By Chris Stein
Lagos (Nigeria) – The global fall in the price of oil has rattled the economies of many petroleum producers, and Africa’s oil king Nigeria is no exception, with analysts predicting a rough year ahead.
The fortunes of Africa’s largest economy have long been intertwined with the price of oil. But analysts are worried as crude prices have fallen to $35 per barrel from their peak of over $100 a barrel in 2014.
Bismarck Rewane, chief executive of Lagos-based advisory firm Financial Derivatives Co., said, “Impact of fall in oil price is, to put it mildly, catastrophic, in the sense that, in terms of magnitude, huge, in terms of preparedness to deal with the magnitude, totally ill-prepared.”
Nigeria produces over 2 million barrels per day, making it Africa’s largest producer of crude.
Crude sales
About 70 percent of government revenue comes from crude sales, while the National Bureau of Statistics says petroleum makes up 69 percent of exports. That reliance on petrodollars puts Nigeria in a vulnerable position when the price plunges, said Dolapo Oni, Ecobank’s head of energy research.
“Oil is basically government’s main source of revenue of running the economy, or running its budget, and that really drives investment into the economy,” Oni said.
President Muhammadu Buhari was elected in 2015 on promises to provide jobs and cut down on corruption. He recently proposed a budget that’s about 25 percent larger than last year and includes numerous investments in infrastructure.
Defer government projects
But Rewane said the price of oil may force the government to defer some of its promised projects.
“If the promises are waiting while the government is spending money on luxuries and ostentation, then there will be a crisis. But if the government is seen to be austere and frugal, and therefore some of these promises are being deferred until our financial condition improves, then you can get away with that,” he said.
The low price of oil may frustrate Buhari’s agenda, but Oni said it could also spur the government to make major changes to the oil industry, including ending fuel subsidies, which critics have decried as wasteful and corrupt, and reforming the state-owned Nigerian National Petroleum Corporation.
Curled from VOA
