area was

about 12.3 percent, exceeding the rural unemployment ratio with about 7.4 percent. Studies

show available information from 1999 to 2015 employment ratio sectorally: agricultural

sector engaged about 70 percent employees , service sector having about 20 percent , and 10

percent in industry sector. Since 1999 the Nigerian Labo ur Congress (NLC), a union

umbrella organization, has called six general strikes to protes t against ill -human treatment

meted on Nigerian workers by the employers and hard economic policies such as: poor

minimum wage for worker, increase in domestic fuel pump price, high cost of living, etc.

However, in 2005 the government legislated, ending the NLC ’s monopoly over U nion by

increase in the minimum wage for public workers from N7, 000.00 to N18, 000.00, whittled

away by chronic inflationary trend to about US$42.80 per month.24

2.1. ECONOMIC ANALYSIS OF PETROLEUM PRODUCTS PRICES FROM 1970

TO 2015

In the global economy, petroleum products pricing has remain strong determining factors for

International socio -political negot iation; hence, prices remain a major determinant of both

local and the International petroleum market. Realistically, in a macroeconomic environment,

price is a function of National Income (NI) index via Gross Domestic Products (GDP). The

elementary economics belief that good that does not have price value is not an economic

good. Thus, as long a s Nigeria economy is monoculture in nature (80 percent crude oil and

gas dependent economy), its revenue drive and earning will be subjected to global oil price

economics, hitherto, the function of prices of petroleum products a necessary for internal

financial policy plan for the country.25

23 Sanusi .L.S. (2012), Banking Reform And Its Impact on the Nigerian Economy.

24 Matthew, A. O. (2014), Human capital investment and economic growth in Nigeria: the role of education

and health.

25 International Association for Energy Economics (IAEE) (2015), Economic of Crude Oil and Natural Gas.

Nigeria crude oil reserves are about 38 billion barrels (Bb) while that of natural gas reserves

are about 178.7 trillion standard cubic feet (Tsc ft³). Nigeria as Member of OPEC, in 2001

averaged her crude oil production to about 2.2 million barrels (350,000 m³) per day. The

country exports one of the best of crude oil around the world. These are: Forcados’ crude oil,

Bonny Light crude oil, Qua Ibo crude oil and Brass River crude oil . Poor corporate relations

with indigenous communities, vandalism of oil infrastructure, severe ecological damage, and

personnel insecurity challenges in the Niger Delta oil-producing region of the country

continued to traumatise the economic growth of t he country. In the absence of government

programs, the major oil multinational co mpanies have launched series of social responsive

community development programs with a view the social morals of the people of that region .

This gestures by these MOCs (multi national oil companies), gave rise to the creation of the

Niger Delta Development Commission (NDDC), as an economic catalyse for regiona l

integration and development.26

The U.S, China and United Kingdom are Nigeria’s largest consumer of crude oil, accounting

for about 50 percent of the country’s total oil exports trade; provid ing about 10 percent of

overall U.S. oil imports and ranks as the fifth -largest source for U.S. imported oil, alongside

with United Kingdom and China. A large portion of U.S. exports goods enter the country

outside Nigerian Government’s official statistics, due to avoidance o f excessive tariffs. In

May 2001, Nigerian g overnment established a 100 percent cargo inspection regime for all

imports with stringent enforcement, eliminating gradually existing import barriers resulting

from smuggling and high tariffs. Furthermore, government has put other measures in place to

encourage prospective investment. The U.S. stock investment in Nigerian energy sector is

about $8 billion. A significant exports of liquefied natural gas started late in1999 with a view

to expand economic growth and put stop gas flaring 2020.

Oil economic dependency attracts and generates great wealth for nations with such natural

endowment through government contracts, royalty, taxes and trading benefits that neglect

other economic sectors. 80 percent of government expenditures is recycled into foreign

exchange through import parity of consumable goods , resulting from a chronically

overvalued Naira, coupled with excessively high domestic production costs due to high turn

around maintenance cost (RUM) of local refineries, erratic power supply and fuel scarcity

that have pushed down industrial capa city utilization to less than 40 percent. This situation,

forced most indigenous production companies into liquidation, while the few standing were

under the platform of relatively low labo ur costs of ab out 10 to15 percent, as domestic

manufacturers: pharmaceuticals and textiles lost their ability to compete in traditional

regional markets due high production cost. The bandwagon effect was the over bou nden of

foreign debt from Paris Club amounting to about $28.5 billion, about 7 8 p ercent. A large

chunk of this debt was with interest and arrears paid as government seeks ways to keep the

sector afloat.

