As the price of crude oil continues to tumble at the international market, there is no gain saying that Nigeria’s economy is at risk. What is also certain is that Nigeria need to intensify efforts at diversifying her economy to the extent that revenue from oil will only play complimentary roe as opposed to its current status as the life wire of the nation’s existence.
Only last week, the economic managers reshuffled their calculations based on current realities with the oil benchmark for the 2015 budget been down graded to $65 per barrel.
This is even as industry watchers are of a strong opinion that the oil price slump at the international market would have negative effects on the nation’s economy following corrupt practices and inability of the government to plan ahead towards economic growth and development.
Though a major oil producing country, Nigeria is not a major force in determining the prices of oil, which sources said is responsible for a huge chunk of its revenue, arguing that that the prices of oil would continue to fall at the international market.
Looking at the drop in oil price to less than $68 per barrel; the implication sources said would be enormous on Nigeria whose sole dependency on oil revenue is as high as 80 per cent. U.S. oil production, which has increased to nearly 9 million barrels per day, is expected to average 9.4 million barrels per day by 2015.
Oil prices have been in a free fall since June this year after it reached the peak at $115 per barrel that same month, the price has steadily and consistently declined over the last four months to about $68 per barrel while analysts are of the view that the likelihood of the prices tumbling further to about $80 per barrel before enjoying some semblance of stability is high.
Shell-BP and other developers in the pursuit for commercially available petroleum found oil in Nigeria in 1956. Prior to the discovery of oil, Nigeria like many other African countries relied on agricultural exports to other countries to supply their economy.
Many Nigerians thought the colonial masters were looking for palm oil, but after nearly 50 years searching for oil in the country, Shell-BP discovered the oil at Oloibiri in the Niger Delta. Wishing to utilize this newfound oil opportunity, the first oil field began production in 1958.
Group Managing Director of Mutual Benefits Assurance Dr. Akin Ogunbiyi while speaking in Lagos at the 2014 Nigerian non Oil Export and Investment Development conference said that facts have revealed that 20 years from now, dependence on petroleum will be a thing of the past.
Despite her not been responsible for the increase in global oil production nor entrenched in the politics of price manipulation; Nigeria is immensely affected by the changes in oil prices.
Speaking on the implications of the oil price slide on Nigerian economy, Director, Centre for Petroleum, Energy Economics and Law, University of Ibadan Professor Adeola Adenikinju said this would impact negatively on the nation’s foreign reserves, the naira’s exchange rate value, money in circulation as well as infrastructure development.
According to him, “the falling prices of crude oil in the world market will have a significant impact on our economy. The trend will result in negative balance of payment which will require financing with the reserve which may lead to fiscal shock. Unfortunately for us, we import a lot of our consumables; we may get to a point that we have no money to pay for the imports.
He noted that the oil price fall would affect the funds at the disposal of the government, adding that “When revenue drops, there will be a cut down on discretionary expenditure, which will affect capital expenditure. When this is done, two things happen; real sector will suffer, level of unemployment will rise because infrastructure development contributes greatly to employment creation.
Speaking with Daily Champion, a Shareholder activist, Alhaji Gbadebo Olatokunbo who maintained that although oil was discovered in Nigeria before 1960 Independence, “yet we have nothing to show for its resources or what have we done with the money, compared with the Saudi-Arabians,Kuwait,Iran and Others that also have oil or can we stand with them today at developmental-level?.
“Instead, Private Jet’s owners are increasing daily in Nigeria with less diversification and economic-development on the mono-oil-economy. After all; Oil is like every other commodity, the price goes up or down, depending on demand/supply and oil demand will continue to decline, due to the discovery of shake-oil in USA,while supply are increasing with more countries discovering oil. It is a pity to acknowledge that we have failed to position and reposition our economy”.
Speaking further he said, “Our leadership must be held accountable and they must be asked to return our Common-Wealth within their grip for the development of the economy and not to bother the ordinary poor”.
On his own, National President, Constance Shareholders association of Nigeria, Mallam Shehu Mikail linked the factors responsible for the fall of oil prices to politics and security
On the implications on the Nigerian economy, he said the effect may not be much on the country because the present government has been taking proactive measures to develop the agricultural sector.
“Nigeria will not have much problem; I do know that within the first quarter of next year, things will begin to bounce back as regards to the global oil prices. One of the lessons is the present government is already taking some steps to educate people on the economic values abandoned in the country whereby people will be able to tap into that. Whatever budget government want to embark on, they will relay totally rely on oil prices; they should try as much as possible to adjust the system so that a least the standard of structuring the economy would be standard”.
On the issue of taxation, he maintained that there are lots of things needed to be done in the area of taxation, income tax, expenditure including the value Added Tax(TAX), that is another area the government should beam more searchlight in order to encourage manufactures and investors to be able to have more interest on our economy. There is need to restructure the system and policy so that investors will have more confidence in the Nigerian economy.
“This is a lesson for us to diversify our economy and reduce our vulnerability to oil price shocks. We must start developing other sectors. Non-oil sector has overtaken oil in terms of contribution to the Gross Domestic Product (GDP), but it has not performed well in terms of contributing to the economy. We have to work on this to make the non-oil sector contribute in real terms to the economy.
“We also have to improve our tax revenue and block loopholes in the economy. We have to devise a means of making every taxable Nigerian pay regularly and accurately. If we do all of these, we shall develop an immunity to oil price shocks,” he said.
Despite the austerity measures put in price by the federal government to cushion the effect of the global falling on the Nigerian economy, the development has started its toll on the Nigerian economy.
Coordinating Minister of Economy and Minister of Finance Mr. Ngozi Okonjo-Iweala, had told journalists that the action was part of the articulated measures by the government to maintain economic stability, boost non-oil revenues further, plug loopholes and waste, and cut unnecessary expenditures in order to cope with the situation.
Expressing her fears Okonjo Iwela said on the possible negative impact of the failing oil price on Nigeria; she reasoned that many oil majors may not want to go ahead with new investments.
The continued slide in crude oil prices has attracted mixed reactions at the global market. While many Western countries have been rejoicing over the development which has resulted in lower pump price of fuel in those countries, the reverse is the case in countries that depend almost exclusively on oil revenues as they have been experiencing a reduction in earnings.