How Oil Crisis Can Destroy Nigeria

How Oil Crisis Can Destroy Nigeria

Nigeria is one of the largest oil producers in Africa and one of the world’s leading exporters. Oil makes up to 83 percent of the Nigerian exports. And now when oil prices are still falling, Nigeria and Nigerians risk to suffer the biggest crisis. Here are some consequences...

The global oil prices has plunged more than a third since June. The national government states that the budget plan for 2015 to 2017 will be based on an oil price of $65 a barrel. That means that the wheels have begun to come off Nigeria’s economy.

1. Naira fall

Oil exports are providing the  most important source of Nigeria’s foreign exchange. It means that collapse in oil prices leads to the same in Nigeria’s foreign exchange. On November 25 The Central Bank of Nigeria (CBN) announced the devaluation of the naira, with the new exchange officially at N168 to a dollar.

READ ALSO: Naira Devaluation: Effects for Nigeria and Nigerians 

Besides, foreign exchange rates also influence capital flows - investment funds that move into and out of a country. It should be noted that if oil prices continue to fall  Nigerian economy  will become less attractive to foreign investors.

 2. Raising national debts

If oil price remains depressed, Nigeria will have to borrow more to balance its oil revenue-dependent budget. Currently the country’s external indebtedness is low at $6.67 billion. If government revenues fall from a plummeting global oil price, further debt accumulation could become unavoidable.

READ ALSO: Federal Government Set To Return Fuel Subsidy 

According to the  Senate  President, David Mark,  the government   plans to reduce fuel subsidies next year to N458.6 billion   from N971.1 billion , citing a revised 2015 Medium Term Expenditure Framework and Fiscal Strategy Paper submitted by  President Jonathan.

READ ALSO: Federal Government Spends Up To N600bn On Fuel Subsidy 

3. Emty national reserves

Nigeria’s Excess Crude Account as well as Sovereign Wealth Fund and other savings schemes are all funded by oil revenues. If oil price falls, funds will dry and so too will the country’s ability to withstand shocks. Although Nigeria has $4.1 billion in its excess crude account – money kept for such oil price shocks – it is still a little far off the World Bank advised sum of $6.3 billion. But some fears exist. If oil price perpetually falls, the government’s saving-ability could become weakened.

READ ALSO: EXCLUSIVE: Jonathan, Others Guilty Of Diverting N8 Trln Oil Funds 

4. Sectoral crisis

According to the estimates, 75 percent of the Nigerian government’s revenue comes from taxes on the oil and gas sector, and while oil is part of the 14 percent that resources contribute to Nigeria’s rebased GDP, much of the fast growing sectors- Manufacturing Agriculture, Real Estate and others, leverage on the country’s huge oil invoice.

All these parts of a big oil problem can do a critical harm to Nigeria. The only thing we can hope for is a better scenario.


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