Natural resources have long been a vital part of the Nigerian economy, with the way they are handled and the fluctuations of global markets playing a big part in the country´s relative strength and prosperity at any given time.
Which are the key resources and how big a part do they each play in the way forward for Nigeria?
The Dependency Upon Oil
Nigeria is the tenth country in the world in terms of oil reserves, with the amount left to be drilled amounting to about 237 times the country’s own consumption. The authorities are currently working on lowering the cost of production to $10 per barrel, to raise profit levels.
85% of the oil obtained here is exported to the rest of the world, making it the eighth biggest exporter on the planet, just behind Kuwait and ahead of Qatar. Two-thirds of the state’s revenues and 9% of the national GDP come from oil production.
There is no doubt that the presence of so much oil here has helped Nigeria to grow, although much of the income generated in the boom period of the 1970s is reported to have been diverted into private hands.
In more recent times, the highly fluctuating price of oil has led some analysts to speculate that the dependency upon oil does more harm than good, as it means that the country is highly vulnerable to price shifts in the market.
The national currency will often drop in line with global oil prices, meaning that problems in the oil market can lead to economic instability in Nigeria. Studies using a Markov switching regression model have shown that the naira/US dollar rate falls according to drops in oil price, but that the reverse effect isn’t as clear-cut when oil prices rise.
The Promise of Gas Riches
There have been growing calls for the Nigerian government to exploit the vast gas reserves found here, which could diversify the economy and lower the current dependence upon oil. The ninth-largest natural gas reserves on earth have been verified as existing here.
One project that has been widely discussed lately is the Dangote Subsea Gas Pipeline Project, which could help to increase the supply of gas for industrial use and increase government revenue from natural resources.
An effect of exporting more products like gas is likely to be seen in the national currency. As we have seen, the naira has been heavily linked to oil prices, falling roughly in line with the price of this commodity.
A more diversified economy could help to ensure that the naira isn’t as volatile as it has been. However, the relationship between exports and exchange rates is complex, and if the Nigerian currency becomes too strong, then their exports become less attractive to other nations. Because of this, currency traders keep a close eye on this currency.
TopRatedForexBrokers confirms that leverage is often offered up to 1:500: 1:1000 or even 1:2000 by brokers, which means that this is a fast-moving market where even small changes can mean big profit swings. At the moment, this makes currency pairs with the naira an attractive option for forex traders.
Other Natural Resources
Nigeria also has a wealth of other natural materials that are in huge demand across the world. From tin to coal and from limestone to zinc, these are the resources that will help to determine the future strength of the economy.
Overall, the mining sector is relatively small when taking into account the vast amount of resources to be found here. Mining of minerals makes up just 0.3% of the country’s GDP, far behind oil and gas production.
A lack of investment and forward planning in this area means that Nigeria is forced to import minerals that could be mined here with a more developed mining industry in place. A move away from the dependence on oil could help to stimulate this part of the economy in the future.
What Does The Future Hold?
Nigeria is one of eleven countries named as the main Global Growth Generators by Citi economist Willem Buiter. He placed it in this list together with the likes of India, Egypt and Indonesia, citing an expected average growth rate of 6.9% between 2010 and 2050.
Oil will no doubt continue to play an important role in generating wealth and growing the economy. However, to ensure stable, sustainable growth and benefits for the maximum number of people possible, it is preferable that a more diversified set of exports are developed, together with the development of the mining industry.
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