Lessons in oil price fall

The federal government last week proposed a cut in the 2015 budget benchmark to $73 from its previous $78 per barrel. The implication of this is a reduction by N156 billion. On November 12, 2014, the price of the Organisation of Petroleum Exporting Countries (OPEC’s) basket of 12 crudes had fallen to $77.27 below Nigeria’s 2015 budget benchmark of $78 a barrel, more than two cents, and below this year’s $77.5 benchmark. Thus, the federal government had to adjust to realities of the global dwindling oil prices. According to the Coordinating Minister of the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, the 2015-2017 Medium Term Expenditure Framework (MTEF), which was recently submitted to the National Assembly had been revised and re-submitted to the National Assembly for passage.
The international market, a key determinant of oil prices, has been experiencing gloom which in turn poses a serious threat to nations’ domestic economies. Against this backdrop, the British Prime Minister, David Cameron, warned nations across the world to prepare for second global economic recess which, according to him, looms large. To make matters worse, Nigerians will pay more for petrol in 2015 as a direct implication of oil price fall as the federal government has proposed a cut in the oil subsidy in the 2015 budget. Dismayed, by the downward spiral price of oil, experts at various times had cautioned the nation’s successive governments on the adverse effect of over-dependence on crude oil as source of its revenue and proffered long term remedies.
Besides being a mono economy, Nigeria also risks the danger of unsustainable revenue because any unfavourable international price behavior, as being witnessed presently, will upturn the table. The misery of fall in oil price seems of greater concern to economic watchers because of its grave consequences on the citizens.
Although the federal government is making desperate moves including the recently announced austerity measure as its strategy to cushion the effect of the crashing oil price, the initial posture was one that sent a wrong signal that Nigeria’s economy was strong enough to withstand any shock, assuring there was no cause for panic. At the start of the crisis in the global oil market, Okonjo-Iweala dismissed in one breath any impact this may have on the nation’s economy and in another breath she said the federal government had decided on a multi-pronged, strategic response to mitigate the adverse effects of the decline in global oil prices. The minister said that the Central Bank of Nigeria (CBN) was working with the Ministry of Finance to apply appropriate fiscal and monetary measures in managing the economy.
In the views of economists, however, the strength of an economy depends on how much is sold to earn foreign reserves rather than how much of her reserves is spent. Therefore, any responsive government should see opportunities in the tumbling oil prices and welcome it as a blessing. Many opportunities exist for Nigeria, being enormously endowed with natural resources. The non-oil export is a huge and inexhaustible revenue source. Another opportunity beckons for Nigeria to turn the non-oil sector such as agriculture into cash cow rather than wallow in quandary. Under the circumstance, the government could re-launch itself in the pre-1960 position when the agriculture sector grew faster than the crude oil. With Nigeria’s position as the 6th largest world’s oil producer what matters most is to develop an alternative sector to a globally recognised position rather than quick fix temporary measures. The lesson in the declining global oil market is ingenuity in recreating economic fortunes for the country, without this the economy is trapped.