If there is any sign that there could be a silver lining in the horizon for the Nigerian economy, then recent statement from The Minister of State for Petroleum would have shut it out. Things are seemingly going from bad to worse and the government is basically declaring that they have given up.
According to an article on Bloomberg, Dr. Ibe Kachikwu revealed that Nigeria’s crude oil exports for the rest of the year is now likely to remain at the 1.5 million barrels per day.
“Our average for the year will obviously be dismal,” Minister of State for Petroleum Emmanuel Kachikwu said in an interview Friday. “I would imagine that we would probably end the year at about 1.5 million barrels a day at best.”
The implication of this is dire and is already being felt as government revenues continue to dwindle. According to NNPC records, Nigeria has been able to produce about 761,384, 627 (May 2015 to June 2016) which comes to about 2.085million barrels per day. The 2016 budget was hinged on an average daily production of about 2.2 million barrels per day.
The culprits for the expected production shortages are obvious. The Niger Delta Militants have bombed oil installations and as we explained we now have about 4 of our crude oil export terminals now shut down. The desperation is clear from Kachikwu’s statements “We have a lot more groups now we need to bring together to have peace…..What I am asking for largely is a 60-day cease-fire from them so that we can have time to dialogue and I’m also elevating dialogue,” Without dialogue we could even see a complete shut down of oil production.
How does this affect you?
It does in every way you can imagine! At less than 2mpb oil production it is likely that the exchange rate could remain above N400/$1. The Central Bank depends on Crude oil sales receipts to fund its external reserves. Reserves are currently below $26 billion (and is probably under $20 billion if we take away futures) and fast depleting. The lower our reserves the more we have to pay in naira terms for just a dollar. This also explains why the CBN has been borrowing at exorbitant rates to augment government expenditure. Typically, the CBN sometimes prints Naira for for every dollar of crude oil it earns and gives same to the FG. Less crude oil revenues means less naira it can print thus the massive borrowing we are currently witnessing at interest rates that affect you and I. If the government is borrowing at 19% per annum then its a no brainer when banks give you loans at 30% per annum.
