CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Nigeria holds the title of being the largest petroleum producer in Africa and the sixth-largest globally. The Niger Delta region, specifically, contributes over two million barrels (320,000 m3) per day to this production, with estimated reserves of about 38 billion barrels. However, as of BP's Statistical Review in 2021, the proven oil reserves were reported to be 36.9 billion barrels at the end of 2020. The inception of oil operations in the 1950s, facilitated by multinational corporations, equipped the country with the necessary technology and financial resources for oil drilling. Nigeria, boasting significant oil reserves and a population of around 200 million, stands as one of the largest oil producers and the most populous country in Africa. Despite its considerable consumption of petroleum products, the nation has been compelled to import refined products due to insufficient domestic refining capacity. This reliance on imports adversely affects the country's balance of payments, gross domestic product, foreign exchange, among other economic aspects. Notably, the construction of the Aliko Dangote refinery holds promise for changing this dynamic. This study aims to assess the potential economic impact of the forthcoming refinery.
From 1990 to the present, Nigeria's total refining capacity has been 445,000 barrels per day. The country hosts four refineries, contributing 60,000 bpsd, 150,000 bpsd, 110,000 bpsd, and 125,000 bpsd for Port Harcourt Refinery I, Port Harcourt Refinery II, Kaduna Refinery, and Warri Refinery, respectively. Despite these facilities, the refining capacity falls short of meeting domestic needs, let alone enabling exports. The Nigerian government, particularly through NNPC, has persistently endeavored to boost refining capacity, but challenges such as pervasive corruption have impeded success. A substantial refinery has the potential to enhance the country's economic landscape through import substitution, leading to foreign exchange gains, a positive balance of payments, increased GDP, lower inflation rates (as of the 2021 NBS report, it stands at 15.63%), currency appreciation, and a reduction in unemployment rates. This study seeks to evaluate the prospective benefits of the Dangote refinery on Nigeria's balance of payments and the broader economy, considering the direct, indirect, and induced economic impacts throughout the construction and operational phases of the refinery.
1.2 Statement of the Problem
The statement of the problem for the assessment of the economic impact of local refineries on the economy of Nigeria revolves around the critical need to understand and evaluate the contribution of domestic refineries to the overall economic landscape. Despite Nigeria being a major player in the global oil industry, there exists a significant gap in knowledge regarding the effectiveness and influence of local refineries on the country's economy. The pressing issues include the insufficient domestic refining capacity, leading to a heavy reliance on imported petroleum products, and the potential consequences of this dependency on the nation's economic indicators such as the balance of payments, gross domestic product (GDP), and employment rates. Additionally, factors such as corruption and past unsuccessful attempts to enhance refining capacity through government initiatives, particularly by the Nigerian National Petroleum Corporation (NNPC), contribute to the complexity of the problem. The proposed assessment aims to address these challenges by thoroughly examining the economic implications of local refineries in Nigeria, with a specific focus on their role in import substitution, foreign exchange earnings, and broader economic development.
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1.3 Objectives of the Study
The main objective of the study is to examine the economic impact of local refineries on the economy of Nigeria. Specific objectives of the study are:
- To evaluate the extent to which local refineries in Nigeria can contribute to import substitution in the petroleum sector.
- To analyze the impact of local refineries on Nigeria's foreign exchange earnings, considering both short-term and long-term perspectives.
- To investigate the correlation between the operations of local refineries and employment generation, as well as their broader contribution to economic development in Nigeria.
1.4 Research Questions
To guide the study and achieve the objectives of the study, the following research questions were formulated:
- How much of Nigeria's petroleum product demand can be met through increased production by local refineries?
- How do the activities of local refineries influence the country's foreign exchange reserves?
- How does the presence of local refineries impact local employment rates, both directly and indirectly, along the entire value chain?
1.5 Research Hypothesis
The following research hypothesis was developed and tested for the study:
Ho: There is no statistical significant relationship between local refineries and economy of Nigeria.
1.6 Significance of the Study
The study is important for many reasons. The following are the major stakeholders this paper through its practical and theoretical implications and findings will be of great significance:
Firstly, the paper will benefit major stakeholders and policy makers in the economic sector. The various analysis, findings and discussions outlined in this paper will serve as a guide in enabling major positive changes in the industry and sub-sectors.
Secondly, the paper is also beneficial to the organizations used for the research. Since first hand data was gotten and analysed from the organization, they stand a chance to benefit directly from the findings of the study in respect to their various organizations. These findings will fast track growth and enable productivity in the organisations used as a case study.
Finally, the paper will serve as a guide to other researchers willing to research further into the subject matter. Through the conclusions, limitations and gaps identified in the subject matter, other student and independent researchers can have a well laid foundation to conduct further studies.
1.7 Scope of the Study
The study is delimited to Dangote Oil Refinery. Findings and recommendations from the study reflects the views and opinions of respondents sampled in the area. It may not reflect the entire picture in the population.
1.8 Limitations of the Study
The major limitations of the research study are time, financial constraints and delays from respondents. The researcher had difficulties combining lectures with field work. Financial constraints in form of getting adequate funds and sponsors to print questionnaires, hold Focus group discussions and logistics was recorded. Finally, respondents were a bit reluctant in filling questionnaires and submitting them on time. This delayed the project work a bit.
1.9 Organization of the Study
The study is made up of five (5) Chapters. Chapter one of the study gives a general introduction to the subject matter, background to the problem as well as a detailed problem statement of the research. This chapter also sets the objectives of the paper in motion detailing out the significance and scope of the paper.
Chapter Two of the paper entails the review of related literature with regards to corporate governance and integrated reporting. This chapter outlines the conceptual reviews, theoretical reviews and empirical reviews of the study.
Chapter Three centers on the methodologies applied in the study. A more detailed explanation of the research design, population of the study, sample size and technique, data collection method and analysis is discussed in this chapter.
Chapter Four highlights data analysis and interpretation giving the readers a thorough room for the discussion of the practical and theoretical implications of data analyzed in the study.
Chapter Five outlines the findings, conclusions and recommendations of the study. Based on objectives set out, the researcher concludes the paper by answering all research questions set out in the study.
