Economists and other stakeholders in the oil and gas sector yesterday
predicted a bumpy road for Nigeria’s N146.96 trillion economy,
insisting that prevailing realities at the international oil market
could worsen the nation’s fiscal outlook, especially the implementation
of the N10.33 trillion 2020 budget. They also raised the alarm over
another slip into recession and shortage of foreign exchange, given that
the nation’s foreign reserve has depleted to about $40.95 billion.
The experts spoke ahead of a meeting of the Organisation of Petroleum
Exporting Countries (OPEC) and other allies next tomorrow, where an
agreement that could impact future oil prices may be reached. Though
they expressed optimism in the continuous extension of oil production
cut by OPEC and its allies to stabilise oil prices at the international
market, they noted that Nigeria’s economy, with reference especially to
the 2020 budget, remains volatile.
In the proposed 2020 budget, the Federal Government estimated oil
sales to stand at 2.18 million bpd at a price of $57 per barrel, while
the exchange rate is expected to remain N305 per dollar. But last week,
the prices fell, eroding the increase recorded in November. West Texas
Intermediate dropped more than four percent to settle at $55.17; Brent
plummeted by $1.44 to settle at $62.43, while Bonny Light slumped by
$1.9 to settle at $62.15. On Monday afternoon, WTI stood at $56.63,
Brent at $62.08 while Bonny Light was $62.15.
Already, the International Energy Agency (IEA) has pointed to a
looming oil glut, especially due to uncertainties clouding the global
economy. IEA had reduced demand growth forecast by 100,000 bpd for both
2019 and 2020 to 1 million bpd and 1.2 million bpd, respectively. While
data from the Central Bank of Nigeria (CBN) shows that Nigeria’s foreign
reserves dropped by $812 million to $40.95 billion as at October 18,
2019, there have been doubts over growth rate for the global economy;
most analysts are pessimistic about a stabilising oil price due to the
current U.S.-China trade war, Brexit, and the crippling growth of major
economies particularly China, India, Germany and others.
Gross Domestic Product (GDP) in Nigeria was worth $397.30 billion in
2018, representing 0.64 percent of GDP world economy. It averaged
$125.26 billion from 1960 until 2018, reaching an all-time high of
$568.50 billion in 2014 and a record low of $4.20 USD billion in
1960.While the GDP grew by 2.28 per cent year-on-year in real terms in
the third quarter of 2019 as against 1.81 percent recorded in the third
quarter of 2018, the stakeholders feared that the looming glut and
possible cut in Nigeria’s production share at the OPEC meeting could
erode the increase in the GDP, especially as inflation rate in Nigeria
rose to its highest in eight months, hitting 11.61 percent in October,
according to the National Bureau of Statistics.
The 2020 fiscal budget remains in a deficit, noted Prof. Segun
Ajibola, a former chairman of council, Chartered Institute of Bankers of
Nigeria and Dean, College of Postgraduate Studies, Caleb University.
According to him, any cut in Nigeria’s quota below the projected level
of 2.18 barrels per day would have a devastating effect on the budget
implementation, worsening the projected deficit.
“As we inch close to the end of 2019, the foreign exchange reserve is
at a low of $39 billion. At the current price of about $63, the price
is still okay for the 2020 budget but there is no assurance that it
won’t go down. Another challenge is the penchant of some OPEC members
for disobeying quotas, especially those from the Middle East,” Ajibola
said.
The only way out for Nigeria, Ajibola explained, is to reduce
overdependence on oil as a source of revenue through a complete overhaul
of the monolithic structure that has been the hallmark of Nigeria’s
economy since the 1970s.In the face of mounting debt service and growing
temptation to borrow an additional $29 billion, Ajibola said a cut in
Nigeria’s quota would drive down foreign exchange earnings. “The economy
is still stressed and we must pray and work hard so that it does not
slip into another recession,” he warned.
Renowned energy economist, Prof. Adeola Adenikinju, of the Department
of Economics, and Centre for Petroleum, Energy Economics and Law,
University of Ibadan, said the outlook for crude oil price in 2020 is
not very bright. He observed that the price of oil could hover around
$58 per barrel in 2020, a development that would slightly be above the
2020 budget price of $57.
OPEC had previously adjusted Nigeria’s quota to 1.77 million bpd, up
from 1.69 million bpd. Though Nigeria, since March this year, reportedly
failed to comply, the Minister of State for Petroleum Resources said
production has been reset to fully comply with the cartel.Adenikinju
said further: “The fact is that Nigeria’s budget might become harder to
implement. There will be no room for fiscal buffer and hence more
reliance on debt to finance government expenses. The outlook for the
states would even be worse as the new minimum wage kicks in, and with
limited alternative sources of funding.”
He noted that the current fiscal projection for the oil sector is
unrealistic. It would be better, he said, for the National Assembly to
adopt a more conservative estimate for oil price and oil production, to
allow for a more realistic budget that will prepare the economy against
various vulnerabilities and uncertainties in the global economy.
Though Nigeria had enjoyed waiver from OPEC’s production cut, it
might be difficult for such exemption to be granted, said Habeeb
Jaiyeola, PricewaterhouseCoopers’ Associate Director, Energy, Utilities
& Resources.“If we are granted a waiver, it will be good for us
because our economy depends clearly on oil. That will allow us to push
volume into the market and generate more revenue. However, if they do
not grant us a waiver, it will have direct effect on our economy because
our revenue is directly linked to oil,” Jaiyeola said.
The chairman, International Energy Services (IES) Ltd., Dr. Diran
Fawibe, said the outcome of OPEC’s meeting would most likely be an
extension of current production cut, noting that there was a need to
firm up the prices such that oil would remain above $60 per
barrel.Urging Nigeria to support a policy that would make price
favourable, particularly for budget implementation, Fawibe said large
producers like Russia and Saudi would likely agree to cut in production.
The oil estimate for the budget is too optimistic; Nigeria’s quota
cannot be up to 2.2 million barrel per day, Diran said. He however
advised the country to work towards producing condensates, since the
OPEC production cut does not include condensates. This, Diran said,
would shore up production level and increase revenue.
Imo State Governor Emeka Ihedioha, meanwhile, has warned that the
“the days of crude oil are numbered.” He made the disclosure in Owerri,
the state capital, during the Ahiajoku festival, which traditionally
ushers in the harvest season.Urging Nigerians to “as a matter of urgency
prepare for life after crude oil,” the governor stressed: “Till date,
palm oil remains one of the most important cash crops in the region and
it could serve as a major driver for economic development.”
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