When the federal government at the wake of the current global economic turmoil said the Nigerian economy was in good health, it was very correct for the following reasons. First, while other poor nations’ economies are being described as “emerging,” the Nigerian economy is still “sleeping.” Secondly, Nigeria has nothing that can actually be defined in strict terms as an economy. The country is doing its’ thing completely outside whatever is obtainable elsewhere in the world.
When the federal government at the wake of the current global economic turmoil said the Nigerian economy was in good health, it was very correct for the following reasons. First, while other poor nations’ economies are being described as “emerging,” the Nigerian economy is still “sleeping.” Secondly, Nigeria has nothing that can actually be defined in strict terms as an economy. The country is doing its’ thing completely outside whatever is obtainable elsewhere in the world. There is no real connection between our market (economy) and the advanced economy, so we don’t have that much exposure especially with regard to portfolio investments. The country’s stock market is still very small and isolated. What works elsewhere in sane ‘emerging’ economies does not work in Nigeria and when it tries to, it always produces results skewed in opposite direction. However, there is a psychological contingent that Nigeria can have as pointed out by analysts. Now you look like the other country and therefore if that country is suffering people think also you might suffer but beyond that, nothing spoil! Also, all that matters here as an economy is oil and gas. Over 95 percent of the country’s export business is oil -related and in strict terms, almost 100 percent of the nation’s foreign exchange earnings come from the sales of crude oil. And this is where the federal government may have gotten it wrong in its self-assurance. The current vagaries in the world oil market may soon place Nigeria under the list of developing economies that are under serious threat as a result of the global financial crisis. If our customers fail to buy our oil which is the only commodity the country takes to the world market, then we will be in trouble. Crude oil price of Nigeria’s premium grade- the Bonny Light was $38 per barrel in September 2000. In May 2006 it skyrocketed to $80 per barrel spiked by the insatiable demand from the Asian economies particularly China. The spot market price crossed the $100 per barrel mark in January 2008 following increased tension between the US and Iran. And by Sept 2008 it hit an all high of $147 per barrel due partly to the deteriorating Iranian induced tension and the Russian stand-off with the US which also threatened supplies from the Caucasian axis. The 2008 budget was syndicated on a $59 per barrel crude oil price, even when oil price at the spot markets averaged well over $100 per barrel up till September. The gap between the projected or rather budgeted and the actual earnings from sales of crude oil provided comfortable window for any fluctuations at the global oil market. So the nation actually had a windfall from the difference between what it expected and the actual earnings. Pathetically though, the CBN Governor had informed the world that all the gains made from the oil windfall had been blown by government- federal and states in manners that could best be described as intangible. While most OPEC countries are busy investing their gains from the windfall into laudable projects, the shared booty between the federal and state government could not even give the nation one additional megawatt of electricity in its national grid. Anyway, this is not the concern being addressed in this piece. It would be recalled that the first version of the 2009 budget pegged the budget oil price benchmark at $62.5 which has now been rendered unreasonable by the erratic downward slide in the prices of oil at the global market. Indications from the current global financial crisis has shown that it would be dangerous to syndicate the 2009 budget on unrealistic oil price benchmark as the world may be bracing –up for a global recession as hyoed by developed economies. When $59 per barrel earning was used for the 2008 budget, the going crude oil price was well above $100 per barrel. So now that the price has dropped significantly to about $70 and may even go down further, it would be very unreasonable to think of even using the 2008 standard not to think of even overshooting it. To provide the highly needed safety valve for our budget, a benchmark window of $40- $45 per barrel crude oil price would be reasonable nothing more, nothing less. Anything more than that may warrant interventionist measure in the implementation of the 2009 budget and that from past experiences may prove catastrophic. Moreso, there is no harm in planning with lower expectation and ultimately getting more. Though we know that the problem of corruption in administration of the nation’s crude oil earnings is still a big issue, a $40- $45 per barrel peg may bring additional resources to the coffers of government which as usual may be shared among the ruling class. If the nation’s downstream oil sector particularly the domestic refining sub-sector is resuscitated to run in acceptable capacity, whatever shortfall the government would slash from export earnings can be earned in multiples by local consumption of refined products and even export of products to neighbouring West African and even European countries. A proactive government would have turned the current global financial crisis and economic slow down to an advantage aggressively pursue the country’s efforts at developing its infrastructures. Though the nation’s earning from oil exports may slightly drop, cost of developing the highly needed infrastructure especially in the power sector would also be drastically reduced because of the gloom in the economies where vendors are going to source the materials we need. So if we are serious with governance in this country (which I am not sure we are yet), the global turmoil may offer this country a very good opportunity to fully develop or at least tangibly enhance its infrastructures- power, roads etc. after all, all we do is sell crude oil no matter the going price at the world market. IFEANYI IZEZE IS AN ABUJA-BASED CONSULTANT ON POLITICAL STRATEGY AND GRASSROOT CONSULTATION ([email protected]
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The views expressed in this article are the author’s own and do not necessarily reflect the editorial policy of SaharaReporters
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