- Calls for risk mitigation
The proposed ban on the use of petrol and diesel-powered vehicles in the coming years by some buyers of Nigerian crude oil, including China and The Netherlands, among others, will have severe impact on the country’s economy, a report by Financial Derivatives Company (FDC) has said.
However, FDC, in its latest monthly economic outlook report, advised Nigeria’s leaders/policymakers to brace up for the challenge posed by the planned ban by the major oil buyers.
Some countries have proposed to phase out the use of petrol and diesel-powered vehicles between 2020 and 2035, and replace them with electric or hydrogen-based cars as part of the agreement to solve the climate change challenge in the world.
The United Kingdom has disclosed its intention to phase out the sale of new petrol and diesel vehicles by 2035, five years earlier than initially planned.
This, according to FDC, will leave the consumer with the choice of either an electric or a hydrogen-based car, adding that the move was enacted to fight the climate crisis and reduce carbon emissions to zero by 2050.
It noted that other countries that intend to ban petrol cars include Denmark – 2030, Germany – 2030, Ireland – 2030, with many more having similar goals.
It stated that of the top 10 importers of Nigeria’s crude oil, two countries (Netherlands and China) planned to ban diesel and petrol cars.
The report said: “More so, at least one state in eight of the top 10 countries signed the fossil-fuel-free street declaration, which is committed to banning emitting vehicles by 2030. This indicates that in no time more countries will be committed to the movement.
“Nigeria needs to brace up for the impact of a gasoline and diesel ban. For a country whose revenue is mostly dependent on oil and its budget hinged on higher oil production and prices, the impact will be significant.
“Currently, global oil prices are affected by the coronavirus outbreak, which is denting demand and the price war between Saudi Arabia and Russia.”
FDC recalled that the price of the global benchmark, Brent crude, sank to about $33 per barrel on March 9 – the lowest level since early 2016, when the official naira rate was last devalued and Nigeria slid into recession.
The price of Brent later slumped to 17-year low of $24 per barrel before it recovered to $27 as at yesterday.
It explained that the immediate impact of the drop in price was a depreciation of the currency to N368/$ and further to N420/$ before recovering to N368/$ at the parallel market.
FDC warned that if the price war between Saudi Arabia and Russia continues and the outbreak of the COVID-19 bites deeper, Nigeria’s revenue and foreign exchange earnings would decline.
It said the above scenarios indicated that the Nigerian economy was only as stable as the global price of its main export – crude oil.
It forecast that in the coming years, a drop in demand owing to the ban on petrol and diesel vehicles would be a double blow to Nigeria, resulting in cutbacks of government activity due to shortage of funds, increased deficits, higher debt from borrowing, currency depreciation, depleted reserves and an economic slowdown or even a recession.