Even if oil prices were to hit $100 per barrel this year, it won’t be enough to save Nigeria’s ailing economy that faces a record seventh straight year of falling real income or per capita GDP in 2021.
Decades of stagnating oil production and a fast-rising population have caused oil incomes to shrink to a point where to experience another oil price boom Nigeria would need prices at around $200 per barrel.
Nigeria must plan for life after oil and implement policies that can help boost non-oil revenue, because the possibility of another oil boom is waning, despite benign outlook for oil prices.
Oil price rose sharply to an 11-month high of $56 after Saudi Arabia surprised the market when it agreed to unilaterally cut 1 million barrels a day of crude production starting next month, while American multinational investment JPMorgan Chase & Co raised its target 2021 price to $75 from $50 per barrel.
Nonso Obikili, a director at the Turgot Centre for Economics and Policy Research, says the likelihood of another meaningful oil boom for Nigeria is very small, and maybe zero, “So why exactly are we waiting for oil prices to go up for?”
From Obikili’s calculations Nigeria would need oil prices between $150 and $200 to get another 2010s oil boom again.
“Probably not happening. To get another 1980s boom we would need prices at between $400 and $500 per barrel. Definitely not happening,” Obikili states on his blog.
BusinessDay analysis shows an oil price increase from $14 per barrel in 1979 to $35 per barrel in 1981 could mean an oil boom for Nigeria’s 1981 population of 75.4 million people. An oil export revenue of $24.9 billion divided 1981 population (75.4m) leads to an oil revenue per capita of $330. However, a $35 oil price means little or nothing for Nigeria’s current population of over 200 million people.
Further analysis shows a higher oil price increase from $10 per barrel to $147 per barrel in 2008 may be enough for a population of 150.3 million because of $54.9 million oil revenue but insufficient for a population of over 200 million people.
“Despite its huge oil and gas resources, Africa’s biggest economy has been unable to prevent wide swings in its fortunes,” a foreign investor exposed to the Nigeria oil market said.
For most economists, Nigeria remains “Exhibit A” of the so-called resource curse, particularly when you split its oil production across the population.
Despite huge oil reserves, Nigeria has the 19th lowest production per capita among top 20 oil-producing countries in the world; the country produces less than a barrel per 100 people, only China produces lower due to its population of 1.4 billion people.
Saudi Arabia produces about 28 barrels per 100 people, Kuwait produces 60 barrels per 100 people, while UAE produces 32 barrels per 100 people.
Although Nigeria produces the most oil in Africa, it also underperforms against its African peers with regards to per capita production, producing less oil per person than Angola and Algeria.
“Instead of increasing oil production or cut waste and leakages, Nigeria racks up debt to replace oil revenues,” Damilare Asimiyu, head, Research and Strategy at GTI Capital, states.
Nigeria’s total debt stock rose to N32.2 trillion at the end of September 2020, according to official data from the Debt Management Official.
That is 3.9 percent or N1.2 trillion higher than the N31 trillion owed by Africa’s biggest economy as at June 2020, the data show.
“As things stand, there is no rational justification for deploying about 80 percent of our annual national budget on recurrent expenditure, and about 60 percent revenue on debt service,” Asimiyu says.
Other experts say another challenge obstructing Nigerians from reaping the full benefits of the oil boom is cutting the increasing cost of governance, as most experts complained Nigeria’s civil service remains bloated and Nigerian lawmakers still rank among world’s highest paid.
Despite President Muhammadu Buhari’s rhetoric during election campaigns, there has not been a clear attempt to reduce government waste, which will essentially free up more money to plug Nigeria’s infrastructure deficit, a necessity given population growth.
According to a budget document seen by BusinessDay, the office of the president plans to spend a total of N2.42 billion on travels and transport (local and international) in 2021. Refreshments, honorarium and sitting allowance will gulp a massive N189.8 million, while the supply of materials such as office stationery, books, newspaper, magazines, printing and other similar expenses to the State House will cost N480.5 million.
Using Freedom of Information requests and analysis by transparency campaign group Public-Private Development Centre, it would cost an estimate of N18.42 million to build primary health care in Ajah, Eti Osa area of Lagos State.
This implies that the same amount the presidency plans for office stationery/ miscellaneous of N480.5 million will build at least 26 primary health centres across different rural areas in Nigeria.
The absence of the above development among others means about 90 million Nigerians live in extreme poverty, on less than $1.50 a day, the greatest number in any country in the world.
Recall, President Buhari, in June last year, approved the implementation of the report of the Rationalisation and Restructuring of Federal Government Parastatals, Commissions and Agencies, commonly referred to as Oronsaye Committee, which recommended the merger, conversion and scrapping of many agencies.
The committee, inaugurated by former President Goodluck Jonathan in 2011, recommended the scrapping of 102 Federal Government statutory agencies from the present 263, the abolition of 38 agencies, merger of 52 and reversion of 14 to mere departments in some ministries.
Six months after that announcement, the government is yet to take any practical actions, although most analysts say the coming months would show if the government would muster the effrontery to confront the issue of high cost of governance headlong or continue with the old trajectory.
