Developments within the past one month have seen oil prices tumbling alarmingly with serious consequences to the world economic system.
First it was the spat between Russia and Saudi Arabia: two of the largest oil producers over production of the commodity, which resulted in a glut in the world oil market thereby depressing the prices.
Then in the wake of the raging global coronavirus which has been declared a pandemic by the World Health Organization (WHO) oil prices plummeted further from about sixty dollars per barrel to thirty dollars raising concerns about the short and long term effects of this development on the entire global economy.
Although, there have been signs of improvement with the prices climbing up in the past few days to about 40 dollars, the forecast is that should the coronavirus continue its destructive path the world might experience an economic recession sooner and possibly a depression later.
The grim reality of this development has had Nigerian officials justifiably worried. Just how grim this is was brought home by the Group Managing Director of the Nigeria National Petroleum Company (NNPC), Mele Kyari at a consultative round table organised by the Central Bank of Nigeria (CBN) with the theme ‘’Going for Growth 2:0’’. Kyari said ‘’Today there are over 12 Liquefied Natural Gas (LNG) cargoes stranded globally because there are no hubs due to the abrupt collapse in demand associated specifically with the coronavirus’’. Continuing, Kyari said that the slowdown in Nigeria’s hydro carbon exports has affected liquid crude as well in which ‘’ 50 cargoes which have been purchased by buyers have not been able to find a landing because they do not know how to take it’’.
In his remarks at the closing session of the event, President Muhammadu Buhari who also holds the substantive Petroleum portfolio also noted that oil revenues, which account for 60 per cent of government revenues have dropped by about 45 per cent. He said the declining oil prices had affected government’s ability to meet the infrastructure and human capital needs of the country.
Taken together what this means is that the 2020 budget ,which is just three months into operation is in serious jeopardy. The budget, which was predicated on 57 dollars per barrel revenue projection now looks likely to be reviewed as most of its target objectives might not be realistically achieved within the set time frame.
This could not have come at a worse time for Nigeria. The Excess Crude Account (ECA) first established under the President Obasanjo administration, which was meant to provide a relief during such times for the country has reportedly been depleted. From all indications, difficult times looms ahead for Nigerians who are already groaning under harsh economic conditions.
Dire as the situation is, the government must resist the temptation to take panic measures so as not to compound the issue. In this regard, we call on government to make haste slowly, study developments keenly and holistically. Out of this should come a flexible plan that takes into account all the ramifications of this potentially damaging development to our economy in the short and long term.
In the immediate term, we should aim to build up the ECA when oil prices improve and be stringently prudent in managing it in view of the uncertainties of the International economic system, which recent developments with the coronavirus have brought home to us grimly. In the long term, we should heed the Senate President Ahmed Lawan advice, who admonished that the current challenges with falling oil prices should serve as spur to devise other means of growing and sustaining the economy. In his own words ‘’Let us think on how we can live as a country without oil. This is an opportunity to start thinking of taking people out of poverty without oil. Let oil be a complement to what we are going to achieve without depending overwhelmingly on it as we are doing now’’.
In view of what Nigeria is currently undergoing and what bodes in the future with falling oil prices, we have to take our destiny in our own hands.