[Bamidele Upfront] Falling Oil Prices is Nigeria’s Destiny, By Bámidélé Adémólá-Olátéjú

Bámidélé Adémólá-Olátéjú

If you have participated in milking the Nigerian cow comatose, you better start looking for citizenship elsewhere because you cannot be saved from the impending crisis that might engulf Nigeria. Yes, you read it here, even your family will not and cannot escape the crisis.

For starters, below is part of the economic data from the Central Bank of Nigeria (CBN) for the first quarter of 2013.

The federal government earned N2.4trillion.

Incurred deficit of N284billion (2.9% of GDP).

Oil receipts is N1. 849.5trillion (22.2% below first quarter of 2012 oil receipts).

Non-oil receipts is N575.8 billion

Oil production at 2.05million barrels per day(mbd).

Crude oil export is 1.60mbd.

Domestic consumption is 0.45mbd.

Distributed revenue of N1,366.70 billions in federation account; the federal government received N643.79billion, N326.54billion went to the states and N251.75billion to the local governments. The balance of N144.62billion went to the 13 percent derivation fund for oil-producing states.

The summary of the economic data is; we are profligate, we are spending the money we don’t have. Unfortunately we will pay later, we will pay with our time and our children’s dreams. The money we have managed to earn has gone mostly into private pockets, there is nothing on ground to show for it other than ostentatious consumption. We cannot meet the allocated production quota of 2.5mbd set by Organization of the Petroleum Exporting Countries (OPEC). According to a Citigroup report, Nigeria along with Angola are beginning to feel the impact of the United States oil production surge. United States oil imports from the two countries dropped to 700,000 barrels per day at the end of 2012 from 1.6 million barrels in 2007. Citigroup forecasts that by the end of 2013, the demand for Nigerian oil at United States refineries could entirely dry up. The shortfall in purchases from the United States is forcing Nigeria to shop for new long term buyers for her Brent crude.

In December 2012 production output in North Dakota, Ohio and Pennsylvania totaled 1.5 million barrels of oil a day. Reports show these totals to be more than Iranian daily exports. While these data brings good news to the U.S, it signals dangerous consequences including the risk of civil unrest in Nigeria and other countries heavily dependent on oil exports. Unfortunately for Nigeria and OPEC nations, America’s energy boom has just begun. The U.S has the incentive to produce more because its economic security is directly related to cheap and available energy. New drilling technologies like fracking has opened vast domestic oil and natural gas reserves to production. Despite increased fossil fuel production, America has continued to invest in alternative energy sources in addition to energy efficient automobiles, homes and corporations. We seem to think the move away from fossil fuel and hydrocarbons are mere prurient jokes. We will soon know it is for real.

Nigeria should have seen this shift coming but stealing blinds the eye and corruption sedates the brain. Americans learnt bitter lessons and reacted swiftly to the global financial meltdown of 2007-2008. Household wealth locked mainly in home values evaporated, credit became tight and household debt ballooned as unemployment rose. Citizens traded their gas guzzling trucks for smaller fuel efficient cars; hybrids and flexfuel cars gained traction. Domestic consumption of everything plunged, Americans had to face adjustments to new economic realities overnight. Nigeria has gone through boom times drunk on rent collection and has nothing to show for billions of dollars in oil sales in terms of infrastructure except fat foreign and domestic personal accounts filled with stolen funds. Unlike Nigeria, Angola has continued to invest in massive infrastructural development and commitment to developing other sources of revenue. Significant surge in oil prices is now becoming a thing of the past. Today, Iran is finding out contrary to its thinking, that fear of oil price surge will prevent the United States from orchestrating a United Nations imposed sanctions on the country for its ambitious nuclear program. Sanctions were imposed, it stuck and oil prices did not surge. Why? Increased production from America, Libya and Iraq stabilized oil prices. Lesson for Nigeria? Yet to come.