Furthermore, government borrowed the sum of $860m (N134.19bn) in the past year from

external source, and subsequently re-borrowed additional sum of $6.55bn at the tail end of

2012, as against $5.6 8bn in the last quarter of 2011, amounting to an increase of 15.19 per

cent respectively. Nigeria external debt owed multilateral , and World Ban k Group, was

estimated to about 80.9 per cent reflect liability at the end of 2012, while 11.68 per cent was

owed to non-Paris Group of creditors and 7.70 per cent to other creditors . However, the debt

profile on Gross Domestic Product (GDP) ratio as of mid-2012 stood at 18.26 per cent and hit

26 The NDDC Mandate (2000), Objective of the Commission.

19 per cent in the last quarters of 2012. Worthy to note, it is debt-to-GDP ratio profile of an

economy that determines growth and development of that economy , while the amount of

national debt of a country reflects percentage of its GDP.27

In year 2000 Nigeria signed a one -year Stand-by Arrangement (SBA), on debt rescheduling

agreement between Nigeria and its Paris Club creditors. By August 2001, despite continued

dialogue with the IMF, Nigeria was unable to implement many of the SBA conditions leading

to an extension of SBA by few months in order to seek alternative condition s for a new

agreement. Most external debt sourced, has inherent conditionality. For instance, the World

Bank classifies its debt relief packages to short term and long-term debt relief base on strong

and sustained economic reforms that must be co-supervised by the creditor and lender with a

view to attain goal objectives.

In a bid by government to expand its fiscal policies o f public sector experienced in 2001,

government decided to solve the problem of higher inflation ary trend in the economy, by

implementing a stronger monetary policies through the apex bank of Nigeria (CBN) by

under-spending of budgetary provisions. The impact of this action stabilized Naira to the

dollar. The combination of CBN’s efforts to raise the value of Naira and excess liquidity in

government spending, discounted currency by 20 percent on the parallel (nonofficial) market.

One of the objectives of Stand-by Arrangement is to bridge the gap between the official

exchange rate and parallel market exchange rates, while allowing Inter Bank Foreign

Exchange Market (IFEM) indices to close ranks on official rate, u nder IBF EM, financial

institutions, oil and gas companies, and the CBN can buy and sell their foreign currency at

government influenced rates , allowing the informal economy to access foreign exchange

through the parallel market. This implies that investors can hold domiciliary accounts in

private banks, while account holders have unfettered access to the account.

Furthermore, increased expenditure by government has led to upwa rd pressure on prices,

thereby igniting Inflationary rate which had earlier declined by 1 percent in mid-2000 rose to

about 14.7 percent at the end of same year , it increased further to about 18.8 percent in

August 2001. In 2002, an increase in world oil prices triggered government revenue to about

$18 billion, that is, double the accrued earnings of 1999. This boom, reflected on the demand

placed forward by State and local governmental sharing formula of the “ windfall”, creating a

tug-of-war between the three tiers of government.

Nigeria economy is mono (petroleum economy), where large percentage of earnings comes

from crude oil earning. Thus, the domestic economy indices decide its general econ omic

wellbeing. Hence, this research reviews the petroleum economic management vis -a-vise

impact changes of products pricing on domestic performance of the economy. 28 See Figure

3.1

ECONOMIC HISTORY OF PETROLEUM PRODUCTS PUMP PRICING IN NIGERIA 1966-2015

PERIOD PUMP PREICE IN LITRE ADMINISTRATOR PERCENTAGE

27 Ademola .A. (2013), Nigeria’s external debt rose to $6.53bn in 2012.

28 Central Bank of Nigeria (2014), The Conduct of Monetary Policy 2008-2014

(N/K) INCREASE (%)

Jan. 1966-Sept.

1978 8.5

Gen Aguiyi Ironsi, Gen.

Yakubu Gowon, Gen.

