Naira devaluation, imported inflation linked to crude oil theft

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Crude oil theft has been listed as one of the major causes of the sharp depreciation of the naira, and a contributor to the double-digit inflation Nigerians are experiencing at the moment.

This is just as it has been observed that over N8 trillion that Nigeria lost to Oil theft exceeds the total tax revenue collected by the Federal Inland Revenue Service (FIRS) in 2021.

In a note shared on his Twitter handle, the Fiscal Policy Partner and Africa Tax Leader at PriceWaterHouseCoopers (PwC) Mr Taiwo Oyedele highlighted other areas where the Nigerian economy is feeling the pains of this incidence of economic sabotage.

According to Oyedele, “the unfortunate impact of Crude oil theft include loss of foreign exchange receipt leading to scarcity, Naira devaluation and imported inflation; revenue shortfall to all levels of government and impact on social services; increase in crimes as a result of huge cash in the hands of oil thieves; rising public debt due to consistent borrowing to fund budget deficits.

“Under investment in the oil and gas sector and capacity underutilization due to short-ins; higher production cost of crude oil due to pipeline vandalism, production losses & associated overheads; increase in unemployment due to under-investment and capacity under utilisation; environmental degradation due to pollution associated with the oil theft activities among others.”

Crude oil theft, he added, is a haemorrhage in Nigeria, stressing that Nigeria’s average daily production in the first 6months of 2022 was 1.22million barrels per day (BPD) compared to the average OPEC quota of 1.72million BPD for the period.

This amounts to about a 500,000 BPD shortfall all of which can be attributed to oil theft directly & indirectly.

In his analysis, Oyedele noted that with an average oil price of $112 in the first half of 2022, Nigeria’s financial loss translates to about US$ 10 billion for 6months or US$ 20 billion for the year.

“This is over 50per per cent of our external reserve or over N8 trillion which exceeds the total tax revenue collected by the FIRS + 36 states + FCT in 2021,” he observed.

In a report titled “FIRS 2021 Performance Update,” the agency said the total revenue of N6.405 trillion in both oil (N2.008 trillion) and non-oil (N4.396 trillion) revenues surpassed its target of N6.401 trillion for the year.

Oyedele lamented that while most oil-producing nations are smiling to the bank given high oil prices, Nigeria is virtually broke resorting to heavy borrowing to fund the budget.

This he believes, must now be treated with the utmost sense of urgency. “The private sector should resist any new or further tax increases until the government can demonstrate that it has done everything within its powers to stop the siphoning of our commonwealth,” he stated.

However, reacting to Oyedeke’s submission, public policy analyst Feyisayo Borisade said the government alone cannot put a stop to this economic sabotage.

“The government and citizens of this country must rise as one to secure the pipes.

“Yes, the government must take the lead, but citizens must support it. The criminals are no ghosts. They are some of us,” he submitted.

Nigeria’s inflation rate in the month of July 2022 rose to a 17-year high of 19.64percent, as against 18.6percent recorded in the previous month of June 2022.

According to the recent Gross Domestic Product (GDP) report by the National Bureau of Statistics(NBS), the contribution of the oil sector, which used to dominate the country’s GDP bottom line, fell to 6.33percent in the second quarter (Q2) 2022, a position lower than its 7.42percent in Q2 2021 and 6.63percent in Q1 2022.

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