On Tuesday last week, crude oil prices rose to about $61 per barrel in the international market, its highest since July 2015. There are indications that it rise to $70 and above in the next few weeks. This development is attributed to tightening market due to on-going OPEC-led efforts to cut supplies. The oil production cut pact runs until March 2018 but Saudi Arabia and Russia have voiced support for an extension. OPEC ministers are scheduled to meet at its headquarters in Vienna, Austria, on Nov. 30 where it will consider a possible extension of the cut.
Ideally, this should be cheering news for Nigeria, especially if we are able to maintain or surpass the current production of around two million barrels. This is because 75 per cent of this country’s government revenue and 90 percent of foreign exchange earnings are tied to crude oil. It is however too soon to celebrate as crude oil prices can drop as fast as they rose. Back in 2014, Nigeria’s foreign exchange earnings was about $1.4 billion monthly but within a short period, crude oil prices crashed and earnings dropped to as low as $300-$400 million per month. This emphasises how unpredictable the oil market can be.
Even if there is sustained rise in oil prices, it will only be for a short period because US shale oil production and long term technological changes would drive it down again. Therefore, it will be foolhardy for us as a nation to think that with the recent increase in oil prices, all our problems are over and we can jettison the idea of diversifying the economy and all other measures we took to survive the very trying period when the price dropped to as low as $30 per barrel. Being a mono-economy that is dependent on oil, Nigeria was totally unprepared for the effect of the oil price crash and as such it was hit below the belt. The situation was so bad that after recording negative growth in the first two quarters of 2016, occasioned by poor revenue generation, Nigeria slipped into a recession. The national currency was weakened and inflation rose to an 11-year high. The impact of the crash is still being felt by the country and citizens.
Even though our leaders had often spoken of the need to diversify the economy before oil prices collapsed, nothing concrete was done about it until late 2015, shortly after the current administration assumed office. Efforts were made in the area of agriculture and they yielded results so much so that apart from empowering the farmers, it contributed significantly to the country’s recent exit from recession.
With the rebound of oil prices, there is the danger that government would now relax and abandon its diversification efforts. That will be a grievous mistake. If anything, the country should more than ever vigorously pursue economic diversification. Any extra money that is earned due to the oil price increase should be chanelled in that direction. Greater attention should be paid to agricultural activities and other sectors like solid minerals. Also, the government should give priority to infrastructure, things that will improve the general living conditions of the masses.
This is not the time to engage in extravagant expenditures. All the cuts that were made because of the poor revenue should be sustained just as leakages should continue to be checked. Tax collection must also be pursued with vigour. The drop in oil price exposed governors as chief executives who wait monthly for hand-outs from the federation account, as many of them can no longer pay salaries due to the drop in their allocations. That narrative must change. The federal government should not submit to unnecessary demands by state governors. They should be made to intensify their drive towards revenue generation. They should look inwards and harness resources in their various states to generate revenue. However, with improved earnings, genuine demands like the one made by the Nigeria Labour Congress (NLC) for a higher minimum wage should be considered to encourage productivity.