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Crude oil prices are falling, is there Plan B for the economy?

When sorrows come, they come not in single files, but in battalions — William Shakespeare, 1564-1616.

Seldom does this column  return to the same topic two weeks in a row unless it is a series. But, for every rule there is always an exception. This week, we are returning to the alarm raised last week about the falling price of crude oil and, more alarming, our loss of global market share. Permit me to remind our readers that last week the weakening price of crude oil was mentioned and the increasing export of oil from the United States of America. The US, once our largest customer has not only stopped importing, or reduced to a trickle the import of Nigerian oil, it is now exporting to the countries in Europe and Asia which were once our markets.

A friend in the oil sector in the US confided that Europeans and Asians are now turning to the US for oil supplies because American exporters offer reliability of supply which cannot be guaranteed with Nigerian oil. Global buyers of oil have for years been experiencing more failures to deliver with Nigeria than any other oil producing country in the world. Until now, the irregularity of Nigerian crude supply, on account of disruptions in Nigerian’s oil production, was endured when there were no other options. Today, there is a glut of substitutes and the world is starting to make us pay dearly for our “sins” of the past.

On a recent trip to the Oil and Gas Free Zones Authority, OGFZA, Onne, Rivers State, one of the guides through the zone mentioned that once upon a time, any disruption to exports from the zone was felt worldwide. On one occasion, according to the guide, a former President of America called a Nigerian President to inform him about closure of the zone on account of militants’ activities. The Nigerian President had not even been briefed by the Nigerian security people. That demonstrated the influence Nigeria had over global supplies in those halcyon days. Those days are over. The loss due to any disruption in crude supplies from Nigeria will henceforth be our own. Furthermore, any disruption in supply will only result in further loss of global market share which might be permanent.

There is a lesson here for all Nigerians. The new initiative by the Federal Government to substitute dialogue for military action must now yield positive results because the world is no longer waiting for us to fix our problems – whatever they might be. Failure to settle our problems and henceforth ensure uninterrupted supply of our crude to the global market will make it more difficult to regain those markets.

The Organisation of Petroleum Exporting Countries, OPEC, is no longer in control of global oil trade. Up to five years ago, the supply reduction agreed to late last year would have sent crude prices beyond $70 per barrel by now. Instead, it drove prices up to about $55 per barrel and then triggered a reaction which is now reversing the price increase. OPEC must now choose one of two options. One, it can agree to reduce supplies even more to increase price. Two, the organization can allow every member to compete as best as it can in a more fiercely competitive world. None of these options will be advantageous to us.

Under existing arrangements, Libya and Nigeria were granted special concessions; the two nations were allowed to keep their quotas while others reduced supplies. Any further reduction in supplies by OPEC will definitely call for Nigeria and Libya to reduce their exports as well.

No further cuts will be just as devastating to Nigeria because our country is in the weakest position to compete globally. With no other major export commodity, Nigeria is the country most dependent on oil in the world. To make matters worse, this year’s budget still relies heavily on oil revenue which might not be realized given global trends.

That fact is precisely what raises the question of an alternative plan to the proposed budget. The axiom, “Those who fail to plan, plan to fail” applies here. Unless the President’s Economic Management Team, EMT, which is not very pro-active rises to the challenge and start worming on the alternative plan to the 2017 budget, the nation will be in trouble before the fourth quarter of this year.

Already, the first quarter is over. Exports of crude averaged 1.6m barrels per day instead of the 2.2m budgeted. There is nothing to suggest that exports for the remaining three quarters will be higher than those of the first three months. On the contrary, there is every reason to believe that they may be less. That is the reason for this call for a Plan B to be developed as soon as possible.

Such a plan will call for more fiscal policy choices to raise government revenue internally and reduce dependence on monetary policy instruments which have been over-used to promote growth and development.   The Federal Government must act now or it will be too late in the future. The Age of Oil is over. Why are we finding it difficult to accept that fact?

 


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