Nigeria’s economy is heavily reliant on crude oil, with over 90% of foreign exchange and more than 70% of its government revenue from oil exports. However, despite the vast crude reserves, Nigeria imports nearly all its refined petroleum products. This dependency costs billions annually and places immense pressure on foreign exchange reserves, highlighting the need for efficient local refineries. An optimally functioning refining sector could significantly boost economic growth, supporting agriculture, industry, and other key sectors.
Overview: Nigeria’s Crude Import Dependency
Nigeria’s domestic demand for refined petroleum products has grown sharply, with recent data from the university of Dundee estimating annual needs at approximately 21 million metric tonnes of refined products. Yet, less than 10% of this is produced locally, while the rest is imported, costing Nigeria over $9 billion annually in foreign exchange.
Economic Impact of Enhanced Refining Capacity
Nigeria’s refineries if fully optimised, could meet domestic demand, allowing the country to reduce its reliance on imports and stabilise its currency. The newly established Dangote Refinery, with a processing capacity of 650,000 barrels per day, represents a critical step in this direction. Together with modular refineries like Waltersmith, Edo, and Aradel, Nigeria could potentially reach a refining capacity exceeding 1 million barrels per day, cutting annual import costs by as much as $2 billion.
Fertiliser Production: A Key Support for Agriculture
Agriculture, which employs a large share of Nigeria’s workforce in rural areas, depends heavily on fertiliser to maximise crop yields. However, farmers face a significant fertiliser shortage, with demand estimated at 7 million metric tonnes annually. Over 60% of the 12 million smallholder farmers lack access to affordable fertiliser, hampering productivity and food security. By leveraging by-products from efficient refineries, like those produced at the Dangote facility, Nigeria could produce up to 3 million tonnes of fertiliser domestically, reducing costs and boosting agricultural output.
Petrochemical By-Products and Industrial Growth
Beyond fuels and fertilisers, petrochemical by-products from refineries are critical to Nigeria’s manufacturing sector, which includes industries such as:
- Plastics and Packaging: Essential for multiple sectors, including construction and consumer goods, these materials currently cost Nigeria over $1 billion in imports annually.
- Textiles and Apparel: Synthetic fibres, derived from petrochemicals, are crucial for Nigeria’s growing textile industry.
- Pharmaceuticals: Inputs like isopropyl alcohol and acetone are foundational to local medicine production, supporting Nigeria’s healthcare infrastructure.
- Agricultural Chemicals: Pesticides and herbicides, derived from petrochemicals, are vital for large-scale farming, estimated to save Nigeria up to $500 million yearly by reducing imports.
Estimated Economic Gains: An Empirical View
Based on data from the Nigerian National Petroleum Corporation (NNPC) and other sources, achieving full refining capacity utilisation could generate savings and increase GDP contributions across various sectors:
| Sector | Current Import Cost (in USD) | Potential Local Savings (in USD) | Job Creation Potential |
|---|---|---|---|
| Refined Petroleum Products | $9 billion | $2 billion | 100,000+ direct jobs |
| Fertiliser Production | $1.5 billion | $1 billion | 50,000+ in agriculture |
| Petrochemicals (Plastics, etc.) | $1 billion | $500 million | 30,000+ manufacturing |
| Pharmaceuticals & Chemicals | $500 million | $300 million | 20,000+ in health |
These figures underscore the transformative economic potential if Nigeria’s refineries could operate at full efficiency, leading to significant foreign exchange savings, job creation, and economic stability.
Policy Recommendations and Structural Reforms
For Nigeria to fully realise these benefits, several policy and infrastructure improvements are critical:
- Streamlining Regulatory Processes: Fast-tracking approvals and minimising bureaucratic delays are essential to enable modular refineries to operate efficiently.
- Enhancing Infrastructure: Developing transport, pipelines, and storage facilities can ensure that refined products and fertilisers reach rural and urban areas.
- Implementing Targeted Subsidies: Direct support to smallholder farmers could make locally produced fertiliser more accessible, promoting agricultural productivity.
A Path to Economic Resilience
Nigeria’s pathway to sustainable economic growth lies in maximising its refining potential. With efficient refineries, Nigeria can reduce import dependency, strengthen industries reliant on petrochemicals, and support agriculture with affordable fertilisers. If these measures are implemented, the refining sector could serve as a catalyst for economic growth, fostering a resilient, diversified industrial base and setting Nigeria on a path toward long-term prosperity.