Murtala 40

Gowon, Gen M. Murutala

Oct 1st, 1978 15 Gen. Obasanjo 73.9

April 20th, 1982 0.2 Alh. Shehu Shagari 13

March 31st,

1986 39.5 Gen. Ibrahim Babaginda 97.5

Apr 10th, 1988 42.5 Gen. Ibrahim Babaginda 6

Jan.1st, 1989 42 kobo for commercial

vehicles and 60 kobo for

private vehicles Gen. Ibrahim Babaginda 43

Dec. 19th, 1989 60 kobo Gen. Ibrahim Babaginda 43

Marc h 16th,

1991 70 kobo Gen. Ibrahim Babaginda 16.6

Nov. 8th, 1993 5 Chief Earnest Shonekon 61.4

Nov. 22nd,1993 3.25 Gen. Sani Abacha -35

Oct. 2nd, 1994 15 Gen. Sani Abacha 361

Nov. 4th, 1994 11 Gen. Sani Abacha -26

Dec. 20th, 1998 25 Gen. A. Abubakar 127

June 6th, 1999 20 Gen. A. Abubakar -20

June 1st, 2000 30 Chief Olusegun Obasanjo 50

June 8th, 2000 25 Chief Olusegun Obasanjo -16.66

June 13th, 2000 22 Chief Olusegun Obasanjo -12

Jan. 1st, 2002 26 Chief Olusegun Obasanjo 18.2

June 12th, 2003 40 Chief Olusegun Obasanjo 53

July 9th, 2003 34 Chief Olusegun Obasanjo -15

Oct. 1st, 2003 42 Chief Olusegun Obasanjo 23.5

May 29th, 2004. 49.9 Chief Olusegun Obasanjo 18.81

Dec. 21st, 2004. 48 Chief Olusegun Obasanjo -3.81

Jan 8th, 2005 50.5 Chief Olusegun Obasanjo 5.2

Aug. 10th, 2005 65 Chief Olusegun Obasanjo 28.71

May 2th, 2006 65 Chief Olusegun Obasanjo 28.71

July 9th,207 75 Chief Olusegun Obasanjo 28.71

APRIL 10th, 2008 65 Umuru Yaradua 28.71

Sept. 20th 2009 65 Umuru Yaradua 28.71

March 10th,

2010 65 Good luck Jonathan 28.71

2011 65 Good luck Jonathan 28.71

Jan. 1st,2012 95 Good luck Jonathan 90

2013 95 Good luck Jonathan 90

2014 95 Good luck Jonathan 90

Feb. 2015 87 Good luck Jonathan 80

Figure 3.1. Source: The Nation Newspaper (2010) and The Punch Newspaper (2007)

Figure 4.1. Represent a pie chart on the above figure 3.1.sourced.

Petroleum economy management remains a key factor in oil and gas price fundamentals in

Nigerian economics indices. In figure 3.1, it is evidently clear that petroleum premium motor

spirit (PMS) pricing has greater influence in the daily economic activities of the country’s

economy policy direction. Hence, it implies a mono-economy. The goal of the Nigerian

government is t o dismantle the natural monopolistic structure and open up the economy to

private participants for competitive entrepreneurial business activities that will strengthen

privatization policy in oil and gas sector, where price control is determine by market

fundamentals. These will energies economic growth and regulate prices and s ubsequently

reduce the cost of government spending to subsidized petroleum pump prices with about $1.5

Trillion annually. This resource can be used to free up other socio economic needs of

Nigerians, reduction in refining costs of products and boost foreign direct investment in the

economy.

Every policy has its negative and positive impact on economic parameters, depending on the

desirability of such policy in the economy; mode and extent of implementation of such policy

on the general economy well-being including its populace. The structure of Nigerian

economy is such that, each policy have gaps and limited sectorial coverage, that is, some

aspect of the policy disregards socioeconomic services like education and health , while the

policy scope deals only with the implementation of reforms on system structure or relied on

obsolete data for analyses and implementation. This scenario empowers bureaucracy and time

delay in the execution of policy.

Some of the salient challenges of Nigerian economy structure are as follows:

• Nigeria has the largest geographical unit in West Africa, with an expanse land of

about 923,768 square kilometres, population of 1 70 million of which 50 percent are

below 15 yea rs of age (3 percent within the aged brackets of 65 years and above ).

Giving a dependency ratio of 1 to1 as against 1 to3 or less than what obtains in

developed economies.

• In post -independence economy in 1960, a griculture dominates the Gr oss Domestic

Product (GDP), yet, its current contribution has relatively declined over years to a

ratio of 65.2 percent in 1960 to 28.40 percent in 2002, and moved up by 40 percent in

2014 and 2015 respectively.

• Although the Manufacturing sector had an ed ge in the early post -independence year,

but its GDP contribution declined sharply in the 1990’s, from 6 .8 percent in 1960 to

15.5 percent in 2014.

• Crude petroleum sector became formidable contributing to GDP from 0.3 percent in

1960 to 40.6 percent in 2002 and 70 percent in 2012 respectively.

• In 1989, Nigeria experienced increasing inequalities in inter -personal incomes and

which created a huge gap between urban and rural income earners. But, this scenario

has been improved upon in recent time.

• Moribund financial institution in 1990, and was re -enforced through government

regulation reforms initiatives, giving operators assurance of sound of financial system

and opportunity to invest.

• The shift between 1970 and 1996 show that these two gained (Raw mater ials and

consumables) over capital goods dominate imports. This further entrenched Nigerian

economy as import dependent and reliant on crude petroleum as the major export

item.

