Commissioned research and write-up for KUMAT
Beyond the Barrel
The oil sector in Nigeria contributes significantly to the country’s GDP, accounting for about 9% of it. However, the unemployment rate in the country has been on the rise, reaching 9% in 2020. Technological advancements in the oil and gas industry, such as the use of nanotechnology and new drilling technologies, have the potential to impact employment in the sector. Economic diversification has been a focus in Nigeria, but despite numerous reforms and international loans, the country’s dependence on oil remains high and many Nigerians live in poverty. The oil price shock in 2014 severely affected the Nigerian economy, leading to its first recession since 1991.
Government policies, such as the Petroleum Act and the Petroleum Industry Act (PIA) 2021, have a significant influence on the oil industry and its employment. The services sector, however, occupied around 53% of the total employment in Nigeria as of 2019, indicating a shift away from traditional industries like oil.
Jobs Under Pressure
The oil sector in Nigeria contributes approximately 6.33% to the country’s GDP and has an average daily oil production of 1.2 million barrels. However, the overall unemployment rate in Nigeria has increased to 9% in 2020. The government has announced measures to reduce unemployment, but the specific impact on the oil industry is not mentioned. Before the COVID-19 pandemic, the oil sector accounted for about 9% of Nigeria’s GDP. Additionally, Nigeria has significant crude oil and natural gas reserves, with high global demand for its low-sulfur content crude oil. The employment rate in Nigeria has fluctuated between 66.7% and 93.6% from 2014 to 2020. The non-oil sector in Nigeria grew by 4.27% in the third quarter of 2022. While the oil industry plays a significant role in Nigeria’s economy, there are conflicting data on its current employment statistics.
Workers in Nigeria’s oil industry face numerous challenges, including increasing attacks by bandits and other criminal activities in oil hubs, which have stifled foreign direct investment into the Nigerian economy. The industry is also grappling with the impact of global efforts to reduce fossil fuel consumption, which has led to divestment from oil and gas by companies, institutions, and countries. Furthermore, the industry has been affected by supply disruptions, oil spills, and violence, making operations difficult . The shift in the U.S. towards shale production has also impacted Nigeria’s oil exports . Additionally, the industry is dealing with liquidity challenges and the theft of large volumes of crude oil.
The Great Pivot
The energy transition in Nigeria is not only a matter of economic adjustment but also a matter of energy security. The country’s Delta region, home to its oil reserves, is facing a significant energy crisis despite its resource wealth. This highlights the need for a more sustainable and equitable energy system. The Nigerian government has developed an Energy Transition Plan aiming for universal energy access by 2030 and net-zero targets by 2050. However, the transition could pose significant fiscal challenges and job losses, necessitating careful planning and strategic partnerships.
The transition from traditional oil production to renewable energy in Nigeria is expected to have significant effects on employment in the oil-related industries. While the oil and gas industry is facing demands to clarify the implications of energy transitions for their operations and business models, the global transition to renewable energy is likely to result in a contraction in oil exports, reducing government revenue. However, the renewable energy sector in Nigeria is projected to create a substantial number of jobs, with employment in the sector expected to exceed 76,000 in the near future. The energy transition in Nigeria is expected to bring both challenges and opportunities for employment in traditional oil-related industries.
The declining costs of renewable energy sources such as wind and solar have made them increasingly competitive with traditional fossil fuels, which could further accelerate the energy transition and the associated job losses in the oil and gas industry. However, the transition towards net-zero emissions is expected to lead to an overall increase in energy sector jobs, potentially offsetting some of the job losses in the oil and gas sector. The experience of other countries, such as Germany, shows that rapid shifts towards cleaner energy sources can lead to significant job losses in traditional industries. Therefore, it is crucial for Nigeria to plan for this transition and provide support for displaced workers, such as a living wage pension. Despite the potential challenges, the transition to cleaner energy sources could also create new job opportunities and stimulate economic growth.
The global shift towards renewable energy is anticipated to disrupt the economic activities of emerging economies like Nigeria, particularly affecting the oil and gas sector. This disruption could lead to job losses in the oil industry, as seen in changing oil markets. However, the Nigerian government is advised to follow the global trend of investing more in renewable energy, which has been proven to provide significant benefits such as improved energy access. To mitigate the impact of this transition, a portion of Nigeria’s oil and gas earnings should be directed into a just transition fund aimed at supporting the shift to renewable energy. This transition also presents an opportunity to analyze the economic implications of renewable energy in Nigeria, including the effect of macroeconomic factors.
The Price of Extraction
The traditional oil-related industries in Nigeria, particularly in the Niger Delta region, have had significant socio-economic consequences. Oil spillage has had detrimental effects on the environment and the livelihoods of communities in the area. The exploration and exploitation of oil have led to environmental degradation, including the death of fish and reduced agricultural productivity, resulting in food insecurity and economic instability. Additionally, host communities of crude oil deposits often lack essential infrastructure, clean water, and arable soils, further impacting their socio-economic well-being. The socio-economic impacts of oil spills also include the cost of clean-up, compensation, and damage to agricultural lands, fishery, and wildlife.
The income distribution effects in Nigeria’s traditional oil-related industries have been significant. The oil revenue has positively and significantly impacted the Nigerian economy, leading to an increase in urban incomes. However, this has also resulted in a decline in food production and a rise in income inequality. The fall in oil prices could lead to the closure of many onshore fracking wells, further affecting income distribution. Despite the economic benefits, the clash for benefits from petroleum has led to political violence, particularly in the Niger Delta where most of the oil is produced.
The oil sector contributes significantly to Nigeria’s GDP, but the country’s heavy reliance on oil makes its economy vulnerable. The unemployment rate in Nigeria has risen considerably, despite the oil sector’s contribution to the economy. The services sector, not the oil industry, occupies the largest share of employment in Nigeria. Environmental deterioration and oil spillages, common in Nigeria’s oil industry, have led to low productivity in agriculture and job losses in tourism and hospitality industries. The government has recognized the need for reforms in the petroleum industry to encourage local content and improve business conditions.
Despite the significant revenues generated from oil exports, Nigeria still grapples with a high unemployment rate and a high poverty rate. The volatility of oil prices also complicates planning, hampers growth, and negatively affects investment conditions, income distribution, and educational attainment. Furthermore, the oil industry has led to increased poverty, illiteracy, criminality, militancy, and infrastructural decay. On the other hand, taxes and royalties from the oil industry have enabled massive infrastructural and social development throughout the country. However, oil spills have negatively impacted tourism and hospitality industries, leading to job losses and reduced revenue.