KEY POINTS
- Nigeria has started selling crude oil in naira to the Dangote Refinery, marking a significant shift in the country’s oil trade.
- The move is part of efforts by the government to reduce pressure on foreign exchange reserves and strengthen the local currency.
- The Dangote Refinery, the largest in Africa, is expected to boost local refining capacity and reduce Nigeria’s reliance on imported fuel.
In a dramatic move to diversify its economy, Nigeria has started to sell crude oil in naira to Africa’s largest refinery, the Dangote Refinery.
This new structure enables the Federal Government to avoid the use of the U.S dollar in the oil business hence easing pressure on the foreign exchange reserves and possibly enhancing the domestic currency.
The sale of crude oil in naira is a deliberate policy of the government to encourage local industries especially the giant Dangote Refinery which is expected to revolutionize the Nigeria oil sector through the local production of petroleum products and reduction of importation.
Stabilizing the naira and reducing pressure on forex
Since the early 1980s, Nigeria has sold its crude oil in US dollars and the proceeds from these sales have been a major component of its foreign exchange reserves.
But with depleting forex reserves and the pressure on the naira mounting, the government is now gradually working to diversify away from the dollar.
The government wants to reduce pressure on the dollar by selling crude oil to the Dangote Refinery in naira because the exchange rate has been volatile and has made imports costly.
This is also believed to assist in the stabilization of the Nigerian economy through reducing on the inflationary effects arising from the depreciation of the domestic currency and increase the amount of liquidity in the local currency.
As reported by Tribune Online, the measure is one of the measures that the current administration is implementing as measures to enhance fiscal discipline and make the country less sensitive to external economic factors.
The government is also looking for other measures to develop other sectors of the economy apart from exporting crude oil.
Dangote refinery to disrupt Nigeria’s oil industry
The Dangote Refinery in Lagos is one of the companies that will help Nigeria achieve its goal of becoming an independent producer of petroleum products.
The proposed phase will have a processing capacity of 650000 barrels of crude oil per day and will provide considerable savings to the nation’s foreign reserves that has for long been used to import most of its processed products.
When fully commissioned, the refinery will not only provide products that will serve Nigeria’s domestic needs but other countries within the African continent due to increased energy requirements.
The facility is expected to provide thousands of employment opportunities and boost Nigeria’s economy through its GDP; it is expected to be a permanent solution to Nigeria’s fuel importation woes.
Other than the refining of crude oil, the Dangote Refinery also offers the production of gasoline, diesel and jet fuel. This local production capacity will assist in the reduction of fuel prices and the government’s ability to spend a lot of foreign exchange on fuel subsidies.
Economic reforms and future prospects
The move by Nigeria to offer crude oil in naira is one of the many changes meant to open up the energy sector and to ensure that the economy in the country is stable.
The government has also initiated some measures towards the promotion of import substitution, revenue diversification and reduction of dependence on oil export.
As commendable as these measures are there are always issues that would still be a challenge, areas such infrastructure and regulation that needs to be worked on These reforms could therefore put Nigeria on the map for steady growth in the long run.
The government has vested interests in the success of the Dangote Refinery because it will help to drastically cut the country’s fuel importation bills and create employment for citizens.
While Nigeria presses on with the liberalization process, there are higher expectations that these changes will eventually foster the development of a more balanced economy that does not greatly depend on the shifts in the oil prices in the global market and would be in a position to feed the growing population.
