By Grace Udofia

The Nigerian economy is in dire straits engendered by the low crude oil price in the international market and the significant decline in the country’s oil production. Analysts describe the situation as a double jeopardy, as the twin problem of low oil price and declining volume worsened the country’s dwindling revenue profile. In the last few months, Nigeria’s oil production had been hovering around 1.9 million barrels per day, mbpd, against a projected figure of about 2.3mbpd. This declining volume has put immense pressure on the country’s revenue profile.

As Nigeria struggles with falling oil price, economic forecasts on the country are gloomy; interest rates are projected to skyrocket; oil investments are expected to fall, while international and indigenous oil companies are anticipated to have more challenges. It was also projected that workers will be laid off and unemployment will sky-rocket, while some states may find it difficult to pay workers their salaries.

Mitigating the effects

While some of the projections are already a reality, no major step has been taken by the Federal Government to steer the country out of these crises, other than probing financial management at the Nigerian National Petroleum Corporation, NNPC. The only step taken so far was by the immediate past government, which outlined some austerity measures as part of the government’s fiscal policy adjustments to mitigate the implications of lower oil prices on the fiscal and external reserves of the Nigerian economy.

These belt-tightening measures form the first tranche of a series of fiscal policy adjustments to be implemented if oil prices continued to fall. Some of the measures included: six per cent downward revision in the 2015 budget benchmark oil price to $73 per barrel from $78 per barrel; and upward revision in the collection target for Federal Inland Revenue Services. Others are reduction in international travel and training within the public service, and surcharge on luxury items such as private jets and alcoholic beverages.

Over-reliance on oil

Despite all these, the Nigerian economy continues to rely heavily on oil revenue, with crude oil accounting for about 90 per cent of Nigeria’s foreign exchange receipts. This means that a continued depressed oil price poses a serious risk to the country’s fiscal management and its external reserves. The reality of constant budget shortfalls also stare Nigeria in the face as the commodity has hit its lowest price level in four years. The budget of the Federal Government is based on projections on oil prices and quantity of oil sold.

Crude oil prices started dropping in the international market from as high as $110 per barrel in January 2014, to the current level of $64.03. Nigeria ranks among the countries hardest hit by the decline. These are countries whose economies depend largely on oil for a significant percentage of their foreign exchange earnings.

Nigeria’s reference crude, the Bonny Light, is currently trading at about $64.03 per barrel. It is noteworthy that crude oil is not just the principal export commodity of the country, but indeed all aspects of the nation’s economy rely on crude as the major source of revenue.

The annual budgets, which define the direction of the country, is based on crude oil price benchmarks. While the 2014 budget was based on $78 per barrel, the 2015 has been predicated at $65 per barrel. In view of the harsh economic environment, Mrs. Ngozi Okonjo-Iweala, former Minister of Finance and Coordinating Minister of the Economy, had said the fall in oil prices has made the government to search for new measures to cushion the damaging effects.

She had predicted that Nigeria would begin to feel the negative impact of the fall in global oil prices, cautioning that there is a need to brace up for tougher times ahead by reviewing expenditures and building economic buffers through budgets based on modest oil prices.

Expectations from Buhari

Analysts are, however, optimistic that despite the fact that the decline in crude oil prices has assumed a disturbing dimension, there are expectations that the new administration will not just set up a strong stabilisation policy, but most importantly, they must be able to sustain the drive. An energy expert, Kazeem Bello, said the impact of Nigeria’s continued dependence on oil as major revenue earner is very grave.

He noted that the glut in the oil market following the discovery of oil in many parts of the world, and the new wave of alternative energy sources, particularly shale oil, have had adverse effects on Nigeria.

He said, “In the face of such dreadful challenges, we have no option than to put our economy in order. First, we diversify in terms of other viable frontiers of international revenue earning. “Secondly, we must make the private sector our engine of growth in order to generate more exportable goods and services.

“Thirdly, government should demonstrate the political will to fight corruption and mismanagement which are part of the pitfalls of public resources and finally, we should create the enabling environment for direct inflow of foreign investment.”

Also speaking, the Managing Partner, Magnet Oil Company, Mr. Idris Simon, urged Nigerians to be ready for harsh economic measures in the nearest future as a result of the continued fall in oil prices. Simon said that the current steps by the Government were good, but wondered if these will actually cushion the impact of the fall in oil prices.

He, however, said that the most important thing is the fact that government accepted that it had to do something with respect to the falling oil prices. “What we are seeing now is not a short-term phenomenon, whether the therapy is adequate is another issue. But I think it is a good move and it has not ruled out other moves,” he noted.

Other analysts advised the government to look at how to diversify the economy by creating the enabling environment so that industries can thrive. According to them, efforts should be made at ensuring that the agricultural sector and a few others are working so as to make the country less dependent on oil.

They added that efforts should be made to ensure that revenues generated do not end in the pockets of a few individuals because the country’s earnings are mostly from oil. It means that a fall in the price of the commodity will deny the country a lot of income to provide roads, power plants and many other infrastructure that will benefit the ordinary Nigerian.

They said further: “The Federal Government should tackle the issue of wastages in the economy especially among the political class by slashing the unnecessary entitlements of members of the National Assembly. They should also reduce the expenses of running the executive arm of government. There is no sense in keeping 10 aircraft for the President at a period when revenues are falling.

“Our refineries need to be fixed or we get more private investors to invest in building more refineries in the country like that of Dangote which is slated to come up by 2018.”