Throughout the world, oil is bought and sold for petrodollars as a form of payment. No, petrodollars are not another form of currency. It is about trading oil for US dollars.

The petrodollar system was established in 1973 through a pact between the United States of America and Saudi Arabia. Both nations decided to set oil prices and transact in US dollars. The implication is that any nation or country that wants to buy oil will pay in dollars.

This has become a standard adopted by the Organization of the Petroleum Exporting Countries (OPEC) over the years.

The Nigerian scenario: As a member of OPEC, Nigeria is one of the largest oil-producing countries in Africa. For years, the country used to be the biggest, but it has somehow lost its position due to low production from oil theft, infrastructure challenges and others.

The non-remittance of oil revenues has remained a major concern as the country’s economy is dependent on oil. Despite accounting for about 6.63 percent of the country’s GDP, more than 95 percent of Nigeria’s export earnings come from oil.

Over the years, the Central Bank of Nigeria and the NNPC have been embroiled in remittances from oil revenues. The CBN has often claimed to receive zero remittances from the NNPC. On the other hand, the NNPC affirmed that it had indeed remitted funds to the CBN.

the last of the accusations it came after the FAAC alleged that the NNPC between 2015 and 2022 sold domestic oil at a lower exchange rate apart from CBN, which has led to a sub-consignment from the NNPC.

The non-remittance of petrodollars and the stalemate between CBN and NNPC do indeed affect the Nigerian economy in different ways. Highlighted below are some of the ways it does so.

Low allocation to states: In Nigeria, all three levels of government, in all six geopolitical zones, receive a monthly allowance from the Federal Accounts Allocation Committee (FAAC).

In December 2022, FAAC allocated N990 billion to the three levels of government. The shared amount includes value-added tax revenue, legal gross receipts, foreign exchange gain, and electronic money transfer (EMTL) levies.

according to a report conducted by SBM Intelligence, between 2017 and 2020, only two states (Lagos and Ogun) made more IGR than the allocation they received from the FG. This shows that more than 90 percent of the country’s states depend on the FAAC allocation, which is mainly financed by oil revenues.

Without remittances, the funds available to be shared among the state government have been reduced and some have attributed this to the lack ofn-payment of wages by some states, slowing development in those states.

Naira/exchange rate crisis: The naira crisis, which has persisted for years, has been blamed on the non-remittance of petrodollars.

As of 26 January 2023, the naira was trading at N459.97 against the dollar at the official exchange rate and N750 on the parallel market. This was due to the high demand for the dollar.

In 2022, the country witnessed a massive emigration of people to different parts of the world, especially to Europe and North America. Most of these people have gone down the education route. This means that there was a greater demand for dollars to pay tuition, among other expenses. With no oil remittances, which is a major source of foreign exchange, demands were met mainly from autonomous sources which have further weakened the naira against the dollar.

High inflation rate: Nigeria does not print dollars because it is not our official currency. Instead, the availability of the dollar in the country comes mainly from exports.

As stated above, 95 percent of export earnings come from oil. Consequently, the non-remission of export earnings inevitably causes inflation.

As you know, the manufacturing sector has lagged behind the dollars for the import of raw materials. The lack of availability of dollars at the official exchange rate often forces companies to source from autonomous sources that are usually higher than the official market. This, in turn, has affected the prices of goods and raw materials in the market, as manufacturing companies try to recover the cost by raising the prices of their products.

In an immediate response to the non-remittance, it is non-negotiable that the country has to put its refineries into operation. Despite high oil prices, Nigeria has had to spend more on importing petroleum products, and the country’s growing subsidy has eaten into earnings that should be remitted to the country’s stock market. In addition, the CBN and NNPC must show some level of transparency.