3 yrs of low oil price and Nige­ria’s strug­gle for sur­vival

Daily Trust - - BUSINESS - By Daniel Adugbo

Three years on since the col­lapse in the price of crude oil, our re­porter writes that although Nige­ria is strug­gling to sur­vive the tough times, the prospects of an eco­nomic re­cov­ery re­main pos­i­tive. first half of 2015 re­duced to N4.3tn, from N6.5tn recorded in the first half of 2014, rep­re­sent­ing a 33 per cent de­cline in crude ex­port value for the pe­riod.

Within year 2015, the plunge in oil prices left states and lo­cal gov­ern­ments un­able to pay work­ers for months. The Fed­eral Gov­ern­ment also strug­gled to pay fed­eral work­ers.

Com­pound­ing the im­pact of low oil prices, at­tacks by mil­i­tants on oil and gas fa­cil­i­ties in the Niger Delta in the start of 2016 cut crude oil pro­duc­tion to as low as 1.3m/bpd, the low­est in al­most 30 years, far be­low the 2.2m/bpd gov­ern­ment’s 2016 bud­get as­sump­tion.

Nige­ria lost around N1.1tn crude oil rev­enue within months of the at­tacks on oil in­fra­struc­ture in the Niger Delta in early 2016. Nige­ria also lost its po­si­tion to An­gola as Africa’s top crude oil pro­ducer.

In re­sponse to fis­cal pres­sure caused by the col­lapse in crude oil prices, the coun­try an­nounced in May 2016 the re­moval of fuel sub­sidy that had cost bil­lions of dol­lars. The re­moval which re­sulted in a 67 per cent in­crease in petrol price also saw the prices of goods and ser­vices across all sec­tors of the econ­omy rise.

The ef­fects of the cur­tail­ing sub­si­dies,

Af­ter trad­ing at over $100 per bar­rel for some years, the price of oil be­gan to tomble down around July, 2014, fall­ing to be­low $30 per bar­rel.

The col­lapse of the price of crude cre­ated se­ri­ous eco­nomic cri­sis for oil­re­liant coun­tries, in­clud­ing Nige­ria. It was not un­ex­pected that Nige­ria be­came one of the coun­tries most af­fected by the down­turn.

Cen­tral to the eco­nomic cri­sis that would later be­fall the coun­try was her over re­liance on oil. Oil ac­counts for 69 per cent of ex­ports, ac­cord­ing to the Na­tional Bureau of Statis­tics (NBS) and around 70 per cent of gov­ern­ment rev­enue.

The im­pact started to be felt at the most un­favourable pe­riod, at the cru­cial time a new ad­min­is­tra­tion had just come into of­fice.

The slump in crude prices, Nige­ria’s main­stay, ham­mered the coun­try’s earn­ings, lead­ing to a sig­nif­i­cant de­cline in the coun­try’s for­eign re­serves and a free fall of the naira.

The value of Nige­ria’s crude ex­port dropped by N2.2tn in the first half of 2015, NBS data for that pe­riod showed.

The coun­try’s crude oil ex­ports for the gov­ern­ment in­tro­duc­ing aus­ter­ity mea­sures and tight­en­ing of its spend­ing in re­sponse to low oil in­come, started to be felt hard in Nige­ria in 2016.

The naira fell and in­vestors fled. In the sec­ond quar­ter of 2016, for­eign di­rect in­vest­ment (FDI) in Nige­ria fell by 37 per cent year-on-year, while to­tal cap­i­tal in­flows were down 75.7 per cent, ac­cord­ing to the NBS.

The econ­omy also, in 2016, con­tracted, in­fla­tion hit 17.1 per cent in June, the high­est rate in more than a decade; putting Nige­ria’s sta­tus as Africa’s largest econ­omy un­der threat.

Nige­ria’s eco­nomic plight sharp­ened in the July-to-Septem­ber pe­riod, as busi­nesses strug­gled to ac­cess for­eign currency.

Nige­ria, Africa’s big­gest econ­omy, of­fi­cially slid into re­ces­sion for the first time in more than 20 years. Ac­cord­ing to the NBS gross do­mes­tic prod­uct (GDP) con­tracted by 2.06 per cent af­ter shrink­ing 0.36 in the first quar­ter 2016.

In spite of the above im­pact of the down­turn, many of the chal­lenges faced in the last three years have just started to ease due to what an­a­lysts de­scribed as emerg­ing pos­i­tive eco­nomic in­di­ca­tors.

Ac­cord­ing them, growth in the agri­cul­tural and solid min­er­als sec­tors had con­tin­ued to show bet­ter eco­nomic out­look for the years ahead.

Ex­ten­sive en­gage­ment with mil­i­tants by the Fed­eral Gov­ern­ment has led to the ter­mi­na­tion of at­tacks. This has also re­sulted in the re­open­ing of key ex­port ter­mi­nals and con­se­quent in­crease in Nige­ria’s oil pro­duc­tion to­wards the 2m/ bpd bud­get bench­mark.

Added to this re­cov­ery was OPEC’s de­ci­sion to ex­empt Nige­ria from the out­put cut deal reached late in 2016 to limit oil pro­duc­tion so as to boost its price.

Even though the agree­ment has not im­proved oil prices around the thresh­old Nige­ria would want it to be, the price of crude, which traded be­low $30 a bar­rel in the last three years has ap­pre­ci­ated to $50 per bar­rel in re­cent time.

An­nual in­fla­tion in Nige­ria has con­tin­ued to ease. For a fifth straight month in June 2017, in­fla­tion slowed to 16.1 per cent, ac­cord­ing to NBS, com­pared to 16.25 per cent in May.

Ef­forts by the Cen­tral Bank of Nige­ria (CBN) to prop up the value of the naira lead­ing to the drop in the par­al­lel mar­ket ex­change rate of the naira to the dol­lar to N370 from N500 and the rise in the coun­try’s for­eign re­serve from $27bn at the be­gin­ning of the re­ces­sion last year to over $31bn re­cently, are part of the pos­i­tive in­di­ca­tors that eco­nomic re­cov­ery might not be long in com­ing.

Sec­re­tary Gen­eral of OPEC, Mo­hammed Barkindo, once de­scribed Nige­ria’s abil­ity to sur­vive the low crude price era as a mir­a­cle, adding that the coun­try’s worst days due to low crude prices were over.

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