It is generally believed that there is a strong correlation between oil price and macroeconomic

performance and this belief has largely influenced macroeconomic policy response and oil
industry governance in Nigeria, howbeit with mixed results. It is possible that this argument is
not entirely correct. This study is of the opinion that the Nigeria’s macroeconomic performances
correlates better with oil revenue, rather than price alone, and that the keys to economic
recovery and sustained economic growth may lie in a multiplicity of industry factors affecting oil
production output. The study aims to examine the responses of macroeconomic variables to
petroleum industry shocks in the environment of monetary policy framework in Nigeria using
data from 1995Q1 to 2019Q3. Real Gross Domestic Product and Inflation Rates were used for the
measures of macroeconomic performance and together with oil price, oil revenue, oil rig counts
and, foreign exchange rates and the growth of money supply, the variables were subjected to
various statistical, mathematical and econometrics test and then modelled using the Structural
Vector AutoRegressive (SVAR) framework with the conditions outline in Zivot (2000) to handle
the issues of identifications. The results show that the presence of industry factor variable in the
SVAR models causes economic growth to respond faster to shocks in both oil revenue and oil
prices. The effect was negative and deeper than the effect without the industry factor variable.
The heterogeneous behaviors across the presence and absence of industry factor variable in
the models confirm that the happening in the domestic industry have serious impact on how
microeconomic variables will respond. The study concludes by recommending policy changes
including purposeful industry governance, classification of petroleum resources as strategic
national assets, reconsideration of OPEC membership, economic diversification, and better
management of revenue accruable from the petroleum industry.
 Nigeria is Africa’s largest oil producer and 13th globally (1.9mbopd)
 Oil accounts for 70% of Government revenue
 But contributes only 9% of GDP

 Nigeria is just exiting the worst recession in 29 years

 Growth in non-oil sector has been relatively flat
 GDP growth 1.9%; Inflation 17%; Unemployment 23%; Extreme poverty (47%)

 Previous studies (US, OECD, BRICS, MENA, GCC, Developing Economies)

 Results differ and depend on country specificities – Energy dependency, energy
efficiency, & economic/market sophistication
o Resource-poor, heavy manufacturing: high -ve impact
o Resource-poor, high services: no impact
o Resource-rich, oil-poor: no impact
o Net oil importer: high -ve impact
o Net oil exporter: +ve impact
 %

Fig. 1a: Nigeria GDP Growth (Oil and Non-Oil), Q1,2013 - Q2,2019 (source: National Bureau of Statistics, 2019)

 Non-oil GDP growth has remained largely flat and stable over the past 6 years.

 Oil sector growth accounts for most of the variation in total GDP
Percentage %

Fig. 1b: Nigeria GDP Growth, 2010 - 2018 (source: National Bureau of Statistics, 2019)
 Fig. 1c: Nigeria GDP Growth Vs Crude Oil Price, 1991 - 2017 (source: IMF, 2018; World Economic Outlook Database, 2018)

 GDP Growth does not appear to follow Crude Oil Price fluctuations.
 Contrary to popular belief and the results of many previous studies
 Fig. 1d: Nigeria GDP Growth Vs Crude Oil Revenue, 1976 - 2010 (source: IMF, 2011; World Economic Outlook Database, 2011)

 There appears to be a stronger correlation between GDP Growth and Oil Revenues.
 Apparent characteristics of price shocks
 Price shocks are asymmetric, no apparent effect from positive shocks
 Only small incremental changes in GDP growth from large scale price shocks
 Magnitude has changed (reduced) over time – Blanchard & Gali (2007)

 Nigeria’s oil production has changed over the years and is tensioned by
 OPEC quota capping output
 Emergence of new industry players portends great opportunity for growth

 Impact of other variables

 Operating environment (crude theft, insecurity and militancy, community agitations)
 Uncertainty (delays in PIB; regulatory and fiscal regimes)
 Strategic objectives and priorities of industry operators
 Cleaner energy, Reputation, Cost & other efficiencies (divestment & port-folio optimization)
 Reduced investment inflow into Nigeria (No major FID by IOC’s since Total’s Egina)