The interaction between the State and market economy (fundamentals) is a func tion

determined by the nature of socio-economic and political policy of such State, hence in recent

times, it is quite difficult to separate economic theories from Political Ideologies. Therefore,

for centuries the debate in the field of political economy has focus on the nature and

consequences for clash between the State and Market. Liberalist economic theory argued for

a free market and minimal state intervention; individual equality that guarantee the liberty for

smooth free market operation economy. However, the rationale for a market system is to

increases economic efficiency, and growth that will improve human per capital income of the

individual. Petroleum economy can be in a state of disequilibrium as a result of salient

external factors : vandalism of sectionalism, r eligion, culture and political preferences and

regional conflicts , this situation, puts operators in and the ma rket in a volatile business

environment, leading to pursuit of individualism and social struggle for profit efficiency as

against general development of the economy.29

The historical analysis of changes in petroleum product (PMS) pricing over decades in

Nigeria economy, clearly connote policy instability in the system. Hence, the Nigerian oil and

gas downstream regulator , Petrole um Products Pricing Regulatory Agency (PPPRA)

introduced a uniform petroleum product pricing template for premium motor spirit at retail

outlets across the country. The template has the following components:

• Cost of Crude ($/Bbl)
• Landing Cost of Products.
• Margins for the Marketers, Dealers, and Transporters.
• Jetty-Depot Through-put.
• Conversion Rate (Mt to Litres)
• Exchange Rate (Naira to Dollar)
• Other charges and Taxes.

Furthermore, Nigeria is grapple with its decaying infrastructure and a poor regulatory

environment, targeting positive attributes that will ensure and create investment opportunity,

that will energized regional and international market integration. There is a growing

consensus, that foreign investment is essential to realizing Nigeria’s potential. European

investments are increasing, especially since Belgian consultancy companies interested

exploring Nigerian huge market potentials investing in the economy.30

.

29 Jhingan .M.L. (2008), Monetary Economics

30 Petroleum Products Pricing Regulatory Agency (2015), Pricing Template-PMS.

3.0. THEORITICAL FRAMWORK

The petroleum sector requires advance technological base processes to optimize oil and gas

production through the conversion of hydrocarbons into valuable economic and market

potentials that will satisfy the severest environmental regulations. Government strong interest

in petroleum industry can only meet t hese challenges through high -quality personnel who

have the necessary technical, economic, business, and managerial , policy and leadership

skills.31

Leading economic theories of development have advocated that there is a substantial

relationship that exist s between economic growth and national income. That is, when

earnings are reinvested in an economy, it empowers growth and development of that

economy. For example, Rosow (1961), Domar (1946) and Harrod (1939) five stages of

growth is directly proportionat e of investment capital base income and savings. This implies

that, revenue earnings fr om oil and gas resources have direct positive impact on economic

development. But other school of thought think order wise, that oil and gas revenue has a

negative impact on the Nigeria economy as proceeds are own and control by elites of the

society, used as oppressive mechan ism and control of state’s apparatus, thereby hinders

growth and economic development, Easton (1965). Note that, increase in disposable income

does not automatically energised economy growth, if not equitably distributed can lead to

inflation and underdevelopment.

The judicious application of natural resources revenue in other countries has led to fast

economic growth compare to Nigeria situation . For instance, in mid-1970s, Malaysian came

to Nigeria to purchase few quantities of palm -kanel seeds. Years later, same raw agricultural

products were now exported to Nigeria as finished goods (palm oil). An overview of some

developing countries that had their economic growth base on natural resource earnings to

developed their economy are: Venezuela (crude oil), Indonesia (palm oil) , Venezuela,

Malaysia, United Arab Emirate (commerce & crude oil ), Singapore (crude oil) just to

mention but a few. In the s ame vein, that an increase in income does not necessarily

transform to economic growth, this is obvious from studies that about 30 percent of countries

whose revenue source is oil and gas exports are like to always have internal conflict or social

war on how share the wealth of their nations among few bourgeoisies, compare to countries

without such natural endowment. From the above theories, it is apparently posited that

petroleum revenue earnings can cause an energise development or retard economic growth of

a nation, dependent on model of policy, theory and approach of implementation.32

31 Kathleen .M. (2014), Petroleum Economics and Management.

32 Ogbonna .G.N. & Appah .E. (2012), Petroleum Income and Nigerian Economy: Empirical Evidence.

3.0.1. Crude Oil Revenue

The inability for government to judiciousl y make good of the proceeds from oil and gas

earnings to develop the Nigeria economy has led to inefficient performance of Nigerian

economy over decades of corruption and abandonment of non-tax revenue, growth of public

sector. Oil and gas economic dependency exposed Nigeria petroleum price volatility

currently experience in the country. Although, the economy has the potentiality of becoming

one of the twentieth leading economy by 2020, if it’s natural sources and human capita

development is adequate harness and manag ed, while relegating corruption to the

background.33

3.0.2. Petroleum Profits Tax (PPT) Administration in Nigeria

Prospective petroleum upstream sector exploration mining and refining attract taxation

known as petroleum profits tax (PPT) at the rate of 87 percent, while on export is about 63.70

percent. Nigerian tax laws accorded legal right on taxes administrator, Federal Inland

Revenue Services (FIRS) to mop taxes from both public and private entitles on behalf of

government. And its responsibilities inc lude petroleum profits tax, among others.

