"The moment we [Africans] lost our languages was also the moment we lost our bodies, our gold, diamonds, copper, coffee, tea." - Ngugi wa Thiong'o

21 December 2014

Is Nigeria prepared for oil price turmoil?

Pres. Jonathan recently said that his government is prepared for the impact falling oil prices will have on the Nigerian economy.

He noted that in the past 3 years, the agricultural sector of the economy has been designed and transformed to cushion the effect of falling oil prices.

But the Governor of the Central Bank of Nigeria (CBN) just informed the country that Nigeria still issues import duty waivers to Palm Oil importers.

Anyway, Mr Jonathan; by transforming the agricultural sector, your government is only trying to diversify the Nigerian economy from over dependence on crude oil revenue. Moreover, it does not take 3 years to diversify an economy. Diversification is a long-term economic policy.

At the present, it’s obvious that the Nigerian economy is not diversified. As such, Nigeria depends on oil revenue to finance about 80% of its budget. And thus, how would Mr President finance his 2015 budget now that the price of crude oil has moved against him?

In my opinion, Nigerian officials simply didn’t see the oil crisis coming. They never fully handled the politics of crude oil and the behaviour of the major players in the sector. They knew like everybody else that the price of crude oil could crash at any time. But they never really mastered the indicators that may lead to the price crash.

More so, they were deceived by the usual factor that shoots up oil prices, such as conflicts in the Middle East. For instance, Islamic militants have been seizing oil wells in Libya, Iraq and Syria, which should ordinarily hinder oil supply and in turn increase prices.

But some other factors suppressed the price of crude oil even in the face of hostility in the Middle East. One of the factors is the discovery of shale gas in North America and Europe, which cancelled out the shortage of crude oil from the Middle East.

The other is Saudi Arabia’s proxy war in Syria, which prompted it to supply more crude oil than required in order to drive prices down and hamper the economy of Iran and Russia, the presumed supporters of Pres. Assad.

Eventually, when these artificial pressures started affecting the price of crude, Nigeria was caught napping. Otherwise, why would Mrs Okonjo-Iweala, Finance Minister, prepare 3 separate budgets for 2015, just to accommodate the falling oil prices?

The first budget was based on $78 per barrel, then it was revised to $68 and finally to $65 per barrel, even though the price of oil is still falling and hovering around $60 per barrel. These are signs that the Ministry of Finance was ill-prepared for the reactions in the oil market.

In fact, when Mrs Okonjo-Iweala was indecisive on the benchmark of Nigerian budget, Saudi Arabia has already used a benchmark of $60 per barrel to prepare its 2015 budget.

And the Saudis’ budget was prepared since June of this year when the price of oil was still around $115 per barrel. A serious Ministry with Research and Development (R&D) department should have read meaning into that and ask; why $60? Is there anything these guys know that we don’t know?

All the same, if Nigerians want to know the extent to which falling oil prices have ravaged their economy, they should look at Russia’s present economic woes. Russia like Nigeria is a country that heavily relies on crude revenue to finance its budget.

Russia’s 2015 budget was based on crude oil selling at $100 per barrel. There’s already a hole in that budget as oil sells at below that benchmark, at around $60.

Rouble, the Russian currency has more or less crashed. Russia’s $415 billion foreign reserves couldn't prevent the currency from crashing. So, how could Nigeria’s $37 billion foreign reserves save Naira? That shows what Naira is going through and tells what Nigerian officials are not saying to the people.

In his end of year press conference, Mr Putin, the Russian President, accused Saudis and Americans of collaborating to undermine Russia. He told his countrymen to be prepared for an economic hardship that will last for 2 years.

Well, Mr Putin envisaged that Russia’s economy will bounce back in 2 years. Is he going to jettison his interest in Ukraine, which is why America wants to crumble his economy? Or abandon Mr Assad of Syria, the reason Saudis are after his economy.

Mr Putin and Nigeria should be reminded that Saudis already said; they have enough strategic resources including $750 billion reserves that will support their economy for 5 years if the oil crisis continues. 

But what has the Nigerian government told her people? Well, President Jonathan told the country recently that he receives conflicting advice on every policy issue. He therefore asked the country to pray for him to make the right choices. Unbelievable!

It shows that Pres. Jonathan and his officials have not fully grasped the country’s financial dilemma.

Nigeria is like a passer-by who was hit by a stray bullet. In the first place, it doesn't even know why bullets are flying around. And due to its lack of R&D, by the time it realises what the fight was all about, the country would have capitulated.

In the end, the impact of the oil crisis will be felt after 2015 Nigeria’s general elections. Politicians who have spent fortunes to win elections, government contractors, civil servants, etc.; will realize that there are no more cash left to be shared in Abuja.

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