NIGERIA : OIL HAS FAILED!
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There was a time in the biblical Israel when money was said to have failed . At that time, I believe there was famine for about three years because there was no rain. People had money but there was nothing to buy. It got so bad that women were eating their Children in turns and it was actually when the King reigning at that time was called to settle a quarrel between two women, because one of them reneged on the agreement of surrendering her own Child for cooking, after she had participated in eating the other woman's son that he really became acutely aware of how things were. Thereafter he went in search of the prophet who had shut down Heaven, prohibiting it from sending rain .
Since after the Nigeria-Biafra which was fought partly because of oil, Nigeria has lived on Crude oil and it's associated gas. In the 70s following the Middle East crisis, prices of oil jumped and Nigeria got high on Petrodollar. That was when as alleged Gowon made the famous declaration that Nigeria had no problem with money, that the only problem we had was how to spend it. After the first oil bubble burst in the 80's, Nigeria reeling from the shock of a collapsing economy, introduced the austerity measures and the tightening of belts. Every Development plan and every budget( rolling or strolling) since then has talked about diversifying the economy. Mostly it was talk because, no sooner had the oil prices rebounded than we abandoned every effort to deliberately diversify our economy from total dependence on oil.
In 2008-2009 we had the last global economic crisis which also led to the crash of price of commodities. Oil prices crashed from over 140 dollars per barrel to a low of 40 dollars per barrel in a matter of days. Luckily for Nigeria, Olusegun Obasanjo, Ngozi Okonjo-Iweala and Chukwuma Soludo had accumulated foreign reserves in excess of 53 Bilion dollars and had plenty of money in the excess crude account, despite the resistance by the State governors. Thus while revenue dropped significantly, Nigeria was able to go through the period without the economy going into spin. All kinds of measures were suggested and some were adopted to help Nigeria reduce this regular boom and burst cycle. When prices rebounded, we again relaxed and went back to business as usual. By June 2014 oil was selling for 112 dollars per barrel. But few days after, the prices began to decline and as we write, nearly one and half years after, the decline has not stopped. Last week, oil went down to 28 dollars and people are projecting it could go further down to below 20 dollars which is said to be below the cost of production in Nigeria. Will the price rise again?
Right now the world is floating on oil. The USA has overtaken both Saudi Arabia and Russia to become the world's largest producer of crude oil, now producing about 12.5 million barrels per day. Saudi Arabia produces 11.6 million barrels per day whereas Russia is producing 10.8 million barrels daily. America is turning its import terminals into export terminals. And Iran is about to begin pumping oil into the international market and the consequences will be disastrous for Nigeria particularly. It is likely that Iran will displace Nigeria from the Indian market. So who will buy our oil,with 20 other African Countries now in the league of oil producers and exporters.
Today Nigeria has lost about all the income from oil and has to fund the 2016 budget mainly from borrowed funds and perhaps from recovered loot if we are that lucky. All the talk about increasing taxation will not go too far because the businesses are in dire straits and many people are losing their jobs. That is why I supported the plan of the government to find a way to stimulate the economy by bullish public expenditure. But given the continued slide in the price of oil, the 38 dollar benchmark is no longer realistic. OPEC is virtually dead and the possibility of a significant rebound looks very uncertain.
I think Oil has failed Nigeria and the focus right now must be on how Nigeria can survive without oil. That should be the focus of all but more by the Nigerian economic leaders. I believe the only viable option is to look onto the private sector. But right now the sector is emasculated with the wrong policies. The Government must change its paradigm and help set the private sector free. That is the only hope.
Mazi Sam Ohuabunwa OFR