IT was not
only PUNCH which carried the story on that day
. The GUARDIAN also ran a story on what should have been headlines news of the day.
. The GUARDIAN also ran a story on what should have been headlines news of the day.
It was instead tucked into
the middle pages by the few papers which saw its significance. That was a pity
because no news item deserved more prominence; not even the self-induced and
mutually destructive feud between the Presidency and lawmakers.
Legend has it
that Emperor Nero, AD 37-68, fiddled while Rome was burning under the attack of
the barbarians. Historians of the future might also be writing about a
President and lawmakers who indulged in a selfish power struggle at a time when
crude oil, hitherto the mainstay of our economy was getting set to finally let
the country down totally. Consider the news first. The three biggest economies
and three of our biggest customers – US, China and Japan – have sharply reduced
their demand for Nigerian crude.
The US, in particular, had turned from being
the largest consumer of Nigerian crude to becoming the biggest threat to our
markets in Canada, Europe and Asia. India which once promised to buy more
Nigerian crude and even broached the idea of a crude for dollars swap is also
now cooling off on the idea because, the existing price of crude oil is expected
to decline despite the steps taken by the Organisation of Petroleum Exporting
Countries, OPEC, to reduce global supplies.
That is not all. Crude prices which
climbed to over $55 per barrel early in the year have started
spiraling downwards and might go below the
$44 per barrel used for this
year’s budget estimates.
Unfortunately, the quantity estimates of 2.2 million
barrels per day now increasingly appear as unattainable in 2017. Already,
according to OPEC records which are more reliable than Nigeria’s, January and
February exports from Nigeria were 1.533mpd and 1.526mpd respectively. The
report, released in mid-March estimated that March exports will not be
significantly different from the previous two months.
Thus, in the first
quarter of 2017 the country will experience a 30 per cent shortfall in exports
– the negative variance in revenue would be reduced by the positive price
difference. However, it appears that the positive price difference is about to
disappear while our market share shrinks further.
The cumulative impact of
reduced prices and volume exports, this year and subsequent years will savage
the current year’s budget, render the Medium Term Expenditure Framework, MTEF,
projections misleading and all but scrap the Economic Recovery and Growth
Programme, ERGP just released.
Obviously, even with the best implementation
strategies in the world, budgets and projections based on crude exports ranging
from 2.2m to 2.5m per day would have become mere paper estimates when the
actual exports average 30 per cent less over the periods of the plans – 2017 to
2020.
The dynamic global trends with respect to crude oil, which started under
former President Obama and are now being more aggressively pursued by Donald
Trump aim to punish oil producing countries and unleash America’s vast oil
potentials on the world.
OPEC, once in the driver’s seat with regard to global
crude supply and prices is increasingly becoming irrelevant.
The accord reached
late last year to reduce OPEC supplies was intended to shore up crude prices
which had hovered around $40 per barrel and hurting the economies of the
producers. Predictably, the prices raced up to over $50
per barrel.
Then, unintended consequences took over. Driving the price
of crude up made it possible for US shale oil and marginal producers to get
back in the market. The result is the glut threatening everyone — Nigeria
especially which is the most vulnerable producer in the world. Diversification,
often preached by governments and leaders, but, often ignored by the same
leaders remains a pipe dream and will certainly not occur sufficiently between
now and 2020 to save our economy from further distress if the turmoil in the
global crude market continues. A responsible government, if there is one in
place, should now order its Economic Management Team, EMT, to start preparing
for the likely possibility that the revenue projections from crude oil might
not be met in 2017, just as they were missed in 2016.
That will create a huge
unplanned deficit which will call for major adjustments. As it is, the existing
2017 budget and those for 2018 to 2020 depend heavily on debt financing.
Persistent revenue shortfalls induce more borrowing which increases the debt
burden and debt servicing costs.
Unfortunately, the world does not have
infinitely elastic patience for nations whose leaders cannot be pro-active by
first projecting from the present to the future and taking appropriate steps to
solve problems before they arise. At the moment, all our political leaders are
totally absorbed in the needless and destructive conflict between the Executive
and Legislators.
Nobody is minding the
store. The Presidency and the EMT are apparently not focusing on the dangers
ahead – dangers which could render the 2017 Budget, the MTEF and the ERGP
totally useless. When the repercussions become clear, it will be too late for
remedy this year and perhaps 2018 and the years beyond as well.
0 Comments