Unfortunately, Nigeria has focused more petroleum tax rev enue mopping at the detriment of

economic stimulating and growth.34

3.0.3. Crude Oil Licensing Fee

Crude oil licensing is an operational permit given to potential investor, legalising operation of

oil and gas business. With the intent to raise revenue for the country through licensing fee

collect from intending investor, control and maintenance of globa l standard. The Directorate

for Petroleum Resources (DPR) is the licensee responsible for the issuance of oil and gas

license for upstream and downstream business operations. This implies that, there is a

Petroleum Provisional Act that empowered the regula tor to source for income from potential

investors in exploration, refining and marketing of petroleum product business. Others are;

control of minerals upon or under land or territorial waters that are within the economic

region of the country, shall be managed as prescribed in the 1999 Constitution, Section 44(3),

found in Petroleum Act of 1969, Section 1 & 2 of t he Federal Republic of Nigeria . This was

how oil and gas licensing fee became a channel of raising revenue income for the country.35

33 Damian.C.N. & Harrison .O.O. (2014), Government Revenue and Expenditure in Nigeria: A Disaggregated

Analysis, Department of Economics.

34 Kiable .D.B & Nwikpasi,. N.N. (2009), Slected Aspect of Nigerian Taxes.

35 Sani .I.D. & Suday .N.E. (2009), Central Bank of Nigera Statistical Bulletin.

4.0. GENERAL DISCUSSION

Oil among other energy sources such as, Atomic energy, Wind, Sun, Geothermal energy,

Water, Hydrogen, Full -cell power, coal, Bitumen, Paraffin wax and Sulphur among others

was first discovered in the Western countries in 1805. The search for mineral deposit in

Nigeria, such as hydrocarbon was first undertaken by a German -Nigerian Bitumen company

and British Colonial Petroleum Company in 1907 at Okitipupa region 55 miles South West,

Ondo State, Nigeria. Between 1908 and 1914, 15 wells were discovered and explored ranging

from about 360 to 14 00 feet. However, this process was interrupted by Wor ld War 1, until

1937 when shell/D’Arcy initiated reconnaissance works in exploration In 1946, in Niger

Delta in the South -South of the country, while there was similar reconnaissance summary in

Sokoto the Northern basin region of Nigeria by Mo bil (then Socony Vacuum Company ).

Before the Colonial Mineral Ordinance of 1914, Petroleum exploration has remained an old

pursuit, throughout the first millennium AD; crude oil and gas were g otten from natural

seepages in different countries world. Crude o il, salt and bitumen were produced

simultaneously. The only uses of oil were for medication, water proofing, and warfare. Oil

was applied externally for wounds and rheumatism and administered internally as a laxative.

From the time of Noah, pitch -oil has been used to make boats watertight. For instance, when

Alexander the great invaded India in 326 B.C, he scattered the Indian elephant corps by

charging them with horsemen waving pots of burning pitch, Nadir Shah employed a similar

device, impregnating the humps of camels with oil and setting them ablaze against the Indian

elephant corps in 1739.Also asphalt was used by the Greek as a means of fine in 668 A.D.

although, its recipe is unknown, but it is generally believed to have included quicklime,

sulphur, and naphtha and it ignited when wetted. It was a potent weapon in Byzantine naval

warfare. A major stimulus to oil was the giant stride in the development of int ernal

combustion engine in 1870s and 1880s leading to a gradual demand for lighter Petroleum

fractions that overtook the demand for kerosene.36

Furthermore, the British Petroleum and Shell found their o il reserves abroad , principally in

the Middle and Far East. They were thus involved early in long distanc e transport by

measuring their o il by Seagoing tonne. While the American Companies, by contrast, with

shorter transportation distance, using the barrel as their unit of measurement. The American

Companies began overseas ventures, mainly in Central and South America, in the 1920s. In

the 1930s the Arabian -American O il Company (Aramco) evolved from a consortium of

Socal, Texaco, Mobil and Exxon. Following the Second World War and the post -war

economic boom, t he consortia principle became established over much of the free world

economy. Oil Companies risked the profits from one exploration area to another in search for

new oil wells to explore . From the day when crude oil was discovered centuries ago,

Petroleum Geologist has become more and more skilled and demanding, wandering about

countryside with a naked flame, optimism and a sense of adventure.

