Oil price: Nigeria and the new reality
For years, Nigerians have cheerfully accepted the false impression that oil wealth will last forever. When nations cultivate lands, working their brains to stretch revenue stream, and build things that would stand the test of time, Nigeria was lost in the illusion that revenue from oil is enough and have no reason whatsoever to explore other potentials that nature bestowed on us.
Cheap money, as many people often describe oil revenue, is a reality Nigeria leadership for over 53 years of exploration, think would never change. Look at the reckless abandonment of the agricultural sector, the eroded value of education, and the sheer negligence of other valuable natural resources. This will show you how the fate of the country is placed on oil derivation.
And when anyone least expected, coronavirus pandemic struck the world and almost everything changed from what they used to be. From social lifestyles to the economy, things have changed drastically and presented a new reality for everyone. Though we anticipated a change, it came quicker than expected.
In late April 2020, the world was thrown into confusion after West Texas Intermediate (WTI), the benchmark for US crude oil, shed a substantial amount of price value and turned negative. By Tuesday, the pressure stretched to Brent Crude, whose futures for June delivery lost 15% to trade near $16 a barrel, the lowest in almost 21 years.
And that is a piece of unpleasant news for Nigeria, who will see a sharp drop in oil receipts due to the unfolding development. That is the new reality and Nigerians should not let them be cut unaware. Let no one deceive you, the party is over and the option left for everyone is to adapt to the new reality.
The signs have been there for a while now, but those in charge of governance failed to pay serious attention and now that it is here, we may pay a huge price for their inefficiency and negligence. Even though the government had overtime assure Nigerians of the move to limit dependence on oil, the implementation remains largely unseen. As of today, a larger share of government revenue still comes from oil sale and that makes any drop in the price of the commodity a big blow on the country.
You could almost sense that things look awry when the federal government reviewed the 2020 budget downward as revenue prospects dropped. Even at that, there are likelihoods that budget deficit will go up as much as N4 trillion, much higher than the N2.2 trillion projection in the fiscal document signed by President Muhammadu Buhari late last year.
Before our very eyes, we’re seeing the supposed black gold that Nigeria has counted on for years shedding value and there is hardly any alternative to cushion the effect of the shortfall. The disturbing thing is that we may have left it too late and mitigating the impact of the new reality may be tougher than the government would want us to believe.
Already, coronavirus has done immeasurable damages to economies across the globe and Nigeria isn’t an exception. As a consequence, many companies would have a tough time returning to normalcy when the pandemic restrictions are eventually lifted and may result in the sack of many working in the private sector.
Though the government may not be able to follow that route due to fear of public backlash, however, some may struggle to meet up with salary obligations. And when that happens, it will further strain the distressed economy as that would enormously reduce the purchasing power of citizens and send many citizens into acute poverty.
Before the virus struck and forced a drop in demand for oil, Nigeria’s economy is struggling to catch-up and the government was on the verge of securing over $22 billion external loans to fund some selected projects. That decision sparked protests from some Nigerians who feared the borrowing spree posed a danger to the future of a country that is already owing in excess of $87 billion.
Now that the whole world is struggling with the effect of coronavirus, there is a serious doubt that any lender would be prepared to give out such a huge amount and the fall in oil price means the country would have to cope with the little that comes to its treasury. That scenario, experts warn could have devastating impacts on people from low-income households.