• Tuesday, March 05, 2024
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BusinessDay

Nigeria bleeds while Middle Eastern oil producers reap $1.3trn price windfall

Nigeria’s oil production woes threaten 2024 budget

These are not happy times for Nigerians and their beleaguered out-going government. At a time when oil-rich Middle Eastern countries are basking in an unprecedented oil windfall in excess of $1.3trn according to the IMF, Nigeria, Africa’s top oil producer is bleeding at a frightening pace. Jihad Azour, IMF director for the Middle East and North Africa told the Financial Times Friday that relative to expectations before the war in Ukraine, Middle East oil and gas exporters, particularly Gulf states, “will see additional cumulative oil revenues of $1.3trn through 2026.”

In contrast, Nigeria’s oil production, as well as revenues, have collapsed to just half at a time it should be rising, the country’s fiscal crisis is worsening with retained revenues unable to meet debt service obligations. The pursuit of a populist petrol subsidy which leaves the government broke plus a soaring inflation are pouring more misery on the poor. Even the rich are afraid because of suggestions in a recent report by the World Bank hinting that some among them should expect to drop into the expanding category of the poor with just one more economic crisis.

Nigerians are unsurprisingly angry as a result of the uncertain future they face. An increasingly number of Nigerians hope to punish the ruling party at the next election, but the government claims it should not be blamed for the rot.

Where did it go so badly wrong for Nigeria? Some analysts trace Nigeria’s downfall to unusually long period of six months that it took President Muhammadu Buhari to appoint his first cabinet in 2015 following his election and it meant that Africa’s most populous nation was without a functioning government to prepare for the approaching economic storm occasioned by falling international prices.

When Buhari finally announced his cabinet, it was mostly underwhelming. Matters were made worse by the failure of the government to mount urgently needed reforms and the pursuit of untested “home-grown” but unorthodox policies by the monetary authorities only helped to compound Nigeria’s vulnerabilities as the recession came down hard. Another economic recession was to follow in rapid succession, leaving Nigerians with no time to recover from the first one. “It was like seeking to drive a car with broken wheel up a hill,” said Mathias Oguike, an economist in Port Harcourt.

Nothing better captures the worsening state of Nigeria’s economy and its fading promise than these figures: the country’s GDP slumped from $546 billion in 2014 to $432 billion as of 2020 while GDP per capita, a measure of the living standard of the people, has collapsed from over $3,000 to only $2,097. Nigeria looks unrecognisable from the country that was forecast in 2015 to be the first African country to hit a GDP of $1 trillion. Today, African peers like South Africa and Egypt are coping better. And while Nigeria’s GDP has been shrinking since 2014, South Africa and Egypt’s GDP have gained 9.6 percent and 31.8 percent respectively in the same period. Most of the damage to the economy was done in the seven years of President Muhammadu Buhari’s administration according to public data.

Read also: One year on, PIA struggles to brighten Nigeria’s oil outlook

The government, however, disagrees. Buhari has always maintained that the governments before his own mismanaged the economy and in a recent Bloomberg interview he claimed that Nigeria was now better than he met it while applauding the highly criticized interventionist monetary policies of his administration. Only last week the chairman of his party, Abdullahi Adamu defended the record of the Buhari administration insisting that Nigerians were only keen to point to the ugly sides of the government while ignoring its triumphs.

In a June 2021 report titled, Nigeria development, resilience through reforms, the World Bank said the Nigerian economy is playing catch up, struggling to get back to the level where it was 12 years ago. According to the report, “by the end of 2021, Nigeria’s GDP is likely to approach its 2010 level, thus reversing a full decade of economic growth. GDP per capita is projected to continue declining because the economy is forecast to grow more slowly than the population.”

Foreign investment flows to the country have dried up as a form of rebuke against the harsh policies of the country’s central bank. Nigeria is so broke that sometimes it does not have the foreign exchange to import petrol. Early this year, the government raised eurobonds to fund the supply of petrol. But the same government insists on continuing with the corrupt petrol subsidy regime.

On July 26, the Nigerian Economic Summit Group, NESG issued a comprehensive communique on the flagging economy in which it said urgent action needed to be taken by the government. According to the communique, “today, the country is stuck in an economic morass. Most macroeconomic indicators are spiralling out of control, inflicting severe hardship on more Nigerians.

Even though the economy continued to recover in the first half of the year, economic growth was dominated by sectors with low contributions to output and weak job-creating capacity, while the oil sector remained in recession for eight consecutive quarters.

Headline inflation is 18.6% according to the National Bureau of Statistics and stands at more than double the Central Bank of Nigeria’s price stability threshold of 9%.” The Nigeria employers consultative group as well as the Lagos chamber of commerce, LCCI have issued similar statements of concern that the government is failing to speed up economic reforms.

When Jim O’Neill, the renowned British economist who coined BRICS, popularised the term ‘MINT’ in 2013, he had high expectations of the group of four countries – Mexico, Indonesia, Nigeria and Turkey.

The four countries were billed to be the next economic giants, thanks to their favourable demographics and resources. The former Goldman Sachs chief economist, O’Neill, travelled to all four countries and described Nigeria at the time as one with “enormous challenges and problems” and a “very complex country but harbours immense opportunities.” Years later, Nigeria that has performed the worst among the group.

Publicly available data show that performance in Africa’s largest economy failed for six years to match its average population growth rate of 2.6 percent. When economic growth fails to match population growth, it means the economy is stalled or regressing and not creating new opportunities to accommodate a fast-rising population and is a sign of worsening poverty levels.

When Buhari became president in 2015, he promised to reform an economy hooked on petrodollars, reduce poverty and create jobs, yet the numbers show Nigeria achieved the exact opposite. GDP per capita declined by 0.02 percent, 4.16 percent and 1.78 percent in 2015, 2016 and 2017, respectively.

In 2018, 2019 and 2020, it declined by 0.68 percent, 0.38 percent and 4.57 percent, a painful squeeze for Nigerians whose average incomes are less than half the $5,000 of South Africans. Of the four presidents who have led Nigeria since it returned to democracy in 1999, Buhari’s tenure holds the worst record in terms of economic growth.