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Nigeria, Africa's largest oil producer, is considering a bold move to sell its crude oil in naira, the local currency, instead of the US dollar, as part of its efforts to join the BRICS economic bloc and strengthen its currency.
What is BRICS and why does Nigeria want to join?
BRICS is an acronym for Brazil, Russia, India, China and South Africa, five emerging economies that have formed a political and economic alliance to challenge the dominance of the US and other Western powers in global affairs. BRICS countries account for about 23% of the world's GDP, 16% of the world's trade, and 42% of the world's population.
Nigeria, which has the largest economy and population in Africa, has expressed interest in joining BRICS for several reasons. First, Nigeria wants to diversify its trade partners and reduce its dependence on the US and Europe, which have imposed sanctions and restrictions on some Nigerian products and officials. Second, Nigeria wants to access the financial and technical assistance that BRICS provides to its members and other developing countries, such as the New Development Bank (NDB) and the Contingent Reserve Arrangement (CRA). Third, Nigeria wants to have a greater voice and influence in global decision-making and governance, especially on issues that affect Africa and the developing world.
How will selling oil in naira benefit Nigeria?
One of the major challenges that Nigeria faces is the depreciation of its currency, the naira, against the US dollar, which is the main currency used in international trade and finance. The naira has lost more than 50% of its value since 2015, due to the fall in oil prices, the COVID-19 pandemic, and the foreign exchange shortages². This has increased the cost of imports, fuelled inflation, and reduced the purchasing power of Nigerians.
To address this problem, some Nigerian experts and activists have proposed that Nigeria should join BRICS and sell its crude oil in naira, rather than in US dollars. This would have several advantages for Nigeria, such as:
- Increasing the demand and value of the naira, as foreign buyers of Nigerian oil would have to acquire naira to pay for it.
- Reducing the exposure and vulnerability of the Nigerian economy to the fluctuations and shocks of the US dollar and the global oil market.
- Enhancing the sovereignty and autonomy of Nigeria in determining its monetary and fiscal policies, without being constrained by the dictates of the US and other Western powers.
- Promoting the use and acceptance of the naira as a regional and international currency, especially among other African countries and emerging markets.
What are the challenges and risks of selling oil in naira?
While selling oil in naira may seem like an attractive option for Nigeria, it also comes with some challenges and risks that need to be carefully considered and addressed. Some of these include:
- The resistance and opposition of the US and other Western powers, which may see Nigeria's move as a threat to their economic and political interests and influence, and may retaliate with sanctions, tariffs, or other measures.
- The lack of readiness and capacity of the Nigerian financial system and infrastructure to handle the large volume and value of transactions that would be involved in selling oil in naira, and to provide the necessary liquidity, stability, and security for the naira.
- The potential loss of market share and competitiveness of Nigerian oil, as some foreign buyers may prefer to buy oil in US dollars or other currencies that are more widely used and accepted in the global market, or that offer better exchange rates and incentives.
- The possibility of inflation and currency appreciation, if the supply of naira exceeds the demand, or if the naira becomes too strong relative to other currencies, which could hurt the exports and growth of other sectors of the Nigerian economy, besides oil.
How can Nigeria overcome the resistance and opposition of the US and other Western powers?
Nigeria can overcome the resistance and opposition of the US and other Western powers by building strategic partnerships with other emerging economies, such as the BRICS countries, that share its vision of selling oil in naira and diversifying its trade and finance. Nigeria can also leverage its diplomatic and cultural ties with other African countries and regional organizations, such as the African Union and the Economic Community of West African States, to promote regional integration and cooperation. Nigeria can also seek to improve its governance, transparency, and human rights record, to address the concerns and criticisms of the US and other Western powers, and to attract more foreign investment and support.
What are the best practices and examples of selling oil in local currency by other countries?
Some of the best practices and examples of selling oil in local currency by other countries are:
- Iran, which has been selling its oil in euros, rials, and other currencies, to circumvent the US sanctions and to reduce its dependence on the US dollar.
- Venezuela, which has been selling its oil in yuan, rubles, and other currencies, to diversify its markets and to counter the US pressure and inflation.
- Russia, which has been selling its oil in rubles, yuan, and other currencies, to strengthen its economic and political ties with China and other countries, and to protect its currency from external shocks.