Though the nation at independence inherited sophisticated nationalists, politicians and

statesmen, its economy was still profoundly underdeveloped. Hence, in 1999, the government

come out with lofty blue print to reposition the country’s economy for growth and

development. That will ensure professionalism in the management, privatization and total

liberalization of the economy to private partnership , especially the deregulation policy of the

36 Tyler D. (2015), Israel’s Netanyahu Lied About Iran With Infamous “Clear Red Line” Threat, Mossad Leak

Reveals.

oil and gas sectors. With non -petroleum sectors complementing the policy drive of the

economy growth and development.37

4.0.1. Privatization:

In a bid to meet th e 2020 economy development plan of the governme nt, most government

own establishm ent in Nigeria have been either been out rightly privatised or jointly own

partnership. This exercise has triggered massive economic growth in the are a of social

development of infrastructure, job creation and opening up the economy fo r vast investment

potentials, like telecommunication, energy companies, oil and gas development, expansion of

entrepreneurial business empires, agriculture sector, and manufacturing sector has gain more

investment grounds, and transportation innovation drive of private ownership economy.

Privatization implies that, private individual or groups takes possession or jointly own public

company, or buy out completely its shareholders and become fully private own. This is

typically done through a buyout which occurs when the buyers believe the securities have

been undervalued by investors.

Most industrialized countries have laws and re gulations that detail steps which prospective

owners (public or private) must follow if they wish to take over a publicly-traded corporation.

This often entails a formal offer for each share of the company to shareholders. Normally

once shareholders are compelled to sell at the agreed price, the company becomes a

subsidiary, and it ceases to exist as public it becomes privately own.38

4.0.2. Development:

Development has various interpretations which are subject to different school of thoughts. In

mathematical field of topology, development is expressed as countable collection of open

covers of topological space th at satisfies certain separate axioms. But, sonata-allegro put,

development as the middl e section where raw material are in exposed to process o f

expansion. In classical definition, development refers to the simple idea of create value out

nothing, an act of improving or refining a process in which something passes by degrees to a

different stage ( production or manufacturing) . For example, “the development of his ideas

took many years”; “the evolution of Greek civilization”; took centuries of development .

Rostow (1961), in his five stages of development: defined growth and development as a

progressive movement; an assertion from lower stage of ec onomic growth to higher stage;

and from simple to complex situation. The simple/lower stage(s) refer to the state of nature in

which society finds itself in the process of social evolution. Division of labour at this level

was rudimentary. Nearly every mem ber of the society performs similar roles and function.

The transition to the complex stage results from certain needs which arise from society.

Division of labour was raised to a higher status with every member of the society assigned a

specific role and function in the stratification system.

However, economic growth and development are considered in term of quantitative and

qualitative socioeconomic and political changes which leads to realization of human capital

37 Ayanruoh. F. (2013),Oil & People: Why Public Private Partnership Can Boost Refinery Projects,

38 DoubleGist (2013), Privatization & Commercialization Policies-Economic Impact on Nigeria.

potentials, and advancement of social –welfare of the citizenry without its negative impact on

the individual interest and national economic growth.39

4.0.3. Organization:

This is a social organ with a vision/mission to pursue collective goals, which controls its own

performance, and which has a boundary separating it from its environment.40

4.0.4. Performance:

Performance implies sets of ideas or quantifiable measurements, agreed to beforehand, that

reflect the critical success factors of an economy. That is, it could be viewed as ratio of useful

work performed or output produced to the total energy or input expended. Secondly, it

indicates a degree at which an organization actualizes its sets goals. These include partial

attainment and sustainability of organization.41

4.1. MANAGING NIGERIAN PETROLEUM ECONOMY POLICY

There are three prime systems in policy conceptualisation; interconne cted, overlapping, and

coequal. Policy is a blue prints that guide or leads to the actualization of a plan of action. It is

a decision about amounts and the allocations of resources: the overall commitment to certain

areas of concern; and distribution of priorities of decision makers. Policy sets priorities and

guides resource allocation at any level of government. Some levels of policies may have

formal o r legal precedence over the others. Policy may be set by H eads of government,

legislatures, and regulatory agencies empowered by other constituted authorities to do so .

There are supranational institutions’ policies organs like World Trade Organization or United

Nations Conventions, who are empowered to overrule government policies due to global

concerns. Other institutions’ policy actors are organizations’ policies.

