Back in 2008, when Nigeria was faced with a similar collapse in oil prices as it is witnessing today the country’s political leadership at the time mouthed off sweet platitudes about the urgency of economic diversification.
“The changing international oil market poses grave concerns for our fiscal outlook. The recent volatility of the oil price is apparent in the unprecedented decline of prices from record highs of about US$147/barrel in July this year to current prices of about US$50/barrel,” Nigeria’s then President Umaru Musa Yar`Adua, said in a December 2008 address to the National Assembly.
Indeed, the current oil price situation underscores the overdependence of the Federal Budget on oil related receipts. Consequently this administration will continue to lay emphasis on diversifying our sources of revenue from oil to non-oil sources.”
Seven years later the country is 80 percent dependent on oil revenues to fund Government spending as the economy reels from falling crude and policy inaction from the current President.
Nigeria’s GDP growth fell to 2.35 percent in the second quarter (Q2) of 2015 down from 3.96 percent in the first quarter.
The NSE – all share index a broad benchmark of Nigerian stocks has returned -14.33 percent this year.
Meanwhile JPMorgan last week removed Nigeria from its influential emerging markets bonds index amid concerns about the country’s economic management.
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The country has not undertaken any major reforms to unlock its growth potential since the foreign debt payback and write-offs of 2004 and banking sector consolidation and Pension reforms the following year.
A scandalously inept and corrupt petrol subsidy regime that costs up to $5 billion a year remains in place despite the sound economic arguments to remove it.
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Daily blackouts are still the norm because a privatisation effort undertaken in 2013, failed to give free market pricing to gas suppliers meaning generated output has never risen above 5,000 megawatts, which is about a third of peak demand.
Nigeria’s gas reserves were equivalent to 182 trillion cubic feet (tcf), representing the eighth largest in the world and foremost in Africa.
Despite this ranking, domestic demand for gas far outweighs supply due to inadequate infrastructure as a lack of a market based pricing template.
“The insufficient power supply emerged as the leading constraint in the most recent Business Expectancy Survey by the CBN (Q1
2015). Other constraints included inaccessibility to credit, an unfavourable economic climate and unclear economic laws,” FBN Capital analysts led by Gregory Kronsten, said in a September 10 note.
A power poll recently released by NOI Polls revealed that between April 2015 and June 2015, Nigerians typically spent a maximum of N3, 726 ($19) on actual electricity supply and as much as N12, 351 ($62) on running alternative sources of power supply.
The average power supply was 4.9 hours in the second quarter of 2015.
Meanwhile the petroleum industry bill (PIB) which could potentially help reform the oil industry has been delayed in parliament since 2007.
Nigeria’s political elite’s (some of the highest paid in the world) acquiescence to the decay of the oil sector is inexplicable, considering that it provides most of the money used to fund their high flying lifestyles.
The oil sector consistently posts negative growth and has shrunk to only 10 percent of Nigeria’s GDP, from as high as 30 percent a decade ago.
Amid the gloom Goldman Sachs forecasts that oil prices may fall as low as $20 a barrel, with a persistent surplus requiring prices to remain lower for longer to rebalance the market.
Brent for October delivery was trading around $48.73 a barrel on Friday.
The lack of reforms means Nigeria has only been able to accumulate $1 billion in its Sovereign Wealth Fund and $31 billion in dollar reserves, compared to other oil producers such as Qatar with $43 billion, Malaysia ($94 billion), and Russia ($366 bn) in dollar reserves and significantly higher savings in their respective Sovereign Wealth Funds.