Should the price of Crude Oil stay around $30 per barrel range as predicted, a whopping sum of $8.63bn may be wiped from Nigeria’s expected earning in six months. Economic experts and Nigeria’s major oil sector unions therefore warned that Nigeria’s economy may slide into another recession.
Amid Saudi Arabia-Russia price war which resulted in global crash of Crude Oil Prices, Goldman Sachs predicted in its recent report, that oil price would stay near $30 per barrel in the next six months.
Goldman Sachs Group Inc is a renowned investment management firm and its crude oil price prediction was released on March 11, 2020.
The crude oil sales make about 90 per cent of foreign exchange earnings in Nigeria. The country’s budget for the year 2020 is based on $57 per barrel benchmark and the nation has already lost over $335.7m after the crude oil price plunged last week, hovering between $30 to $36 per barrel.
The country’s 2020 budget passed in December last year was calculated on crude production of 2.18 million barrels a day at a price of $57 per barrel. At 2.18 million barrels per day and a cost of $57 per barrel, as captured in the 2020 budget, Nigeria earned about $124.26m daily.
But the nation’s crude oil earnings have plummeted to about $76.3m daily, following the latest drop in oil price.
Findings showed that the difference between the projected earnings ($124.26m per day) and the actual earnings ($76.3m daily) was $47.96m. This implies that the country is losing about $47.96m daily since the recent crash in crude oil prices, representing $335.7m in the last one week.
The country is therefore, set to lose a whopping $8.63bn in six months time, going by Goldman Sachs’ prediction that crude oil would trade for near $30 per barrel in the next six months.
With an economic growth around two per cent, experts noted Nigeria was still struggling to shake off the effects of the 2016 recession, which was caused by the oil price collapse of 2014. According to them, if nothing significant is done to shore up the revenue following the current crash in crude oil prices, another recession is definitely imminent.
The National Public Relations Officer, Petroleum and Natural Gas Senior Staff Association of Nigeria, Fortune Obi, stated emphatically that the nation is heading towards another recession.
“Anybody who is telling you that we are not heading towards another recession is lying. Right now, crude oil supply is in surplus and demand is minimal,” He said.
To save the economy from sliding into another recession, Obi suggested that the Federal Government should consider stoppage of petrol subsidy and full deregulation of the oil sector in order to increase competition, create jobs and boost the economy.
He said, “What is good for us as a people now is for us to disengage fully from that particular aspect of subsidising petrol so that when the crude oil market is experiencing a rebound, people will absorb the shock.”
Obi further called for a full deregulation of the oil sector in order to increase competition, create jobs and boost the economy.
The General Secretary, Nigeria Union of Petroleum and Natural Gas workers, Afolabi Olawale, is also of the opinion that the government should fully deregulate the oil sector so as to effectively halt the subsidy regime whether crude oil prices rebound or not.
He said, “We are praying that the country will not go into another recession. Right now, the issue is about how the economy will survive. The concern of all of us in the union is about how the nation will survive.”
On the other hand, the Director-General, Lagos Chamber of Commerce and Industry, Dr Muda Yusuf, observed that no analyst foresaw the current crude price plunge, adding that it was unhealthy for an economy to be too dependent on primary commodities.
“What is best at this time is to conceive of a Nigerian economy without oil revenue and construct an economic management model based on that premise,” he stated.
“It is instructive that a review of the 2020 budget is being contemplated. This is inevitable given the collapse of the underlying assumptions of the budget.” Yusuf added. He, however, noted that beyond the budget, there were other dislocations that would result from the current oil price shock, such as weakening of investors’ confidence, generation of speculative pressures on the currency and depreciation of the naira exchange rate.
Yusuf suggested that urgent steps should be taken through appropriate policy choices to attract equity in domestic and foreign private sector capital for infrastructure financing. He also called for urgent measures to reduce the production costs for oil producing companies to make the sector more competitive.
“The government needs to look beyond tax credit in its quest for complementary funding sources for infrastructure. We should be looking more in the direction of equity financing,” he stated.