They are empowered to enact policy that will govern their organization, but, such policies are

usually subordinate to public policy, and are always shaped in accordance with available

options under public policy. For example, tax policy, environmental policy, civil rights

policy, labour policy goals, which is to shape the course and pace of change in a preferred

direction by influencing actions of public and private organizations’, affecting populations,

environments, and behavioral changes in organization’s decisions about their use of resources

alters activities of managers, staff, clients and customers, affecting access to services,

products, and information. Socio-economic policies improve the conditions under which

people live sustainable lifestyles. Policy adequacy may be measured by its impact on

population GDP (Gross Domestic Product) and NI (National Income).

Managing petroleum economy policy content in 21st century, depend on the percentages of

human capita development a country has. The global environment is facing range of

39 Masayuki .O. (2011), The Employment Isolation Effect Under Flexible Exchange Rate.

40 Bob O. (2013), Organizational Theory.

41 Hindle .T. (2008), The Economist: Guide To Management Ideas and Gurus.

ecological, economic, and social challenges, posing threat o n our industries, utilization of

renewable and non -renewable natural resources as u nsustainable. There are challenges

associated with policies management and implementation in Nigeria ; for examples, global

that human may now directly and indirectly apply about 40 percent of the total photosynthetic

product of the planet which is likely to stringently limit future growth in human consumption

to energy creation globally . This suggests that global petroleum products consumption

capacity will soon be exceeded , if it hasn’t been already, and that global adoption of

industrialized countries’ rates of consumption and production would simply be untenable at a

peak of decline. 42

Global socioe conomic change is extremely rapid. This include disappearance of centrally

planned economies might; the trend toward the use of market forces and market -based

policies throughout the world. Other changes are; global economic integration driven by trade

liberalization and emergence of a global capital market, characterized by fin ancial flows that

dwarf flows of traded goods and services , etc. These developments have bandwagon impact

on increasing number of economic interdependence among nation states and reductions in

national economic sovereignty . This changes had also led to the of emergence of global

corporations and financial institutions whose activities can now be effectively regulated by

government; highly mobile international trade integration and investment inflows, which are

gave freedom to raise taxes for social programs; i ncreasing pressures to maintain

international competitiveness; pressures to reduce the size of the public sector, to reduce (or

at least not increase) taxation (especially direct taxes), and to reduce def icit financing a nd

public debt; g rowing structural unemployment in many industrialized countries; rising and

unacceptable number of people living in absolute poverty; and large income disparities

between richer and poorer countries and between rich and poor within both in dustrialized and

developing countries.

The causes of these problems are the subject of much debate, as are the most promising

remedies, whether these phenomena are actual problems at all. But current economic

conditions are clearly unsustainable for a sign ificant proportion of the wo rld’s population, in

developed and developing countries alike. In many market -oriented industrial societies, the

system of governance is viewed with growing distrust, a sense of alienation, and even

distaste. This is coupled wit h the failure of governments to address basic social issues, such

as insecurity, diseases, poverty, unemployment, and shelter, in ways that command public

support. When the above are addressed, it will grow public trust/demands on government to

cut taxes a nd reduce debt conflict with the desire to maintain social and environmental

programs.

From 1960 to 2015, the Nigerian government has been unable to manage policy thrust of

various sector of the economy. There has been persistent failure in policy impleme ntation on:

the entire petroleum sector, unresolved ecological problems , collapse of the agricultural

sector, disappearance of textile & cottage industry, etc. has become challenges to the

economy. In fact, the interaction of these challenges often reinfor ces their negative impacts.

For example, legacy of environmental mismanagement is now seen as one of the most severe

economic burdens in developing economies, i nternationally set targets eliminate greenhouse

gas emissions or gas flaring are not being reached because governments of developing

countries are unable to address the mismanagement and environmental deterioration of

42 Agwu .O. (2014), Petroleum Project Economics and Risk Analysis. Retrieved from:

http://www.nigerianbulletin.com/

agricultural land, water, and air pollution as a result of gas emission. Growing major cause of

social and ethnic t ensions, often leading to armed conflict; and Economic inequality within

societies, especially when it appears to be connected to increasing globalization of the

world’s economies, is reducing social cohesion and making it more difficult for people to

accept macroeconomic change without social tension.43

In the last half c entury, economic objectives policy has had major influence on Nigerian

economy direction. But, the ability of the social system to influence the economic system has

been declining factor. There is also evidence that other social influences on the market are

growing (via consumer and environmental groups, for example). On the whole, in many parts

of the world, global economic integration clearly seems to be connected with social and

cultural environment within market operations . For example, growing economic inequit ies

has been linked to continuous economic globalization . This is not merely a matter of the

direct economic policy and employment generation portfolio, rather policy on trade

liberalization or structural-adjustment policies and actual loss of national economic control

associated with global economic integration is a major factor in increasing social tensions and

in reinforcing a desire to build a sense of community through local sov ereignty and pro-

independence groups that will initiate policies that will energise economic development in the

country.

