NIGERIA: AGAIN, CAUGHT NAPPING BY THE OIL PRICE SLUMP

I am not very happy at the moment and I just want to get this matter off my chest.

This is about Nigeria and its leaders who did nothing to prevent us from being caught up in the (previous and current) oil price cross-fire.

As you may or may not know, the international price of crude oil had been on a steady decline since June 2014. This Wednesday, December 3, 2014, it touched roughly $70 per barrel. For anyone who has followed the energy market since 2011 when US energy firms announced substantial progress in shale fracking, this current oil price regime should not have come as a surprise. But for many Nigerians, including those in authority and those saddled with the responsibility of managing the economy, we are sounding bemused.

If not for anything, it should be clear to anyone with a sense of economics that commodity prices fluctuate. Crude is a commodity. Therefore, oil prices are no exception to this rule.
It does in fact seem that in Nigeria, we make deliberate effort not to learn from history. Truly, if we did, we would have known that these days of plummeting oil prices would come and we would, therefore, have taken serious measures to cushion the economy from the impact of a southward oil price trajectory. Just about six years ago, we experienced the same sharp drop in crude prices when the average price of crude oil dropped from an all-time high of about $140 per barrel to about $40 per barrel. That was in 2008 during the then Global Meltdown.

The Nigerian economy being a monocultural one that is largely dependent on crude is always going to be at risk. The risks include:
• A risk of fall in production
• A risk of fall in demand
• A risk of fall in price
• A risk of run-out of reserves
In the last few years, we have managed to add another home-grown kind of risk: the risk of theft of crude which in turns leads, not a fall in production, but of revenue.

What beats me in all these is that in the last 30 years or so, political leaders have mouthed the rhetoric about diversifying the Nigerian economy. We all know the drill. Every year or quarter or whatever other period that suits us, our “experts” gather at symposia or workshops or some other fancy gathering to restate the need to diversify the economy. Government functionaries or public servants attending such events tell us that all the right things would be done. Then we go back home and do nothing serious for the economy.

Yet with all the conferences, workshops, seminars or symposia, the economy has remained dependent on oil. So dependent are we on oil that the bases used every year for budget preparation are the price of crude oil and the volume of crude produced per day. The inference to be drawn here is that we can have all the conferences and workshops in the world but if there are no definite actions by political leaders to steer the economy away from exposures, we haven’t done anything. This is a challenge that requires a sustained strategy to deliberately stimulate the other sectors of the economy.

However, more often than not, the reactions of our economic handlers to oil price fluctuations have been reactive rather than proactive. Why? It is simply because we never plan or prepare. It is either there is no depth of thought or there is no will from the leadership or both.
When the oil price hit $76 per barrel about two weeks ago, the official reaction was that the budget benchmark would be reviewed to about $73 per barrel. After the oil price moved to about $70, I heard talk of the budget benchmark being further reviewed to about $65. With the benefit of hindsight, we could have saved a lot of money for this rainy day. But we didn’t. Attempting to peg budget benchmark at $65 would still be too risky considering this report. I would personally recommend a $35 per barrel. If there is any excess over that figure, it could be saved and used to grow the other sectors like power and manufacturing.
This is 2014. Next year will be 2015, an election year. In a nation where leaders and those aspiring to lead are held accountable, we would be grilling political aspirants on what they would do to fix the oil- and import-dependent economy. In the murky waters of Nigerian politics, however, this would not be so. Rather, the build-up to 2015 (as has been seen) will be dominated by mud-slinging, religion and (aha!) Boko Haram. Sadly, the economy will assume a backseat.

In the meantime, with the market already being up-ended by the oil price bloodbath (it is a bloodbath, as you can see from here), we should have outlined very clear steps to cut down on the cost of governance. So far, nothing concrete has been said about that. One or two ministers have called for belt-tightening measures. Interestingly, this has come from two female ministers who I do not think use belts judging from their dress code at public functions.

Like I have been told this is Nigeria where, according to the old French proverb, “the more things change, the more things remain the same”.

You can follow this writer on Twitter @ehissman.

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