The decision by Organization of Petroleum Exporting Countries (OPEC) to make sure members remain strict on its production quota, are indications that Nigeria’s economic situation will bite harder on the people in 2020 fiscal year as the federal government adjusts to the realities of dwindling oil revenue.
The deal expected to help prop up prices which have been battered by a price war between Saudi Arabia and Russia, and the coronavirus crisis will see Nigeria’s oil production pegged to 1.4 million bpd.
The decision of Nigeria’s new production cut of 1.4 million was arrived based on 23 percent reduction in its October oil production of 1.83 million bpd.
“This does not look like a good deal for Nigeria, We should have negotiated for a 23 percent cut on production of 2.3 million bpd not 1.83 million bpd,” Charles Akinbobola, energy analyst at Lagos based Sofidam Capital said.
Akinbobola said the new OPEC decision will impact the economy adversely considering the economic significance of the commodity.
“You can produce condensate which is not part of the OPEC commitments. We are focusing our production to more gas-based reservoirs so that we can continue to grow our production while maintaining balance in the market,” Group Managing Director, Nigerian National Petroleum Corporation, Mele Kyari was quoted as saying on the sidelines at an event when questioned about cartel commitment.
A combination of higher oil price and higher oil production have often meant Nigeria, Africa’s biggest oil producer, can earn more in foreign exchange and fund its budget deficit. This is because oil accounts for 90 percent of Nigeria’s foreign exchange and 85.6 per cent of Nigeria’s total export.
However, new economic realities have change those expectations as Federal Government cut down the 2020 budget by over N320 billion and proposed a new budget of N10.27 trillion against the N10.59 trillion passed by the national assembly.
In view of the reality in international markets, Nigeria’s Minister of Finance Zainab Ahmed announced a review in the benchmark oil price for the 2020 budget to $30/barrel and oil production to 1.7 mbpd, while also adjusting downwards non-oil revenue projections including various tax and customs receipts, as well as proceeds of privatisation exercises.
To escape the impending doom, Gbolahan Ologunro, analyst at CSL Stockbrokers, suggested governement cut down on their cost of governance by curtailing expenses and reducing wastage in MDAs to free some cash for salary payment.
Ologunro also advised federal government to do more in attracting Foreign Direct Investments (FDI), noting that state governments have very limited options in terms of policy measures they can implement in coping with declining oil revenue.
Analysts also say the coronavirus pandemic has further exposed the gap in the country’s leadership, exposing 60 years of focusing on the wrong priorities to the detriment of health and education.
The country is in deep trouble with dwindling revenue and government officials unaware of where the bottom is. However, there is still an opportunity in the crisis as analysts told BusinessDay that Nigeria must focus on what really matters: health, education, and seize the opportunity or risk huge social disruption.
Despite averaging more than 7percent in the first 14 years of this century, annual growth in Nigeria’s economy, which vies with South Africa as the continent’s largest, hasn’t managed to top 3percent for the past four years.