Sadly, Nigeria is dependent on high energy prices to balance its budget. This country’s budget is neck deep in deficit financing; at almost 3% of GDP coupled with stratospheric internal borrowing. We all recall the fight over raising the budget benchmark for crude from $75 to $82. The inconvenient truth is; Nigeria needs a higher benchmark price for crude to meet budgetary demands or the government would be forced to increase output or reduce spending. You can ask, what spending? Does our government ever spend on anything? Yes, they do. Seventy percent of Nigeria’s expenditure goes to maintaining a bloated and corrupt civil service whose only job it is to help the politicians loot and to pay the ginormous entitlements of political office holders. Nigeria is at tenterhooks, no one currently has the political capital to embark on reforms that can rescue Nigeria. Job cuts will be resisted by labor unions and the gluttonous entitlement package of our legislators will never be cut until it is glaring to the political class that Nigeria is fully prostrate. After all, they are there on self-enrichment binge and not to advance Nigeria fair. Our leaders have no roadmap to help us grow and cannot be trusted to do the country right. The only alternative left is subsidy withdrawal and that is GUARANTEED to trigger massive unrest and civil disobedience not only because it is fraudulent; Nigerians also know that the gains if any, will be stolen. For a nation that is poor by all known measures except foreign receipts from oil, given to fire brigade measures, exploding population, voodoo statistics and incongruent policies, what next? We have no good options, decreasing oil prices is Nigeria’s destiny. It is a matter of time. The scenarios are not amusing. Here they are:

1. U.S. production expands and Iraq continues to gain momentum

U.S. production could expand and increase global spare capacity. If that happens at some point, OPEC will lose control and oil prices would drop. After decades of crippling sanctions and a devastating war, Iraq is closely following the United States as the second fastest oil producing country adding over 500,000 barrels per day to global oil supplies. Iraq needs oil receipts for post war rebuilding. Does anyone have the moral authority to stop them? Some other countries like Ghana are discovering oil, these developments are guaranteed to push up the global spare capacity and depress oil prices. While production surges in these countries, Nigeria is at or near peak oil totally conjoined with a lootocratic NNPC.

2. OPEC disintegrates

Saudi Arabia is the crazy glue that holds OPEC together. According to the International Monetary Fund (IMF), Saudi Arabia with its vast reserves of oil needs $71 a barrel to meet its budgetary demands. With its own restive and burgeoning youth population demanding more resources, Saudi’s threat to exceed its quota and bring down prices to punish wayward OPEC members will become increasingly difficult. If spare capacity increases as it will, how long will Saudi Arabia be able to discipline members who exceeds quota? If quota rules are violated, prices will drop and $70 per barrel oil or less will be here. The consequences of a precipitous drop in oil prices for a country that did nothing with oil receipts for over forty years can only be imagined.

3. Tepid Growth in China

There are sufficient indications that economic growth in China in slowing. A few weeks ago, Citigroup released a report that sees a pattern similar to the sudden slowdown in demand driven growth of the Asian Tigers in the 1990s. Chinese demand driven growth has slowed to a 3-5 percent rate compared to the double-digit growth of the early 2000s. In addition to slow growth, wages are going up by about 20% year over year. China’s wage complex as a competitive advantage over the United States is diminishing fast. In addition, China is not as manipulative of its currency as it used to, resulting in a direct effect on its Purchasing Power Parity (PPP).

Nigeria is in more trouble than the leaders let on, they are more interested in fortifying themselves in readiness for Nigeria’s eventual disintegration. For Nigeria, the consequences of increasing U.S. production and reduced sales from OPEC is dire. Declining oil revenue will have disruptive effects and Nigeria’s stability will be threatened. The impending catastrophe is worse than Boko Haram. With ongoing oil theft and expected return to militancy when Jonathan leaves office, Nigeria will hardly be able to improve beyond 2.5million barrels per day. Internally, increasing population will consume more energy. The foreign reserves left by the Obasanjo Administration has been misappropriated, although the Dr. Okonjo-Iweala said it has being built up to $50billion. Since 2008, Nigeria has been unable to accrue significant reserves in Excess Crude Account (ECA) and its sibling the Sovereign Wealth Fund (SWF).

We are all witnesses to fights between Governors and the Executive arm over the need to drawdown the ECA and SWF to augment state revenues. In the first quarter of 2013, N333.81billion was drawn from the ECA to bridge the short-fall in revenue for the period and was shared as follows: Federal (N152.99billion), states (N77.60billion), local governments (N59.83 billion) and oil producing states (N43.40 billion). Without any sense of loss, the gains of our debt liquidation by the Obasanjo regime has been rolled back. Borrowing has escalating locally and internationally. Welcome to the new reality. Our licentious past is set to catch up on us and worse; our thieving elites are priming Nigeria for disintegration. We are in!

Kindly follow me on Twitter @olufunmilayo


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  • nija pikin

    Let’s diversify from oil to solid minerals, let’s reduce expenditure and make wise investment in areas such as education and training of our youths, agriculture, science and technology,and creat jobs hey but to achieve this you need the rigth people with balls in govt. Not corrupt and empty wicked politicians who are only thinking of how to rig the next election.