Mangers of Nigeria’s oil-reliant economy should by now be bracing themselves for what looks like an inevitable bumpy ride on the back of the current free fall in the global prices of oil. When the price for Brent benchmark crude, which is equivalent to Nigeria’s Bonny Light, hit $86.74 per barrel in October, it was the highest in four years. It ushered in hope of a development that could energise the Nigerian economy and restore it to the path of sustained growth. But for those who are used to the volatility of the oil market, it was indeed hope that was hopelessly misplaced.
With output also gradually shooting up, after the destruction of oil facilities by militants three years ago seriously hampered Nigeria’s capacity to meet her production quota, it seemed as if Nigeria was heading back to the boom years when oil prices went through the roof, peaking at $147 pb. But a mixture of factors, the least of which are not the trade war between the United States and China, the world’s two biggest economies, and the increased production of shale oil by the US, resulting in a glut in the oil market, have conspired to send oil prices cascading at a very short notice.
Right now, the Nigerian economy is looking gloomy. The price of Brent tumbled from $86.74 pb to $51 pb, before rallying to $60.62pb as of Wednesday, according to Oil Prices.com. FSDH Research has also warned Nigeria to brace for “major macroeconomic instability, particularly in the exchange rate and inflation rate.” The country also has to review the budgetary plan for the year, as government’s spending plan was based on an oil price benchmark of $60 pb, up from $50.5 pb last year. This is hardly what an economy that is limping out of recession needs at the moment.
Nigerians have not forgotten how the economy slumped three years ago. Even when she emerged from the trough, there were still some ominous signs that the dangers were not completely over. The alarm came from the Central Bank of Nigeria Governor, Godwin Emefiele, two months ago, warning that the economy could still slip back into recession. Apparently, the warning was not heeded. During the period of Nigeria’s first recession in 25 years, the prices of oil, which is the country’s economic mainstay, dipped under $30 pb.
If there was any doubt about the wobbly nature of the economy, this was laid to rest by the Statistician-General of the Federation and Chief Executive Officer of the National Bureau of Statistics, Yemi Kale, who described the economy as “still struggling (to get) out of recession.” So, what is happening now should not come as a surprise; nothing less should be expected from a country that has stubbornly refused to wean itself off oil and gas.
After more than 40 years of relying heavily on oil to drive the economy, Nigeria has got nothing to show for it. The infrastructure is still decrepit; the country is adjudged home to the largest number of extremely poor people in the world; the quality of education on offer cannot stand real scrutiny, while the health institutions have collapsed. When doctors are not on strike, nurses would be up in arms with the government.
Nigeria’s fate contrasts sharply with those of other oil producing countries. For example, to avoid what experts refer to as “resource curse,” Norway decided to insulate oil money from its economy by investing it in its Sovereign Wealth Funds. As of 2017, the country’s SWF was the largest in the world, standing at $1.08 trillion, and made a return of $131 billion. This profit, according to Financial News, is a third of the country’s Gross Domestic Product for 2017. That is how to invest with oil money. Comparatively, at the best of times, Nigeria’s SWF has been just over $2 billion.
Although the jury is still out on the true state of Nigeria’s economy today, the horizon remains cloudy and the situation clearly confirms the lack of clear-cut policy direction to cushion the economy from the yo-yo nature of the oil market, a market which Nigeria has no control over. This is perhaps what experts saw and insisted that Nigeria climbed out of recession, not out of any well-thought-out plan, but solely as a result of the rise in oil prices.
At the beginning of the year, the International Monetary Fund had predicted a growth rate of 2.1 per cent for the economy, while the World Bank offered a more optimistic projection of 2.5 per cent, later reviewed to 1.9 per cent. Both are nothing to cheer for an economy that needs a sustained double digit growth to pull out the over 120 million Nigerians trapped in extreme poverty. Nevertheless, it is doubtful if the projection targets will be achieved with the latest developments, especially as the NBS recently said the economy grew at only 1.8 per cent year-on-year in the Third Quarter.
The lack of a robust response means that Nigeria will perpetually remain vulnerable to the forces that manipulate the oil market, such as Saudi Arabia increasing its production quota or the US deciding to flood the market with shale oil. Nigeria has to return to agriculture, which constitutes the biggest part of her GDP. Before the advent of oil, Nigeria did very well with palm oil production, in which she was number one producer in the world, and cocoa, in which she was second to Ghana.
Other cash crops such as groundnuts and cotton ensured that the economy remained buoyant. Besides, even the agricultural products do not have to be exported as raw commodities. There has to be value added to them. The same thing applies to oil; the country should cease to be a crude oil exporter, but an exporter of refined products. This does not only increase returns, but creates jobs, one of the most challenging problems facing the country today.
Waiting perpetually for the vagaries of oil will only keep Nigeria perpetually poor. For example, there has been agreement for an oil production cut to shore up prices. Unfortunately Nigeria stands to gain very little from this because she is no longer exempted from the cut, a privilege now reserved for Libya, Venezuela and Iran. To escape the vicious circle, Nigeria should aggressively promote non-oil exports and robustly open up the economy for foreign investment. Opening up the rural areas by massive road construction and revamping the power sector will, to a large extent, keep Nigeria away from the oil curse.
