Macroeconomic, Sectoral and Distributional Impact of Gas Monetization Policy in Nigeria: A CGE Application

Abstract

The Nigerian gas market experienced growth in recent years due to the gas development policies of the government such as the Nigerian gas master plan. Nevertheless, the gas supply and utilization per capita has barely changed while policy objectives are largely unfulfilled. A new national gas policy 2017 recognized a full-blown energy crises in Nigeria in spite of its abundant gas resources. It thereby aims to increase gas utilization with more contribution to GDP, grow key sectors of the economy and reduce gas flaring to 2 percent. A policy of the magnitude of gas monetization policy a posteriori would have significant positive or negative impacts on macroeconomic, sectoral and distributional indicators. Is gas monetization policy good for all all? Employing the comparative static CGE model, this study carries out evaluation of increased gas supply on the Nigeria economy from 80 percent flare gas reduction and 30 percent reduction in direct tax rate on production. Results show that increased gas supply from flareout have positive influences on economic growth but slowed down with application of production tax incentives. The GDP, real investments, government revenues and sectors experienced growths except agriculture and transport sectors. The drop in average consumer prices encouraged household consumption as well as increased welfare. The study established causal relationship between increased gas utilization and economic growth. Efforts in driving the gas flaredown of monetization policy should be facilitated. The government shall exercise caution to ensure protection of the economy to guarantee proportionate health of the sectors that were negatively impacted such as agriculture and transport.