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Emefiele’s fears of oil shock and ATM mentality

By Sonny Atumah

It is the 10th anniversary of the end of the Great Recession which lasted from December 2007 to June 2009. It was a period of general economic decline observed in the world market. With slowing corporate earnings in the U.S. and sluggish growth abroad, economists predict another recession by the end of 2021, according to the National Bureau of Economic Research. The Governor of Central Bank of Nigeria, Godwin Emefiele appears to be waving the red flag on Nigeria that majorly depends on crude oil for export revenue. Emefiele daintily spoke on the urgency to take actions that would wean the economy from excessive reliance on crude earnings for survival. Last week end in Lagos, Emefiele warned that rising volatility in the crude oil market occasioned by the rapid increase in the supply of shale oil by the United States, portends danger for Nigeria. He fear was that the United States crude production has spiked from nine million barrels per day in 2017, to over 12 million barrels per day today could become Nigeria’s albatross.

 

America for now produces more light and sweet crude in the name of shale for export. The new global crude supply is predominantly light and sweet meaning a glut may be expected in the near term. Nigeria’s reliance on crude sale would put us at a disadvantage position because we produce light, sweet crude similar to the American shale or tight oil. OPEC is grappling with the possibility of an oversupplied market in 2019, amid slower demand growth, robust supply from non-OPEC sources especially the United States. Almost 86 percent of the incremental production between 2015 and 2018 was light, according to data from Rystad Energy AS, and nearly three quarters of the additions expected by 2023, are also expected to fall into that category.  It took the United States over 40 years of planning and execution since the years of President Richard Nixon for its Shale oil to become a game changer.

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We encourage Emefiele who is becoming the whistle blower on impending danger, to drum into politicians not to spend our meager resources from petroleum like profligates. We have not been able to make good use of oil fortunes because of perceptual frameworks. The cumulative effect had afflicted Nigeria severally in what economists call Dutch Disease. In an afflicted economy, a resource boom attracts large inflows of foreign capital, which leads to an appreciation of the local currency and a boost for imports that are comparatively cheaper. It sucks labour and capital away from other sectors of the economy, such as agriculture and manufacturing, which are very important for growth and competitiveness. As these labour-intensive export industries flag, unemployment rises and the economy develops an unhealthy dependence on the export of natural resources.

In the early days of President Muhammadu Buhari’s first tenure, Emefiele launched the Anchor borrowers’ scheme for rice to encourage rice production in the country. The apex bank that Emefiele superintends is comfortable staying on the side of the weak, vulnerable, and poor masses and protecting their purchasing power. It appears Emefiele, a man with puritanical heart for the less privileged in our society is fast becoming “Mr. Interventions” in Nigeria. From his extensive written account of the subject, he appears to have good intentions for Nigerians. Nigeria needs a lot more interventions including the processing of crude oil in Nigeria. Our foreign reserve which some may describe as the nations working capital, has 98 percent of it come from the sale of crude oil since the early 1970s of the oil boom. With a free fall of crude oil prices in the international market from July 2014, Nigerians commenced the payment of exorbitant rates for imported petroleum products on May 11, 2016. Petrol or gasoline was increased from N86 to N145 a litre. The CBN governor should be convinced that one third of Nigeria’s total foreign exchange obligation expended to import petroleum products annually could be better deployed to other critical areas of our economy if we refine locally.

CBN should provide funding for NNPC refineries rehabilitation. Our scarce foreign reserves are depleted because we have failed to expand the frontiers of our economy along vertical linkages that is deeply rooted in petroleum. We have comparative and competitive advantages in petroleum that has about 6000 byproducts and derivatives provided we process locally.  For over a quarter of a century, we resorted to massive importation of petroleum products and petroleum based raw materials for our industries. The United States Energy Information Administration, EIA February Short-Term Energy Outlook forecasts the output from US wells rising from 11.9 million barrels per day at the end of 2018 to 13.5 million barrels per day by the end of 2020. The production at the end of 2020 may decrease from December’s 11.9 million barrels per day level to between 11.3 and 11.5 million barrels per day. The United States accounts for 70 percent of the total increase in global capacity to 2024 which analysts believe a drop will occur mostly in areas that have produced the most growth in the last five years. Let CBN intervene in NNPC refineries rehabilitation.

 

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