The relationship between the price of oil and external reserves is well understood as the chart above depicts. The higher the price of oil the higher the reserves right? Maybe not! Nigeria hit its highest reserves in September 2008 when it was about $62 billion. Oil prices was trading at about $103 according to CBN data. The highest oil price has hit since then was in April 2011 when it rose to $129 per barrel. Even yet, reserves was just $32.8 billion. The highest oil price we have seen since 2007 was in June 2008 when it was $138.74 and reserves stood at $59.1billion. The closest we have seen to $50 billion was in February 2013 when oil price traded at $118.81 and reserves stood at $47.3 billion.
What this data reveals is something even more disturbing. Despite high oil prices, Nigeria’s over reliance on oil for its dollar needs is unsustainable for a country of over 180 million people. Juxtapose that to the infrastructural deficit in Nigeria and the situation becomes even worse. Regardless of whatever happens to the price of oil, Nigeria’s battle with the exchange rate/reserves will also be a lost fight, so long as we only have one major source of funding government expenditure. Nigeria desperately needs to look for other sources of revenue other oil, a cliche these days but one that cannot be wished away.
Nigeria’s dollar per capita is now something around the region of $166. Compare that to Saudi Arabia which has a dollar per capita of $22,837. Saudi has an external reserve of $662.2 billion with a population of just 28.8 million people. So no matter what the price of oil is, Nigeria will always remain poor unless it relies on other forms of revenue.
Nigeria’s foreign reserves according to the Central Bank is currently about $29.3billion and fast depleting. Analysts tracking the CBN actually believe the reserves could be much lower than that suggesting anything between $18 billion and $25 billion.