• Monday, July 22, 2024
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BusinessDay

As the price of oil continue to crash

oil-decline

That oil is a cyclical commodity is not in doubt and its price continues to rise and fall, sometimes very drastically in tune with global socio-economic realities. It therefore means that nations cannot afford to rely on the rents from the sale of commodities for national revenue and expenditure planning. Despite this obvious fact however, Nigeria has continued to rely almost exclusively on rents from the sale of crude oil for its revenues and budget, as if the price were constant.

But even in cases where countries are forced to rely exclusively on revenues from the sale of commodities, such countries are wise enough to set aside a large chunk of such revenues as buffers bearing in mind the boom and burst nature of commodity prices. Such buffer funds could then be used to cushion the effects of plummeting prices in periods of burst.

But in the case of Nigeria, it is so addicted to revenues from oil and so extravagant is its spending that it has no appetite for savings even when prices are sky high. Such is the nature of our spending culture the 36 state governors consistently opposed plans by successive federal government to save even meagre sums from the high revenues as buffers. As Nigerian state governors under the last dispensation consistently argued, “how could we be saving for the future when we clearly have need for the money today?” It is on record that they pilloried the Jonathan administration for daring to save a fraction of the oil revenues and went to court to oppose such actions, which they described as running contrary to the provisions of the constitution which provides that all federally collected revenues be shared among the three tiers of government.

Little wonder then that the moment the prices of oil began to fall in 2014, Nigeria economic fundamentals began to shake. Also, almost immediately, about 27 of Nigeria’s 36 states became bankrupt and were unable to pay their worker’s salaries, some, for upwards of ten months. These states were about to crumble and were only saved by a federal bailout in June of 2015. However, as some state governors have since revealed, the bailout funds have run out but their situation is yet to improve. Unfortunately however, with oil prices plummeting to below $30 per barrel, even the federal government is cash-strapped and unable to fund its budget not to talk of having the ability to further bail out states.

But the problem of Nigerian states is quite obvious. They were largely created as conduits for the dissemination of federal resources to the diverse ethnic and cultural formations in the country and not as economically viable units as is the case world-wide. Hence, they rely almost exclusively on proceeds from the sale of crude oil to finance their governments.

This is time for Nigeria to begin to think of ways of surviving outside revenues from oil. A starting point can be an aggressive move by each state to fully exploit mineral resources in its locale. That each of Nigeria’s 36 states is richly blessed with abundant natural resources in not in doubt. Not too long ago a national newspaper in its cover page posted an interesting story capturing the huge natural endowments in each of the 36 states of the federation and the Federal Capital Territory (FCT).  What is needed is the political will to look beyond the “now syndrome” and focus on the development and systematic exploitation of such minerals. There is no alternative to the diversification of the country’s economy. Such a richly blessed and diverse nation cannot continue to rely exclusively on rents from oil for survival.

We urge the government to seize the opportunity presented by this current financial challenge to fashion out ways by which the country could rise above its dependence on oil and launch itself on a path of sustainable economic growth and development.