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Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Nigeria, sub-Saharan Africa’s largest oil producer, committed itself to achieving net-zero carbon emissions by 2060 at the UN Climate Change Conference COP26 in Glasgow in November 2021, while at the same time highlighting the importance President Muhammadu Buhari’s ruling All Progressives Congress (APC) party places on the continued and growing use of natural gas as a ‘cleaner’ transition fuel in the decades leading up to the target date.
Power Minister Abubakar Aliyu told the conference Nigeria understood climate change concerns were draining away investment from hydrocarbons, with many of the world’s leading financiers, pension funds and investment houses having said they will no longer fund fossil fuel projects. He insisted, however, that Nigeria will remain heavily reliant on increased investment on gas to reduce energy poverty through the National Gas Expansion Programme, the construction of more liquefied natural gas trains and the development of a petrochemicals sector.
Considerable progress has been made on reducing flaring and methane leaks from oil and gas wells in the Niger Delta, which the government intends to eliminate following the passage into law in February of the long-delayed Petroleum Industries Act (PIA). Northern Nigeria also holds huge potential for the construction of utility-scale solar power plants, although investment will not be forthcoming without the introduction of feed-in tariffs to make them commercially viable, wholesale improvements in revenue collection from consumers and a dramatic turnaround in the security situation in the north of the country -- all of which remain extremely challenging.
Critics warn, however, that Nigeria’s COP26 pledges run the risk of paying lip service to climate change concerns. They point out that 2060 is only 40 years away and given it took two decades for successive governments to pass the PIA, Nigerian governments will struggle to pass the necessary enabling legislation required to make the country’s ‘Decade of Gas’ initiative a reality.
That policy seeks to ramp up the harnessing of the country’s estimated 210 trillion cubic feet of natural gas for electricity generation, and the transformation of the country into a gas-based industrialised nation by developing a new petrochemicals sector. Sceptics are adamant, however, that Nigeria will fail to develop the investment climate required to realise such ambitions, as has been the case with the oil sector.
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As far as international oil companies (IOCs) are concerned, Nigeria’s hostile business climate took a turn for the worse in February, with the passage of the PIA. While this provided a much-needed regulatory, administrative and fiscal framework for the IOCs, Mallam Mele Kyari, Group Managing Director of the Nigerian National Petroleum Corporation, warned foreign investors they must comply with the guidelines for divestment from joint ventures and production sharing contracts. This includes payment of (oil field) abandonment and relinquishment costs, severance of staff and all third-party contract liabilities.
The warning was clearly directed at Shell and ExxonMobil, both of which have announced plans to exit the Nigerian hydrocarbons sector, and face huge remediation costs over the failure of both companies properly to decommission and cap oil and gas assets across the Niger Delta.
While fears over the prospects of street protests triggered by COVID-19-related food price rises failed to materialise, Nigerians were shocked by the police reaction to the EndSARs – a reference to Nigeria’s notoriously brutal Special Anti-Robbery Squad – protests, which threatened to mushroom into wider political demands for increased political accountability.
The protests culminated in police firing on unarmed protestors, killing at least 12, during an anti-SARs protest at the Lekki tollgate in the commercial capital of Lagos in October 2020. The street protests at one point seemed destined to lead to the creation of a new youth-based political party, but have since lost all momentum. But with presidential elections due in February 2023, Nigeria is braced for yet another bout of electoral violence.
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Nigeria is seeing a decline in the number of deaths caused by terrorism. Terrorism-related deaths fell to 448 in 2021, the lowest level since 2011, which was attributed to the death of Abubakar Shekau, the former leader of the Islamic insurgent group Boko Haram, and government successes in supressing the militants.
However, the number of terrorism-related incidents rose between 2020 and 2021, more than a third of which were claimed by Islamic State of West Africa Province (ISWAP), which is now regarded as the deadliest terrorist group in the West African country. There has also been a sharp increase in incidents of banditry and kidnapping.
The Nigerian naira has continued to fall over the past six months, reaching a new low of 576 to the U.S. dollar on the parallel black market, with the exchange rate declining hourly -- despite efforts by Central Bank of Nigeria (CBN) Governor Godwin Emefiele to prop up the official rate with multiple exchange rates.
The World Bank warned Nigeria is now facing a potential ‘tipping point’ at which the entire economy could unravel because of the Buhari government’s refusal to enact a series of necessary but unpopular reforms, including moves towards a more market-driven exchange rate, overhaul of the country’s antiquated taxation system and the ending of the petrol subsidy, which alone is costing the country an eye-watering USD7 billion a year.
The government earlier announced its intention to abolish the subsidy by mid-2022, and then backtracked for the third time, ruling out any prospect of reform this side of the February 2023 presidential ballot.
Nigeria’s economy grew faster than forecast in 2021, after an expansion in agriculture and services in the fourth quarter which helped offset a sharp drop in oil production. Gross domestic product (GDP) grew by 3.4%, more than the 2.5% forecast by the finance ministry and the 3.1% projected by the central bank. Oil production, however, fell to 1.5 million barrels per day, well below the country’s OPEC+ quota, limiting Nigeria’s ability to benefit from the recent rise in oil prices, driven partly by the Russia and Ukraine crisis and the international response to that.
Increased receipts from oil production, which accounts for only 5% of GDP but more than 90% of foreign exchange earnings, can be expected to help bridge the budget deficit and ensure the servicing of the country’s growing debt burden. However, Nigeria shows little prospect of attracting the levels of foreign investment needed to stimulate significant economic growth. Nigeria, with an estimated population of 210 million people, attracts less foreign investment than neighbouring Ghana, with a population of some 33 million.
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