Before the Arab-Israeli War of 1973, there was no hitches with the supplies of crude oil by members of the Organization of Petroleum Exporting Countries (OPEC). OPEC not noted for its pro-Israeli stance was outraged at what it observed as Western support for Israel and thus, flexed its muscle. OPEC unilaterally increased the price of oil by 70 percent to almost $35/barrel and stopped shipments to the USA and Britain.
The effect was pronounced and shifted the balance overnight to oil producing countries. The price rise hurt; it was really painful. The crisis though relatively short-lived pushed many Western economies into recession. That is the way the price of oil fluctuates in the international market. So, Nigeria and other oil producing countries are hurt when there is fluctuation in oil prices.
With global uncertainties arising from the spread of coronavirus, Nigeria’s fiscal worry is reported to worsen, as Bonny Light hits $12/ barrel on 17 April, 2020. While millions of barrels remain unsold. It is very painful. Anytime there is volatility in oil prices in the international arena, experts in the industry and economists have preached that Nigeria must diversify her economy and not rely solely on the proceeds from oil.
Even the untiring former Minister of Finance, Ngozi Okojo-Iweala, and other notable Nigerians have been part of the debate that Nigeria must diversify her economy. In the book Reforming the Unreformable: Lessons from Nigeria, Ngozi Okojo-Iweala says that since the oil-boom of the 1970s, the Nigerian economy has been highly undiversified. The forte of the former minister’s scholarship lies in her argument that “the overwhelming share of exports (96 percent) and government revenues (more than 75 percent) depend on oil.
Today, the world is in ambiguous times bearing in mind the magnitude of uncertainties caused by the COVID-19. Regardless of ambiguities currently experienced, we need to tune our minds around a painful truth in what foreign affairs experts say may be the beginning of a series of cascading crises reverberating throughout the world. What will the world look like post-COVID-19? Some foreign affairs experts say that it is doubtful if the world would be back to anything resembling normal life.
Regardless of ambiguities currently experienced, we need to tune our minds around a painful truth in what foreign affairs experts say may be the beginning of a series of cascading crises reverberating throughout the world. What will the world look like post-COVID-19?
The novel virus is likely to have repercussions on world political trends as we witnessed after World War 2, during and after the Cold War, and post 9/11. The end of the Cold War in the early 1990 ushered in a new world. So, at the end of the COVID – 19 era, one will not be surprised to see a new world order emerge even as major powers find ways and means to manage the current economic and health problems together.
What is important to Nigeria in this trying period is the fluctuating price of oil in the international market. The price of crude oil fell initially, in the international market due to a dispute between Russia and Saudi Arabia in the early part of the year. With coronavirus causing damages to humanity on one side and fallen oil price on the other side, we hope that the world will not be tipped into great depression of the 1930s. If there is great depression, almost all the oil states will be affected negatively.
Even as the dispute between Saudi Arabia and Russia has been resolved, demand for oil has collapsed and may likely not recover immediately. Although some industry experts have predicted that oil may be heading south towards a ridiculously low amount of about US$ 10/barrel. On a more serious note, I sincerely hope that this prediction will not come to pass. We need to consider the negative impact on Nigeria and a few other oil producing countries where the bulk of their revenue is from the sale of oil.
If the prediction comes true, then one should be anticipating political unrest, refugees, and youth restiveness in a scale that has not been seen before. This problem has to do with the coronavirus-or, more specifically, the drop in Asia’s oil consumption that is being driven by the coronavirus outbreak. With depression in the price of oil, long-haul buyers in Asia do not want oil for now because of challenging freight payments and no real need for the barrels since demand has been significantly reduced. For our country, Nigeria, there is little storage space to store the commodity if demand for it is drastically low.
Most scholars of history will recall one of the occasions when the price of oil fell to a ridiculously low level was when the former Soviet Union collapsed in the late 1980s. You may recall that it was Saudi Arabia’s oil policy that triggered the collapse of the former Soviet Socialist Republic. What did Saudi Arabia do in this case? Reports show that in 4 months, Saudi’s extraction rose from two million to 10 million barrels per day and prices plummeted from $32/barrel to $10/barrel. This was a death blow to the former Soviet Union’s economy. And ultimately, the command-style economy of the former Soviet Union crumbled. Saudi Arabia’s economy was also, affected negatively because of low oil prices.
In 2015, there was oil crisis. Then, it was only 5 out of the 46 sectors of Nigeria’s economy that contributed significantly to the nation’s real GDP in the first quarter. In 2015, confirmed reports show agriculture contributing 19.79 percent, trade (20.08 percent), real estate (6.76 percent), and ICT (11.47 percent). Oil and gas which account for (10.61 percent) of GDP contributes about 70 percent of government’s revenue and almost 90 percent of forex earnings. While the remaining sectors of the economy including manufacturing are reported to be weak with a contribution of about 10 percent to forex earnings in Nigeria.
In 2020, the situation has changed. With a growth of 2.1 percent at the beginning of the year, the country’s economy is predicted by the International Monetary Fund (IMF) to contract by 3.4 percent during the remaining part of the year. An inflation rate of 13.3 percent as predicted will push more Nigerians into the unemployment market and this will broaden the poverty spectrum.
In fact, the outbreak of coronavirus has worsened the economic situation of the country as many firms and individuals are in lockdown mode. Despite substantial oil earnings since 1970s, Nigeria in the year 2020 still remain mired in poverty, with high rates of adult illiteracy, maternal and infant mortality. The country was one of those in sub Saharan Africa that was unable to meet the millennium development goals (MDGs).
With COVID-19 penetrating through the globe, Nigeria is likely not going to meet the 169 targets of the 17 components of the Sustainable Development Goals (SDGs) by 2030. Why? Nigeria is highly indebted, infrastructure is poor, power failure is a way of life, health care system is in shambles as we can see, and public educational facilities are an eyesore in most states, etcetera.
The challenge Nigeria will face in the coming years after COVID-19 is how to manage its weak economy and provide for the needs of 200 million people out of which almost 100 million are poor. Economic diversification is inevitable. A successful diversification plan requires political will, commitment and consistent public policies. Above all, federal and state governments must respond to private sector needs if any inroads are to be made with respect to diversification. Thank you!
