How Nigeria can survive global oil price

Oil Price

Worried that Nigeria, an oil-dependent economy is faced with the grim reality of a looming economic recession due to unprecedented crash in the global crude oil prices exacerbated by the ravaging coronavirus scourge; experts have suggested a way forward. Ibrahim Apekhade Yusuf reports.

For Nigeria, the chicken may have finally come home to roost, in a manner of speaking. While there have been several forecasts about the likelihood of Nigeria’s oil fortunes suffering a significant decline in the foreseeable future, there was nothing to suggest that things would get terribly bad so soon.

With Nigeria projected to lose over $26billion revenue from unearned oil receipts this year alone, according to the International Monetary Fund (IMF), things cannot get scarier.

The trouble this time

Oil prices fell below zero per barrel at -$25 dollars after crashing by 252% for the first time in the international market a fortnight ago as demand for energy collapsed amid the coronavirus pandemic as traders raised concerns that the glut may result to shortage of storage facilities and do not want to get stuck owning crude with nowhere to store it.

Bonny Light (Nigeria’s crude oil) is trading at about $11, which is half the cost of producing the barrel. According economic pundits, even at that price, Nigeria is not able to sell her crude oil. With tens of millions of barrels of crude oil in scores of vessels cruising the seas, Nigeria may be desperately looking for customers even as it offered a $5 discount per barrel but no one to buy when the US shale oil is selling for $2, and the cost of renting the vessels doubled to $350,000 per day.

Grim reality

Though oil prices showed slight increase last Thursday as Nigeria Brent crude inched up by 4.6 percent to $21.39 per barrel reversing some of the losses posted previously after storage in the United States rose less than expected, experts have however argued that this relief may be momentary after all.

According to market report NNPC is said to be offering cargoes of Bonny Light and Qua Iboe, two of the nation’s main grades, at nearly $4 per barrel below Dated Brent, or close to $10.

Indications are that the crash in the global oil market may not bode well for Nigeria’s economy. According to economic pundits who have tried to think through possible means and ways to get out of the economic logjam, they have argued that with the possibility of Nigeria been adversely impacted by the crash in global oil prices, there are worries that this may have rippled negative effects on the already troubled economy that is already yielding to the vagaries of the ravaging COVID-19 pandemic which has continued to take its toll on the country’s lean resources.

Crux of the matter

Expectedly, not a few Nigerians have expressed worry that the already fragile economy may suffer an apocalypse of some sorts if nothing miraculous happens.

According to Dr. Timothy Olawale, Director-General of the Nigeria Employers’ Consultative Association (NECA), the global pandemic, which has led to cancellation of several local and global events, sharp drop in crude oil prices, uncertainty in financial markets, collapse in air travel requests and global manufacturing and supply chain disruptions, among others, has caused disruption in economic activities, and in effect pushed up prices of food and essential items.

The NECA boss however stressed that policy measures to address the demand and supply shocks will help in addressing the rising inflation rate as well as stimulating the economy ahead of the potential recession.”

Dr. John Osonwa an environmental cum climate change expert in a terse statement titled, ‘The Gathering Storm in Nigeria, expressed worry that the future of Nigeria appears bleak due to a combination of factors. “In the face of the coronavirus pandemic, I am becoming increasingly worried about the future of Nigerians and Nigeria itself, from economic, health, social and security perspectives. A number of gigantic storms are gathering at the same time in Nigeria and I’m worried that we may be ill-equipped to cope.”

Way forward

Former Minister of Finance, Dr. Ngozi Okonjo-Iweala, has called for the restructuring of Nigeria’s economy in the face of dwindling oil prices.

Okonjo-Iweala gave the advice on Thursday when she appeared on Channels TV’s Business Morning.

According to her, Nigeria and other African countries must look at other sources of revenue to cushion the economic impact of dwindling oil prices.

The former Managing Director of the World Bank said Nigeria has several sources of revenue it should tap to create employment for the teeming masses.

“There will be business cycles with commodity prices. What you also need to do is make the economy less dependent on these commodities,” she said.

Okonjo-Iweala said learning how to task these sources of revenue should be a long-term plan.

“And that is why on the long term, there should be restructuring of the economy so that you have other sources that can create revenue,” she added.

Also, she said: “You have to look across board and say, ‘are we getting enough from these sectors,’” adding that “It is not just diversifying your economy, you have to diversify your sources of revenue; meaning you have to task better.”

Echoing similar sentiments, former Vice President, Atiku Abubakar in a statement titled: ‘How to pull Nigeria from the brink,’ said the country must face the fact that reliance on crude oil is failing Nigeria and other mono product economy crude oil exporters. “Now is the time for Nigeria and her contemporaries to cure their addiction to sweet crude. For far too long we have grown high on our own supply, to the extent that we have neglected almost every other sector of our economy.”

The present rude awakening, he stressed, “Should be seen as a blessing in disguise— a blessing that compels us to take those drastic actions that will free us from the crude oil trap. We need to diversify our economy, and yes, it is easier said than done, but that does not mean it is an impossible task.”

Expatiating, Atiku said, “Our diversification should embrace agriculture as the primary sector earmarked for development, because agriculture is a low hanging fruit, is key to ensuring food subsistence, and with the recent signing of the African Continental Free Trade Area agreement (AFCTA), which favors Nigeria’s economy greatly, Nigeria can take advantage of this to become an agricultural powerhouse in Africa.

“We must, as nation, begin to invest our resources wisely in order to maximise dividends. We must liberalise our land tenure system to make it possible and easy for some of the 27 million unemployed Nigerians to become farmers, even as sharecroppers.”

The former presidential candidate of the People’s Democratic Party (PDP) in the last election also suggested that jumbo budgets for legislature must go. “The planned $100 million renovation of our Parliament must be cancelled. We cannot be funding non necessities with debt and not expect our economy to collapse. Our civil servants must come to the realisation that Nigeria cannot sustain its size and profligacy. The same cost saving measures must be adopted by the states and councils government.”

Laoye Jaiyeola, Chief Executive, Nigerian Economic Summit Group (NESG), a think tank organisation that supports policy initiatives both at the private and public sectors, said there is need for all hands to be on deck.

For Professor Jonathan Aremu, he would rather the government reorder its priorities going forward.

Raising a poser, Aremu, who consults for some multilateral agencies queried, “Does it means that even if we earn nothing from the oil, the National Assembly as still qualified for their jumbo remunerations; while the productive sectors of our national economy is on recess? We must be bold enough re-prioritize in the context of increasing dwindling of national resources. Coupled with the restructuring at the governance levels are other actions to such as: selective fiscal and monetary stimulus in areas that will have an immediate positive impact on our national productivities in all sectors.”

In the view of Austin Okere is the Founder of CWG Plc, the largest ICT company on the Nigerian Stock Exchange, Nigeria needs to learn from an incidence such as this and try to insulate the economy from such shocks in the future.

“What should be more important to all of us, beyond these theories is whether Nigeria will finally learn from her past mistakes and institute a mechanism for saving when oil prices rebound, as I believe they eventually will. And what if the optimists are wrong, and prices do not rise. We would have lost nothing. We would have learnt to diversify away enough from oil to live comfortably within the current price.”

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