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Is Nigeria’s economy still vulnerable to oil price shocks?

Is Nigeria’s economy still vulnerable to oil price shocks?

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  • Mr. Shina Amao (Chairman, Stallion Energy Resources Limited)

I am very optimistic about the future of oil and gas in Nigeria and I will tell you why.

Number one reason is that we have a dynamic human resource of highly skilled energy professionals and that’s very good. The second reason is that we have oil and gas resources in abundance, the largest in Africa. The only thing that has been missing, in my opinion, which may make our economy feel such shocks, is our policy direction. For many years, Nigeria has looked at oil as a source of revenue instead of seeing it as a source of power. But the good news is that the dawn of a new era is here; it is because of the Petroleum Industry Governance Bill that the National Assembly has finally passed after its delay since the year 2000. The bill is now in the process of being assented to by the President. With this bill, there is hope for the sector and the economy, regardless of price volatility in the industry.

Now, literarily that bill has lifted a cloud of uncertainty over the oil and gas industry, because for 20 years, we’ve been telling them to reform the industry. The delay in the passage of the PIB frustrated many potential investors from coming to Nigeria because they don’t know what the modus operandi will be on any new investment.But that is about to change.

However, there is no perfect law and that is why there is always room for amendment. The PIGB may not be a perfect law, but it is a good enough law to reverse the declining trend in the sector and guide operators on how to manage whatever shock that may arise from oil price volatility. A good place to learn is Venezuela. They didn’t pay attention for over 10 years and today industries in Venezuela have finally collapsed.

  • Prof. Wumi Iledare (The Director, Emerald Energy Institute, University of Port Harcourt)

There is no doubt that Nigeria’s economy is still very much vulnerable to crude oil price shocks. Even the International Monetary Fund said this last week and we all know that we recently came out of recession largely because of the increase in the price of crude oil in the international market.

The economy will be badly affected if the price should drop sharply like it happened about two or three years ago. This is why we need to develop other sources of revenue independent of oil.

The Gross Domestic Product of the country will also be adversely affected because we import more of refined products than we export.

I think this administration is trying to diversify the economy by looking into agriculture, tourism and other sectors. The Federal Government has been investing in the agricultural sector and this is reducing our import bill on rice, wheat and other imported food items.

This is a step in the right direction and should be sustained to shore up our non-oil revenue base. We must also work towards adding value to our agricultural produce before export; this is a better way of attracting additional revenue which will insulate our economy from oil price volatility.

  • Mr. Sunday Babalola (Managing Director, Belem oil )

The Nigerian economy is still very vulnerable to oil price shocks in my candid opinion. It cannot be any other way because in spite of the claims by the government at federal and state levels, we currently operate a mono-economy, an economy that is totally dependent on oil revenues. We have not developed other sources of revenue. The revenues made from oil and gas cover the majority of what is shared among the three tiers of government.

 It used to be over 90 per cent of the country’s revenue stream. I learnt it has currently been reduced to between 75 and 85 per cent because of efforts being made by government agencies like the Federal Inland Revenue Service, Nigeria Customs Service  and the Nigeria Immigration Service, among others. A majority of other institutions that generate a reasonable amount of revenue such as the Department of Petroleum Resources are oil and gas related; that means that they add to the revenue stream from the oil sector.

And that is what all the tiers of government depend on for their operations. Where this is not coming in as expected, the Federation Accounts Allocation Committee and the Revenue Mobilization and Allocation Committee have little or nothing to work with; the states have nothing to work with and the economy faces the risk of collapse.

The states are so lazy and their governors are not able to think outside the box because most them (if not all) got into office without a clear understanding of what their responsibilities are. Only one or two states are able to survive without federation allocation.

The solution to this problem is fiscal federalism. The states have to make their revenue and stop running to the centre like beggars. We must seek practical ways of attracting genuine investors to invest in the development of our other mineral resources. The nation must start to think outside the box and deploy a substantial part of our current revenue in productive sectors that will yield more – thank God for excess crude oil account.

The fact is that the downturn in oil prices should always be anticipated and we should prepare for it. The price of oil in the international market has always been volatile and it will become even more so because alternative sources of energy are being developed across the world.

  • Prof. Sheriffdeen Tella(Department of Economics, Olabisi Onabanjo University, Ago Iwoye, Ogun State)

Yes, Nigeria’s economy is still vulnerable to oil price shocks. It will remain vulnerable as long as we depend on the oil sector for most of the income required to implement our annual budgets.

The Nigerian economy is increasingly becoming diversified as presented in the statistics when debasing was carried out.

However, the oil sector continues to dominate, not in terms of employment generation, but revenues accruing to the national purse.

More than 80 per cent of the revenue comes from the oil sector. Thus, any drastic fall in the international price of oil will impact negatively on federally-collected revenues and consequently affect budget implementation and national plan execution negatively.

Efforts to promote agriculture must be intensified through technologically-advanced method of production which will speed up production.

 The industrial sector must also be genuinely assisted to expand and improve on capacity utilisation. These, among others, will reduce our dependence on oil and gas revenues.

  • Odilim Enwuegbara (Abuja-based Development Economist)

Of course, this economy is still very vulnerable and the reason is simple, we are yet to diversify our economy away from oil. The only way we can prevent shocks is to diversify; we are not the only oil producing country, there are several others.

The difference is others have understood that oil revenues are only an addition to other sources. We still operate a mono-oil dependent economy and this affects every other thing we do in this economy.

We need to industrialise the economy and we cannot do this unless we make it difficult for imported goods to enter this country, unless we make the cost of imported goods very high by devaluing the naira.  We should place high tariffs on imported goods to encourage local production.

 This is not rocket science and we cannot continue to deceive ourselves, we must do the needful to get ahead.

We cannot continue to do the same things the same way and expect a different result; it will serve our economy better if we start now to take the necessary steps to address these issues.

We cannot continue to run away from this truth.

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