Nigeria’s mono-economy conundrum
At a time when coronavirus no longer thundered from Wuhan but rumbled all over the continents, at a time when the world is awash with oil glut, and traders are quickly running out of places to put it, at a period when the oil price has continued to fall like an eel, at the time when the benchmark of Brent Crude of most nations have been shattered and battered.
At a time when the Federal Government cannot pay salaries of her workers as at when due and when the Head of Civil Service of the Federation, Dr. Folasade Yemi-Esan has to explain the reasons for this shortfall. What a conundrum!
When President Muhammadu Buhari signed The 2020 Appropriation Act on December 17, 2019, the Appropriation Act was also predicated on projections of crude oil production of 2.18 million barrels per day, oil benchmark of $57, the exchange rate of N305 to the dollar, gross domestic product (GDP) growth rate of 2.93 percent, the inflation rate of 10.81 percent and the statutory transfer of N556.7 billion. The trend of events has caused the Federal Government to revise the benchmark oil price for 2020 to $30 per barrel and oil production to 1.7 million barrels per day.
Similarly, Saudi Arabia’s 2020 budget has an assumed oil price of $60 per barrel. The current plunge in global oil prices due to COVID-19 has further put a strain on her economy. As a result, it has plans to draw down 120 billion riyals ($32 billion) from its cash reserves to cushion the economic blow from tumbling oil prices and the broader impact of the pandemic, According to Finance Minister Mohammed Al-Jadaan.
The current trends have led Nigeria to apply for more than $7 billion in emergency funds from international lenders including the IMF, World Bank, the African Development Bank, and the Islamic Development Bank.
In the light of the above, The Executive Board of the International Monetary Fund (IMF) has approved Nigeria’s request for emergency financial assistance of (US$ 3.4 billion, 100 percent of quota) under the Rapid Financing Instrument (RFI) to meet the urgent balance of payment needs stemming from the outbreak of the COVID-19 pandemic.
It is no longer news that available oil storage capacity around the world is running thin as global oil demand continues to crumble like a pack of cards amid lockdowns and travel restrictions in countless nations. It is nations who don’t have adequate refining capacity and who relied on oil exports as their major earnings that will lose the most, Nigeria is in this category, likewise other countries like Angola, Gabon, and the Congo Republic who also depend solely on oil exports for export revenues and government income.
Why do you think some oil companies keep pumping despite the oil price glut?
It is simply because they need to pay interest on their debts and stay alive. Recently a modicum of optimism returned in the oil industry as OPEC, Russia, and other producers agreed to cut 9.7 million barrels a day production or about 10 percent of global oil output… this is the largest cut ever- a signal that the total demand had collapsed.
On April 2020, the Oil Minister Timipre Sylva informed The Punch Newspaper that, ‘’as part of the OPEC+ agreement on production cuts, Nigeria agreed to reduce its output from around 1.8 million barrels a day to 1.4 million.’’ If we do the calculation as per the revised budget of $30 per barrel, we are still far from Eldorado without borrowing. What it means is that the current selling price is below the cost of production for Nigerian crude producers, which is hovering like seaweed and our revised budgeted crude benchmark of $30 per barrel. This is a real conundrum!
According to the International Energy Agency, IEA, Global oil demand will plunge by a record 9% this year due to coronavirus lockdowns, thwarting efforts by Opec+ to contain the resulting glut of crude.
In the U.S. many companies are already reporting substantial losses and experts said businesses across the oil patch will have to seek bankruptcy protection in the coming months. In Nigeria, what it means is that a lot of oil workers would lose their jobs without urgent Government intervention.
What then is the permanent solution to the dwindling revenue?
We have other minerals like iron ore, bitumen, granite, limestone, marble, coal, clay, zinc, and many more but we are not producing enough for local consumption as well as for export? Are we effectively using our coal to generate electricity and liquid fuel? Your response is as good as mine.
Ours have become a mono-economy, a country that has a wide diversity of soil; the northern soil is good for the production of groundnut, cowpea, sorghum, and millet. The Interior zone made of sand and clay soil is useful for the production of cotton. The southern zone is good for the production of crops such as cocoa, oil palm, and rubber. Alluvia zones found along flooded plains of rivers, deltas, and coastal regions can grow wheat, rice, maize, soya bean, cotton, and the like. Our soil is great for growing all sorts of crops, yes, the current government is trying to encourage agriculture in mechanized form but it is like scratching on the bark of Iroko tree. There are plethora of policies the government could adopt to make farming more robust.
There is no doubt that being endowed with a plethora of natural resources is not a prerequisite for economic development. Let’s look at Japan; a mountainous, volcanic island country that exports automobiles to all nations of the world, her power of industrialization is extremely top-notch. Likewise, Singapore with few no or little natural resources shows the world how a tiny island can become one of the world’s most prosperous and developed economies. It is interesting to note that Singapore imports everything she needs from neighboring Malaysia. Can we borrow a leaf?
History vividly illustrates that until Nigeria truly diversifies her economy beyond policy pronouncement, she will be limping like a footsore soldier who hangs on a thread of uuncertainty.
Anjorin, an inspirational speaker, columnist, and entrepreneur, wrote from Lagos.