It is increasingly argued that in response to g lobal economic integration, high-wage, and

resource-based industrialized concept should be implore in developing economy with a view

to initiate growth and development. Moreover, if the economic and social needs of

developing countries’ industrializing economies are to be met, trading network and capital

inflows of investment must be greatly expanded . For the poorest countries, economic policy

is needed to keep their current economic activities going through export earnings.

5.0. FUTURE SUGGESTIONS AND RECOMMENDATIONS

This research work has demonstrated the effi cacy of petroleum sector in the socioeconomic

development of Nigeria economy, and its leading role played in income generation and

earnings from export trading of crude oil and gas products in the country’s GDP ratio.

5.0.1. Suggestions for Future Studies

The strategic importance of oil and gas business to the economic development con not be

exhaustive enough, hence, the need to further research on petroleum products pricing

components with a view to understudy its impact to global petroleum pricing and its market

fundamentals.

43 Aderinokun .K. (2012), ‘Nigeria’s Economy Has Performed Averagely Since 1960’.

5.0.2. Study Recommendations

Although Nigeria is struggling with her decaying socioeconomic policies on infrastructure

development, obsolete petroleum management policy, sectorial problems and poor regulatory

environment policy, the country possesses many positive attributes that are targeted towards

investment dividend that will attract interna l and international market potentials. There other

sectors of Nigeria economy that has huge markets potentials outside the oil and gas sector

that can attract huge foreign earnings if well managed . These are: telecommunication

providers, manufacturing sector, agricultural sector etc. should be strengthened, while

creating a level p laying ground for entrepreneurial competitive growth, and where possible,

some of these huge capital based investor should be given tax holiday to encourage foreign

and indigenous investor into Nigeria economy . Various governments’ reform program s

should be allowed to initiate economic growth . There is a growing Nigerian consensus that

foreign investment is essential to realizing Nigeria’s vast but squandered potential. Europ ean

investments are increasing in exploring the Nigerian market.

However, to improve prospects for success, potential investors must educate themselves

extensively on how to manage local contents business practices and cultural environment of

operations. The Nigerian Government is keenly aware that sustaining democratic principles,

enhancing security for life and property, and rebuilding and ma intaining infrastructure are

necessary for the country to attract foreign investment.

6.0. Conclusion

This theoretical summary is borne out of the fact that the theory directs our attention to the

source of policy thrust and whose interest public policies serve. The theory attempts to

proffers a realistic explanation of the resources of policy by predictin g it in the elites rather

than the proletariats. Classical democratic theories assume that public preferences articulated

by representatives are the main source of policy thrust. Realistically, the citizenry does not

have any considerable influence on publ ic policies. These schools of thoughts, earnings, and

income theorists have tended to seen income as wealth cumulative and pervasive in all

aspects of society.

From the above submission, since the main feature of any public policy is toward national

development particularly, in the management of natural resources in developing nations of

like Nigeria. Petroleum economy management anchor on policy of investment which

becomes imperative. If government wants to contribute their quota in assisting in achievin g

economic growth in Nigeria and a higher level of efficiency in the oil and gas sector, the

industry must be seen to be private driven. The nature of efficiency should not be quantitative

alone, rather qualitative in performance and should not be “productivity investment” based,

rather commerce base. But, as long as the intending policy serves its desired purpose for

increased growth and development, the purpose is achieved. Nigeria’s foreign economic

relations is Afro-centric which revolve round its role in supplying most African countries and

world economy with oil and natural gas, even as the country seeks to diversify its accrued

export earnings, while harmonizing tariffs in line with a potential market in African States ,

petroleum economy encourages inflows of foreign capital direct investment in the country.

Our discoveries from the above scenario imply that oil and gas economy management has a

positive significant relation ship with GDP revenue growth in Nigeria economy. W hile

inflation impact is re latively insignificant, petroleum profit tax has a positive impact on the

economy in a significant measure and a negative relationship with inflation. Licensing fee has

little or no significant relationship with GDP growth as against earning/income from

petroleum export earnings; rather, its relationship with inflation is positive ly statistically

significant. Furthermore, it is obvious that pe troleum income has a positive impact on

Nigerian economy since its discovery in 1986. Thus, this study specifies tha t abundance of

petroleum and its associated income has immensely contributed to socioeconomic growth and

development of the economy of Nigeria and the global economy. Conclusively, therefore,

that income from oil and gas (natural resource) has a positive influence on economic growth

and development of Nigerian economy . It is important to note that of the above mentioned

variables (oil and gas revenue, petroleum export earnings, income, profit licensing fees and

petroleum tax), showed a stronger positive im pact on the explained variables which measure

development and growth in Nigerian economy.

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