EXPLAINER: Like Saudi Arabia, Nigeria is an oil exporter, but both diverge in their response to the oil price crisis
Long before this present oil price crisis, Saudi Arabia , OPEC’s top oil producer and exporter had signaled the intention to rebalance its economy and to prepare it for an era of less dependence on its vast oil. In a surprise move, the Kingdom announced that it was opening up equity in its oil firm, ARAMCO to the rest of the world and in the process raised $29.4bn in an IPO that is till date the largest in size. The IPO also allowed the country to put a market price of $2trn on its prized asset. Saudi Arabia also launched its Vision 2030 project, a long-term economic vision it hopes to move the country beyond oil.
How does Saudi Arabia compare with Nigeria?
Saudi Arabia, officially the Kingdom of Saudi Arabia, is a country in Western Asia constituting the bulk of the Arabian Peninsula. Nigeria lies at the strategic point in Africa’s gulf of Guinea.
Both are members of the oil producers’ cartel, OPEC. Saudi Arabia produces about 10 million barrels of oil daily while Nigeria’s oil output is a mere two million. Saudi Arabia’s foreign exchange reserve is about $500bn while Nigeria’s is at less than $36bn. While Nigeria’s sovereign investment fund is valued at around $1.5bn, that of Saudi Arabia is $320bn.
Saudi Arabia’s population is estimated at 34 million, that of Nigeria is 200 million. Population growth rate in Saudi Arabia is put at 1.8 per cent per annum while that of Nigeria is almost twice that at 2.7%. In terms of the size of the economies of both countries, Saudi Arabia towers above Nigeria with an annual GDP size of $779bn. Nigeria’s GDP is at $410bn.
How are both countries responding to the oil crisis?
While Saudi Arabia has had an easy ride raising dollar denominated bonds this year, the same cannot be said for Nigeria which hurriedly pulled back from a planned Eurobond issuance in March as cost escalated. The Saudis do not have such worry. At least not yet. In rebuilding its economy, Saudi Arabia is not relying on only its paved path to the international bond market. The country is also taking some hard decisions while Nigeria on the other hand, is dancing on the edges of the full range of economic reforms it must implement. The government says it will no longer pay for petrol subsidy but there has been no clear policy statement regarding this. The announcement that the government will implement the white paper of the Oronsaye committee has now turned out to be nothing more than a smokescreen. The bulk of the recommendations will remain in the cooler. Compare this to the Saudi Kingdom that has announced that it will be suspending the cost of living allowance payment from June 1, while also tripling the VAT rate to 15%.
“These measures are painful but necessary to maintain financial and economic stability over the medium to long term … and to overcome the unprecedented coronavirus crisis with the least damage possible,” said Finance Minister Mohammed al Jadaan.
What the size of Nigeria’s budget hole?
In Nigeria, while there has been cuts to the 2020 budget, there is still a huge fiscal deficit in excess of N4trn which the government hopes to cover by borrowing. Only N160bn of this will come from public asset sale. This oil crisis will be wasted if Nigeria fails to use it as spur for redirecting Africa’s biggest economy towards a more sustainable path by significantly reducing the government’s stranglehold on economic activities in the country.