The recent handling of Nigeria’s naira-for-crude oil sales to local refineries has brought long-standing gaps in the nation’s economic planning into sharp relief. The underutilisation of domestic crude as a tool for sustainable growth and the lack of clear integration of the oil sector with broader national development, have limited Nigeria’s economic progress. As the initial six-month naira-for-crude arrangement between NNPCL and local refineries like Dangote approached its March 2025 expiration, uncertainty over its future highlighted the urgent need for coherent, pragmatic policies. The government’s decision to extend the scheme, following public concern, underscores both the challenges and the opportunities for leveraging Nigeria’s oil resources more effectively to drive inclusive growth.
At its core, the naira-for-crude initiative was designed to enable local refineries to purchase Nigerian crude oil in the local currency, thus supporting domestic refining, reducing pressure on foreign exchange reserves, and potentially stabilising fuel prices. The Dangote Refinery, with its world-class capacity, stands as a symbol of Nigeria’s ambition to shift from an exporter of raw crude to a producer of refined petroleum products. However, the initial trial period and subsequent policy ambiguity exposed the risks of ad-hoc economic management in such a vital sector.
Despite oil’s dominance in Nigeria’s export earnings, its contribution to gross domestic product (GDP) remains surprisingly modest. Recent data from the National Bureau of Statistics (NBS) show that the oil sector accounted for just 4.6 percent of GDP in the fourth quarter of 2024, while the non-oil sector contributed over 95 percent. This disconnect highlights a structural weakness: Nigeria’s inability to fully integrate its oil wealth into the broader economy, thereby limiting the sector’s multiplier effects on industrialisation, job creation, and fiscal stability.
The persistent reliance on imported petroleum products has compounded these challenges. Even after the removal of fuel subsidies in 2023, which halved domestic petrol consumption, Nigeria’s import bill for petroleum products remains substantial, with N2.63 trillion spent on petrol imports in the first quarter of 2024 alone. The resultant strain on foreign reserves and the naira underscores the urgency of boosting local refining capacity – not just for economic efficiency, but for national energy security.
The Dangote Refinery, which began full operations in 2024, offers a promising solution. With a projected capacity of 650,000 barrels per day, it is poised to meet domestic demand, reduce the need for imports, and save the country billions of dollars annually. Moreover, the refinery is expected to create at least 100,000 jobs, stimulate allied industries, and ease pressure on the naira by reducing the demand for foreign exchange to import fuel. These benefits, however, hinge on a stable and transparent policy framework that guarantees domestic crude supply to local refineries at competitive terms.
Nigeria’s experience is not unique. Across Africa, several oil-producing nations have recognised the value of integrating crude oil production with domestic refining and local content development. Angola, for instance, has embarked on an ambitious programme to expand its refining capacity, with the Cabinda refinery set to launch in 2025 as part of a broader strategy to reduce fuel imports and retain value within the economy. Ghana, facing similar challenges, has announced plans to build three new refineries and five petrochemical plants, aiming to transform itself into a regional energy hub and diversify its industrial base. Namibia has approved a comprehensive local content policy for its burgeoning oil sector, ensuring that the benefits of resource extraction are broadly shared through employment and business opportunities for citizens.
These examples illustrate the importance of clear policy direction, robust institutional frameworks, and a commitment to local value addition. For Nigeria, the path forward requires moving beyond short-term fixes and embracing a holistic strategy that aligns the oil sector with national development goals. This includes institutionalising the allocation of crude oil to domestic refineries, strengthening local content requirements, and investing in infrastructure and technology to support efficient refining and distribution.
Furthermore, oil revenues must be channelled into productive sectors such as agriculture, manufacturing, and services to drive diversification and inclusive growth. Transparent governance, regular stakeholder engagement, and adaptive policy mechanisms are essential to building investor confidence and ensuring that the gains from domestic refining are widely shared.
Charting a sustainable path forward
The extension of Nigeria’s naira-for-crude oil sales scheme is a pragmatic step toward harnessing the nation’s oil wealth for development, but it also highlights the pressing need for a more strategic and integrated approach to resource management. While the move averted immediate disruption, it also underscored the need for a more strategic, integrated approach to resource management. Drawing on lessons from other African countries, clear policies, strong local content frameworks, and deliberate efforts to link oil production with domestic value addition can transform oil wealth into broad-based prosperity.
Nigeria now stands at a crossroads: by institutionalising domestic crude allocation, strengthening local participation, and investing in infrastructure, the country can unlock the full potential of its oil sector. Ultimately, sustained political will and coherent policymaking are essential for turning Nigeria’s oil resources from a source of vulnerability into a foundation for inclusive and sustainable growth.
