Global oil prices have been fallen sharply over the past seven months, leading to significant revenue shortfalls in many energy exporting nations. From 2010 until mid-2014, world oil prices had been fairly stable, at around $110 a barrel. But since June last year, prices have more than halved. Brent crude oil has now dipped below $50 a barrel for the first time since May 2009. The reasons for this change are twofold – weak demand in many countries due to insipid economic growth, coupled with surging US production. Added to this is the fact that the oil cartel – the Oil Producing and Exporting Countries (OPEC) – is determined not to cut production so as to prop up prices.
However, not all within OPEC are equal. Some OPEC members need oil to be above $100 a barrel to avoid hard spending choices. Alongside Saudi Arabia, Gulf producers such as the UAE and Kuwait have also amassed a considerable foreign currency reserve, which means that they can run deficits for several years if necessary. Other OPEC members such as Iran, Iraq and Nigeria, with greater domestic budgetary demands because of their large population sizes in relation to their oil revenues, have less room for manoeuvre. They have combined foreign currency reserves of less than $200bn, and are already under pressure from increased US competition.
Nigeria, which is Africa’s biggest oil producer, has seen growth in the rest of its economy but despite this it remains heavily oil-dependent. Energy sales account for up to 80 per cent of all government revenue and more than 90 per cent of the country’s exports. The current oil price which is on a free fall (at about $34 per barrel presently), has brought about the presently witnessed dire implication for a Nigerian economy which runs mainly on a single commodity. These implications on our economy include the current exchange rate volatility being witnessed in the country. Since 95 per cent of our foreign exchange earnings is tied to oil and with shortened revenue in dollar terms, the Naira is under continuous pressure. At over N345 to a dollar presently in the paralled market and despite devaluation, Nigeria is currently earning less revenue from oil and gas exports and imports of household items has become more expensive, with the burden passed on to Nigerians.
Also, stagnation in savings is currently being witnessed as a result of the depletion of the excess crude account. Declining oil prices means that Nigeria is not able to add additional revenue due to pressure from states that also run high recurrent expenditure. it is also becoming difficult for the Federal Government to save funds in the sovereign wealth fund, considering the austerity measures of the times. Accretion to the external reserve is expected to slow with falling crude oil. Similarly, capital expenditure is under threat by lower oil prices as government strives to keep its deficit within the limits of the Fiscal Responsibility Act whilst ensuring it meets its day-to day obligations. Unless drastic reforms such as downsizing personnel, sharp cuts in overhead costs occur, spending on recurrent items will remain, as they are fixed charges. Furthermore, employment/job creation is being adversely affected. Since the public sector is undoubtedly the largest employer of formal labour, cuts in government expenditure due to falling oil prices would lead to cuts in a number of new jobs. Unless the private sector steps up, this can lead the way to less employment opportunities in Nigeria.
Crude oil more than anything else has been a major curse to Nigeria; breeding corruption, indolence, greed, and other vices. The current declining oil price is the boost Nigeria needs to wake up from its slumber and diversify its economy. We have, as a nation, relied too heavily on oil. Even while relying on crude oil export, we have failed to recognize the added value to it, because there are lots of bye-products. We take the oil in its raw form, export it and use the proceeds from it to buy finished products. This is indeed very sad. This is akin to a cassava farmer who harvests his cassava and takes it to the market to sell, using the proceeds to buy garri.
Agriculture has always been a huge potential in bringing in much needed revenue for the development of the country. In fact before the discovery of crude oil, agriculture was the mainstay of the Nigerian economy. Nigeria was once famous for her agrarian economy through which, cash crops like; palm produce (oil and Kernel), cocoa, rubber, timber. Groundnut etc. were exported, thus making Nigeria a major exporter in that respect. The exportation of this agricultural products helped Nigeria in taking gigantic strides towards her economic growth. This sector offers vast opportunities and can employ over 70 per cent of the Nigerian labour force. Added to it is the provision of the basic food requirements for the country, as well as providing raw materials for local industries.
Alas, upon the discovery of crude oil and its subsequent exportation, there was a boom on the economy of Nigeria as it accounted for over eighty percent (80 per cent) of the country’s foreign exchange earnings. The discovery to some extent assisted the country’s economic prosperity, but has now become the bane of Nigeria’s economic growth. The fact being that, the money earned by a country with less or little effort; through petroleum, resulted in the abandoning of the agricultural sector. Sadly, the agricultural sector presently provides employment for about 15-30 per cent of the population and agricultural holdings are small and scattered, and farming is carried out with simple and archaic tools. Large-scale/mechanized agriculture is not common. Also, Nigeria’s abundant mineral resources can serve as a good source of income for the country. However, the mining of minerals in Nigeria currently accounts for less than 0.3 per cent of its GDP, due to the influence of oil resources. The domestic mining industry is currently underdeveloped, leading to Nigeria having to import minerals that it could produce domestically, such as salt or iron ore.
Affluence is not a function of the availability of resources at one’s disposal, rather, an effectiveness in the utilisation of the so – called “resources” to meet the social and psychological needs of individuals, persons or nation in general. If that is the case, it is really quite sad for a country like Nigeria; that is endowed with untapped minerals, fertile and available land coupled with good climatic conditions, turns from being a producer and exporter to one of the largest importers of food products.
Nigeria needs to urgently begin looking beyond oil. Years of our over-reliance on oil has led to the current dismal and sordid state we’ve found ourselves in. Governments’ at all levels in the country should and must restructure other sectors like industries, tourism among others, and fully utilize and harness available resources to meet the demand of the present time. The habitual lip-service of diversifying the economy by previous governments should be a thing of the past. Adequate measures has to be put in place and must begin for the actual diversification of our economy if Nigeria wants to survive the ongoing shortfall that has been caused by the over-reliance of oil and running a mono-dependent economy.