Nigerian Oil Industry in International Trade - Essay Example

?Nigeria and the Oil Industry Table of Contents Introduction 3 Trade Theory 3 Participation of Nigerian Oil Industry in International Trade 5 Globalisation and Regionalisation 6 Government Policies and Concerned Parties 6 The Role of International Institutions in the Oil Industry 7 References 9 Introduction Nigeria is known for its natural resources, particularly hydrocarbons. The nation is considered amongst the largest oil producing nations. The economy of the nation is highly dependent on its oil industry. It is observed that this sector contributes maximum amount in the economy of the nation. The paper will study about the changes taking place in the Nigerian oil industry along with the impacts of globalisation and regionalisation. The paper also includes governmental policies with respect to oil industry. Trade Theory The companies do not necessarily trade to take advantages of the difference in their production and manufacturing capabilities but also to get benefit of the increasing returns. International trade has emerged over a period of time to be recognised as a key component in a nation’s growth and to enhance its economic performance. The new trade theory as introduced included a concept of ‘interindustry trade’. This allowed the trading practice between various industries belonging to different economies (Menipaz & Menipaz, 2011). The trade theory also states that the government of the nations can adopt necessary measures in developing the economic conditions of the citizens. The government of Nigeria is needed to take necessary steps involving the international trade practices (Bergoeing, 2003). A company is said to have achieved absolute advantage if it is capable of producing more goods than its competitors with the utilisation of same amount of resources or manufactures same quantity of goods with the utilization of minimum resources compared to its competitors. In this context, it is worth mentioning that Nigeria being one of the largest reserve nations of natural resources could have gained this advantage but due to the lack in advanced amenities and structures, and adequate law enforcement, the nation is deprived of this advantage (Bergoeing, 2003). In the era of international business, economic as well as social importances of international trade have played their role as the deriving theories influencing the international trading business (The Economy Watch, 2010). The Nigerian oil industry is facing instability with respect to declining condition of Niger delta adversely affecting the national economy and the sustainable growth of the related industry. Nigeria is included among the top ten nations that are considered to have richest reserves of oil or natural resources. The main problem of Nigeria is that it has certain lacking in terms of advanced technology and infrastructure related to oil industry. As one of the major impacts of globalisation, the industry is facing tremendous competition from the outsiders (Foreign competitors). As stated by Adolor Uwamu, CEO of Seawolf Oilfield Services, the drilling for oil and gas is being carried out by the foreign companies in Nigeria and this has been a factor for the past 40 years (CNN, 2011; The Economy Watch, 2010). Participation of Nigerian Oil Industry in International Trade Nigeria’s international trade and export is significantly dependent on the oil and natural gas industry. After the introduction of economic reforms which was in the year 2005, the government of Nigeria has paid adequate attention in diversifying the nation’s export related profile. Oil and natural gas are considered as the primary products that are being exported of Nigeria. The nation is noted to export about 2.327 million of barrels daily, according to statistics of the year 2007 (The Economy Watch, 2010) as illustrated in the below figure: Nigeria’s Export Volume Source: (The Economy Watch, 2010). Globalisation and Regionalisation Nigerian government has taken necessary steps to reduce the exploitation of oil of Niger delta and declination of oil industry in Nigeria. The steps include new reform initiatives that have been introduced in Nigeria in the year 2008. These reforms were introduced with an intention to upgrade and restructure the Nigerian oil industry. As the globalisation has emerged in Nigeria, many foreign based oil companies are operating in Nigeria as exploring base. This is in turn hampering the Nigerian based oil industry adversely. Foreign based oil companies are considering Nigeria for the purpose of off shoring oil and establishing their ventures (The Economy Watch, 2010). The government of Nigeria has paid due attention to attract foreign direct investment (FDI), as this has been recognised as a tool of economic development globally. Nigeria has taken part in becoming a part of New Partnership for Africa’s Development (NEPAD) (Ayanwale, 2007). Although, Nigeria has been considered as one of the largest natural oil reserves, it has not been able to upgrade the standard of the citizens. The foreign companies that the nation has welcomed have rarely shown any interest in developing the communities in Nigeria, as has been accused by the government (Ayanwale, 2007). Government Policies and Concerned Parties The government of the Nigeria