The Lagos Chamber of Commerce and Industry and a number of economic experts see the plunge in crude oil prices as detrimental to the Nigerian economy.
According to them, the fall in global oil prices pose several risks to the economy and may worsen the already fragile economic landscape if nothing is done to adequately diversify the country’s economy.
Nigeria’s economy is largely dependent on crude oil earnings, a development that has been criticised by experts and various agencies as they often urge the government to strive and diversify the economy away from crude as its major revenue earner.
Commenting on the drop in the price of crude to $60/barrel, which is Nigeria’s benchmark for the 2019 budget, the Director-General, LCCI, Muda Yusuf, told one of our correspondents that this would have serious implications on the country’s economic fundamentals.
Yusuf said, “The Nigerian economy is still largely dependent on oil. Weakening oil price poses a number of risks to the economy. There is a risk to budget implementation which has an oil price benchmark of $60/barrel. There is a risk to our foreign reserves. There is a risk to our exchange rate stability. There is inflation risk. There is the worry about capital flow reversals.
“There is also the concern about the impact on investors’ expectations and confidence. You can see that there is whole lot to worry about.”
The Lead Director, Centre for Social Justice, Eze Onyekpere, said there might be a central challenge in the realisation of the revenue and funding needed to implement the 2019 budget.
This, he noted, was against the backdrop of the revelation by the immediate-past Minister of Finance, Zainab Ahmed, that only 55 per cent of the 2018 revenue projections were realised.
He said, “We are worried that despite the price of crude oil selling above the benchmark price in the last couple of years, we have hardly met the production target of 2.3 million barrels a day.
“The recent disclosure that the country produces less than two million barrels a day falls in line with the trajectory of this challenge. The dominance of oil in the revenue profile as well as the relatively meager revenue expected from the non-oil sector compounds the revenue challenge.”
He said with proceeds from minerals and mining being the solid sector minerals still low, despite overwhelming evidence of massive illegal mining, revenue leakages from operating surpluses of agencies of government as well as non-remittance had yet be fully addressed.
Onyekpere added, “The executive has not taken steps for the review of Petroleum Production Sharing Contracts as recommended in various Nigerian Extractive Industries Transparency Initiative studies.
“This will bring in additional revenue of not less than $1.6bn every year. Also, the Petroleum Industry Bill is stuck in executive legislative bickering and this has stalled reforms in the oil and gas sector which would have increased revenue available from oil and gas extraction.”
A former Director-General, Abuja Chamber of Commerce and Industry, Chijioke Ekechukwu, said the $60 benchmark price was not ambitious.
He said the price was expected to increase with the recent cut in oil production by the Organisation of Petroleum Exporting Countries and non OPEC countries.
The Information Officer in the Budget Office of the Federation, Mr Afolabi Olajuwon, said the drop in oil price was not a source of worry as the price would rebound.
He said, “There is nothing to be worried about the drop in oil price benchmark because the projection is for the whole year. If the price drops at this time, it’s not unusual because that has been the trend in recent times. As the year progress, the price will rebound.”