The price of Brent crude was trending $32 to $34 on Friday, which is a significant hit for oil-dependent Nigeria that has failed to diversify its economy and sources of revenue.
With Coronavirus and the price war between Saudi Arabia and Russia, crude oil price is seen falling further.
S&P 500, known as the stock market index that tracks the stocks of 500 large-cap U.S companies, has shed 13 percent since the start of the year, with Goldman Sachs last Tuesday cutting its midyear forecast for S&P 500 on the back of a further fall in the market index.
The Dow Jones Industrial Average, an index that tracks 30 large publicly-owned companies trading on the New York Stock Exchange (NYSE) and the NASDA, is also not left out as the index has shed over 16 percent year –to-date. The Nigerian Stock Exchange is taking a new dimension of heat.
Nigeria depends on crude oil for over 90 percent its foreign exchange and more than 70 percent of revenue.
Africa’s largest oil producer is already struggling to sell over 50 of its oil export cargoes already exported, according to statement by Mele Kyari, group managing director(GMD) of state-owned oil company, the Nigerian National Petroleum Corporation (NNPC). This could be attributed to glut and low demand in the international market, owing to low purchases by China which is battling Coronavirus.
The Nigerian manufacturers who are exposed to foreign exchange will be hurt by the situation.
And this includes pharmaceutical companies, chemical firms, flour millers, sugar producers and other critical sectors that need dollars to import inputs.
The last time a similar thing happened in 2015/16, more than 200 firms shut down.
In August 2016, the Manufacturers Association of Nigeria (MAN) and the NOI Polls reported that 222 small-scale businesses closed shops, leading to 180,000 job losses. This did not include 54 manufacturing firms that went under.
“Many manufacturers and service providers in the country are already experiencing acute shortage of raw materials and intermediate inputs,” Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI), said in a recent statement. “This has implications for capacity utilisation, employment generation [and retention] and adequacy of products’ supply to the domestic market. There is also an implication for inflation,” he further said.
Yusuf said with the current scenario of tumbling oil price, a drastic reduction in the revenue of government had become inevitable in the near time.
“This has implications for the level of fiscal deficit in the budget; budget implementation will be constrained; infrastructure financing will be affected; borrowing may increase, and the capacity to fund capital projects will be severely constricted,” he said.
“With this scenario, the outlook for oil dependent economies looks rather gloomy.”
ODINAKA ANUDU