has launched a Gas Master Plan (GMP). This plan of the government includes three key segments which are ‘gas pricing policy’, ‘gas infrastructure blueprint’ and ‘gas supply obligation regulation’. To be more precise, the main objective behind introducing this policy by the Nigerian government is to formulate structures and maintaining transparency in the framework regarding the hike in the gas prices. This was done with an intention to support the government in controlling and upgrading the economy of the nation. The government has also imposed Domestic Supply Obligation Regulation which had been initiated to ensure the availability of gas and oil in domestic level. This was done by the government of Nigeria to control the export of the gas and the oil so that it can be available to the native corporations and citizens at the time of requirement. Under this regulation, the Ministry of Energy is responsible to decide upon the annual demand regarding the domestic gas requirement, which is done keeping all the companies involved in every sector in mind. With an intention to reduce the friction in the commencement of businesses related to oil industry, the government has taken initiatives such as dividing Niger delta region into three areas of franchise (Gbenga Biobaku & Co., 2011). The key agencies who are responsible for dealing with the matters involved with oil industry are The Ministry of Energy, The Nigerian National Petroleum Corporation, The Department of Petroleum Resources, The Federal Inland Revenue Services, The Federal Ministry of Environment and Niger Delta Development Commission. The department of Petroleum Resources acts as the regulatory division of the Ministry of Energy (Gbenga Biobaku & Co., 2011). The Role of International Institutions in the Oil Industry Approximately, 77% of the entire oil reserves of the world are observed to be under the authority of national oil companies (NOCs) which do not share any equity participation with the foreign as well as international oil corporations. The impact of this institution in the Nigerian oil industry is observed to be significant. With help of this institution, the oil corporations operating in Nigeria are tending to visit those areas which were yet to be explored by this company (Nwokeji, 2007). Conclusion In Nigeria, the local companies are being deprived of the benefits as the foreign companies’ are well structured and uses advanced technologies for the purposes of drilling oils and refining it. Nigeria is a major attraction for the companies that are dealing in oil industry but still the country is not well developed. In addition to this, the companies in the oil industry of Nigeria are lagging behind in competition with foreign competitors operating in the nation. Globalisation has adversely affected the country and its oil industry. Though, globalisation facilitates the trade practices between the nations, Nigeria has suffered to a considerable extent. For instance, many companies are utilising the natural reserves of oil and enhancing their productivity but due to the poor economic condition of the companies in the oil industry, they are not being able to compete with the rivals and lack in terms of productivity. This has hampered the economy of the nations as well. Therefore, government polices and reforms can play a major role in contributing towards the growth of the oil industry in Nigeria which in turn will help to enhance the economic scenario of the nation as well. References Ayanwale, A. B., 2007. FDI and Economic Growth: Evidence from Nigeria. African Economic Research Consortium. [Online] Available at: http://www.aercafrica.org/documents/RP_165.pdf [Accessed December 01, 2011]. Bergoeing, R., 2003. Trade Theory and Trade Facts. Federal Reserve Bank of Minneapolis Research Department Staff Report. [Online] Available at: http://www.econ.umn.edu/~tkehoe/papers/raphael.pdf [Accessed December 01, 2011]. CNN, 2011. Nigeria's Home-Grown Oil Firm Takes On Global Players. Business. [Online] Available at: http://edition.cnn.com/2011/BUSINESS/07/20/nigeria.oil.seawolf.uwamu/index.html [Accessed December 01, 2011]. Gbenga Biobaku & Co., 2011. Investing in Nigeria’s Oil and Gas Industry. Client Note. [Online] Available at: http://www.gbc-law.com/investing_in_Nigeria_OandG%20Industry.pdf [Accessed December 01, 2011]. Menipaz, E. & Menipaz, A., 2011. International Business: Theory and Practice. SAGE Publications Ltd. Nwokeji, G. U., 2007. The Nigerian National Petroleum Corporation and the Development of the Nigerian Oil and Gas Industry. History, Strategies and Current Directions. [Online] Available at: http://www.rice.edu/energy/publications/docs/NOCs/Papers/NOC_NNPC_Ugo.pdf [Accessed December 01, 2011]. The Economy Watch, 2010. Benefits of International Trade. International Trade. [Online] Available at: http://www.economywatch.com/international-trade/benefit.html [Accessed December 01, 2011]. The Economy Watch, 2010. Nigeria Oil and Gas Industry. Oil and Gas Industry. [Online] Available at: http://www.economywatch.com/world-industries/oil/nigeria-oil-gas.html [Accessed December 01, 2011]. The Economy Watch, 2010. Nigeria Trade, Exports and Imports. Nigeria Economy. [Online] Available at: http://www.economywatch.com/world_economy/nigeria/export-import.html [Accessed December 01, 2011]. Read More