Crude Oil Price and the Nigerian Economy

Tag : crude oil
Crude Oil Price and the Nigerian Economy

Emma Okeke
Released : Monday, November 03, 2008 9:15 AM
Lagos, Nov 03, 2008 (This Day/All Africa Global Media via COMTEXNews Network) -- The recent fall in the price of crude oil to $63per barrel from a high of $147 less than two months ago portendsgrave danger for the Nigerian state.
Only last week, Chukwuma Soludo, the Central Bank Governoridentified a drastic fall in crude oil prices as one factor likelyto torpedo the Nigerian economy going forward. OPEC's recentreduction of daily crude oil production by 1.5 million barrels perday has not improved prices.
Now the Iranian oil minister is warning that further cuts in crudeoil production may be required to shore up prices.
But this is unlikely to boost crude oil prices to the levelsrequired by OPEC member countries, i.e. between $75 and $80. Crudeoil prices are driven by supply and demand and in recent yearsgrowing demands by the US, China and India drove crude oil pricesto an all time high of $147 per barrel. This has translated intobillions of USD for oil producing countries especially Nigeriawhich depends 95% on crude oil proceeds to run its economy.
For Nigeria, this massive infusion of USD into its local economyhas not necessarily translated into value for money improvements.
The ongoing economic tsunami that has hit developed western nationsand thrown global trade into crisis is slowing production andbuying of goods and services worldwide.
Once booming economies have gone burst (Iceland, Hungary) othersare in recession (UK, USA) while some are slowing down and cuttinggrowth forecasts (China, India).
Bottom-line, demand for crude oil has fallen resulting in a morethan 100% fall in the price of crude oil.
In the light of these developments, the Nigerian government hasalready cut the crude oil benchmark for 2009 budget from $69 to$45.
This may or may not result in a drastic scale back of its grandplans for developing its 7 point agenda as it can always dip intocrude oil excess savings or resort to borrowing.
For instance, the same FGN has admitted running up a N1.2 trilliondeficit for the 2008 budget while States and Local Governments areyet to release their own figures.. By refusing to host the FIFAUnder -17 World Cup 2009 which had a price tag of N39 billion, theFGN wants to paint a picture of being frugal and priorityconscious.
However, spending at all 3 tiers of government, their MDAs andothers indicate that spending with little or no value added isgoing on at full speed.
It would appear that those in high places are oblivious of theimpending massive short fall in crude oil earnings.
With no effective mechanism in place to stop or curtail spendingexcesses at all levels dark clouds are gathering over the nation.We have a situation in which not for value spending is increasingagainst the background of falling crude oil earnings and depletionof our crude oil excess savings.
Recall that this was how the Shehu Shagari government despiteinheriting over $3 billion foreign reserves in 1979 went on aspending binge quickly depleted the savings.
Unfortunately crude oil prices fell to $10 per barrel, throwing thenation into an economic crisis and a resort to borrowing to make upfor the shortfall in earnings. Even the money borrowed by all tiersof government went into the business as usual no value for moneyspending resulting in a high debt burden.
It was not until 2003 or 2004 that that crushing debt burden andyoke was finally removed from the neck of Nigerians.
The trauma and hardship Nigerians underwent from 1979 to 1999 arewell documented and need not be repeated here.
But the indicators appear to be that no lessons have been learnt bythose who assert that they are destined to rule Nigeria for 60years. There appears to be no moral authority able to clamp down onthe excesses in government especially in the area of spending withlittle or no value added.
Those charged to court for corrupt practices seem to be able tohold the system to a stand still while claims are rife thatcorruption case files have grown wings.
Are we heading back to the late 70s and early 80s when the life ofthe ordinary Nigerian was worth nothing while those in high placeslived lives that kings and queens envied?
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Keywords:
African Upstream Oil , African Oil , Banking , Business News , Economic Policy & Policymakers , African Oil & Gas , Commodity Pricing Of Natural Gas , Upstream Oil , Oil & Gas Market , Oil , Oil Production , OPEC News , Non-U.S. Natural Gas Industry