- Norway, which has been selling its oil in Norwegian kroner, to maintain its monetary sovereignty and to stabilize its exchange rate.
How will Nigeria's plan to sell oil in naira affect its relations with other oil-producing countries, such as OPEC members?
Nigeria's plan to sell oil in naira could affect its relations with other oil-producing countries, such as OPEC members, in different ways. On one hand, Nigeria could gain more support and solidarity from other African and developing countries that also face the challenges of currency depreciation and US sanctions. Nigeria could also inspire and encourage other oil-producing countries to adopt similar measures to sell their oil in local or alternative currencies, and to diversify their markets and partners. On the other hand, Nigeria could face some resistance and criticism from some OPEC members, especially those that are allied with the US or that benefit from the US dollar dominance. Nigeria could also risk losing some of its market share and influence in the global oil market, if some of its buyers prefer to buy oil in US dollars or other currencies.
What are the legal and regulatory implications of selling oil in naira for Nigeria and its foreign buyers?
Selling oil in naira could have some legal and regulatory implications for Nigeria and its foreign buyers, such as:
- Nigeria would have to revise and renegotiate its existing contracts and agreements with its oil buyers, suppliers, and investors, to reflect the change of currency and the exchange rate mechanism.
- Nigeria would have to ensure that its oil exports and imports comply with the international standards and regulations, such as the International Oil Pollution Compensation Fund (IOPC) and the International Maritime Organization (IMO).
- Nigeria would have to deal with the potential legal disputes and challenges that may arise from its oil buyers or competitors, who may claim that selling oil in naira violates the international trade law or the World Trade Organization (WTO) rules.
- Nigeria's foreign buyers would have to obtain and convert naira to pay for Nigerian oil, which could increase their transaction costs and risks, and expose them to the volatility and uncertainty of the naira exchange rate.
- Nigeria's foreign buyers would have to comply with the Nigerian laws and regulations, such as the Petroleum Industry Bill (PIB) and the Nigerian Content Development and Monitoring Board (NCDMB), that govern the oil sector and the local content requirements.
How will Nigeria ensure the quality and standard of its oil products, if it sells them in naira and not in US dollars?
Nigeria will ensure the quality and standard of its oil products, if it sells them in naira and not in US dollars, by adhering to the international benchmarks and specifications, such as the American Petroleum Institute (API) gravity, the sulfur content, and the Reid vapor pressure (RVP). Nigeria will also invest in improving its oil infrastructure and technology, such as the refineries, pipelines, and storage facilities, to reduce the losses and damages of its oil products. Nigeria will also monitor and audit its oil production and exports, to prevent fraud and corruption, and to ensure transparency and accountability.
How will Nigeria cope with the volatility and uncertainty of the naira exchange rate, especially in times of crisis or instability?
Nigeria will cope with the volatility and uncertainty of the naira exchange rate, especially in times of crisis or instability, by adopting a flexible and adaptive exchange rate regime, that allows the naira to adjust to the market forces of supply and demand, and to reflect the economic fundamentals and conditions. Nigeria will also implement sound and prudent monetary and fiscal policies, that aim to maintain price stability, fiscal discipline, and external balance. Nigeria will also diversify its economy and sources of income, to reduce its reliance on oil revenues, and to increase its resilience and competitiveness.
How will Nigeria balance its oil revenues and expenditures, if it sells oil in naira and not in US dollars?
Nigeria will balance its oil revenues and expenditures, if it sells oil in naira and not in US dollars, by establishing a sovereign wealth fund (SWF), that will manage and invest its oil revenues in a transparent and accountable manner, and that will support the long-term development and welfare of the country. Nigeria will also allocate its oil revenues and expenditures in a fair and equitable way, that ensures the distribution of the benefits and costs of oil production and consumption among the federal, state, and local governments, and among the different regions and communities. Nigeria will also prioritize its oil expenditures on productive and sustainable sectors, such as education, health, infrastructure, and renewable energy, that will enhance the human and social capital, and the environmental quality, of the country.
Nigeria's plan to sell oil in naira, rather than in US dollars, is a bold and ambitious move that could have significant benefits for the Nigerian economy and currency, as well as for its integration into the BRICS economic bloc. However, the plan also faces some formidable challenges and risks that need to be carefully weighed and addressed, before it can be successfully implemented and sustained.
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