On a good day, the increases recorded in the price of crude oil in the past week should call for celebration, considering the fact that the 2021 budget was benchmarked on $40 per barrel. Unfortunately, its impact on price of petroleum products at home, especially the highly combustible Petroleum Motor Spirit (PMS) with its accompanying inflammable discourse, policies, politics and public response, may have informed the nervous attitude by both the President Muhammadu Buhari administration and the Nigerian people to this otherwise good development. Chris Paul reports
The drone attack on a Saudi Arabian oil facility, early March, had caused the price of Brent to hit the roof at $71.28 per barrel at the international market, barely a few days after the crucial meeting of the Organisation of Petroleum Exporting Countries (OPEC), and non-OPEC members had resisted pressures to increase output.
Although, the price recoiled to $68.66 at close of that trading day, when it became apparent that the targeted facility had been quickly repaired and restored to resume operations; the price of Nigeria’s Bonny Light also hovered at $67.69 per barrel, indicating that the stress on Nigerian government to generate funds for its 2021 budget, which was based on $40 and 1.8 million barrels per day, mb/d, including Condensate, had been greatly reduced.
But the journey to the consistent upward movement of Crude Oil prices began in earnest this year, early January, when prices rallied around $57 range.
The surge on the January 13 price increase, for instance, came on the heel of the announcement by Saudi Arabia to voluntarily cut its oil production by 1mbpd in February and March above its current quota; and the news of a further fall in the United States’ supply of the commodity to the market, creating an artificial add-on to the cartel’s most recent cut.
Taken into cognizance Nigeria’s economic weaknesses amid the lingering impact of the pandemic, experts were skeptical about probable benefits of the increase on the Nigerian economy.
Tagged “Budget of Economic Recovery and Resilience” and passed into law with a total revenue estimate of N7.99trillion, expected for the 2021 fiscal year, the 2021 appropriation bill is clearly running at a surplus.
At 36.9 per cent higher than the N5.84trillion projected in the 2020 bill, underscoring the projected revenue, is an oil price assumption of US$40/ barrel and production of 1.86mbpd.
At the base of the logistic concerns surrounding the mass deployment of the coronavirus vaccines in the midst of rising number of cases and emergence of new strains, is the risk of another round of lockdowns globally; and the fear that the rising oil prices may cause the country another round of economic crisis.
Minister of Finance, Budget and National Planning, Zainab Ahmed, is obviously holding her breath at this time with the surging prices.
For one, Nigeria recently exited recession and when she should be breathing a sigh of relief, the dreaded downstream issues arising from contentious fuel price increase, hit the downstream with a resurgence of fuel queues across the country with its consequent impact on inflation.
Her modest budget benchmark and damp expectation that the economy will recover to the path of growth early in this year may be heading to an uncertain destination, as the fuel price crisis deepens.
While the Minister of State, Petroleum Resources, Timipre Sylva, is still discussing with the Labour union on an acceptable price to accommodate current realities, the prices of fuel across filling stations in the country are hovering around the over N200 per litre range.
This is most likely going to affect so many other sectors of the economy as Small and Medium Enterprises (SMEs), who may not be able to cope with rising cost of fuel, will be grossly affected. That means many may have to shut down and lay off their workforce; thereby throwing more Nigerians into the unemployment market.
Prices of foodstuffs, transportation, among other products and services will hit the roof and with a highly depleted purchasing power, the capacity of Nigerians to shop for their homes and offices will be further damaged.
Consequently, the retail sector of the economy will suffer incidents of unsold goods, while the service sector will run out of clients.
This picture definitely does not look good for the Finance Minister, who had said with some degree of enthusiasm, last year, “The total aggregate revenue that is projected for the 2021 budget is N7.89trillion and what is unique about the 2021 budget is that we have brought in the budgets of 60 government-owned enterprises.
The actual projection was $40 per barrel and that is the average price that we projected to be for the year. Some of the institutions that are responsible for tracking price of crude oil actually have crude oil price going as far as $50, $52 per barrel. We took the safer path.”
At the time she had taken that path, the current price of the crude oil in the market stood at $37.
The fear at the time was that Nigeria’s persistent economic problems, including rising inflation rate, as well as fall in in the Purchasing Managers Index (PMI) caused by dollars’ scarcity and depression in crude oil prices were likely to ‘stifle’ growth in Africa’s biggest economy.
There were worries that until crude oil prices stabilise above $50 amid falling foreign exchange reserves that continue to add pressure on the Naira, Nigeria may walk on the thin rope of a potentially prolonged foreign exchange shortage.
This is because a protracted forex crisis could mean higher food prices, more borrowing to meet budget demands and difficulty in servicing the country’s debts; and in a country with an “ineffective local manufacturing industry, Nigeria has to depend on importing lots of her needs including food and healthcare resources.
With oil prices dancing around the $60 perimeter, the US$40/bbl Brent price may be standing on a $20-strong ground since the differentials could help in cushioning the economy against shocks that could come from the growing tremor in the ongoing fuel crisis.
Generally, for now, it is healthy for the 2021 budget revenue projections; which is critical to achieving the historic revenue numbers projected in an ambitious budget.
Of great worry, however, are Nigeria’s external conditions expected to impact exchange rate.
The Finance Minister should not place her hopes on the fragile price rise in Crude Oil as one development on the global stage could send the price tumbling down in an instant and with it, all the dreams and castles built around such price hope.
Weakness in oil prices would drag on export receipts and thus foreign exchange earnings. On the other hand, it is important to note that an increase in oil prices will imply an increase in the price of petrol, which may either mean a further upward adjustment in petrol prices or a return to the subsidy regime.
It is a no-brainer that this development should compel the government to go bullish on policies that develop non-oil exports.
This is the time to re-evaluate the punishing multiplicity of taxes that is killing businesses across sectors of the economy.
It is the time to expand and extend the scope of concessions, reasonably and responsibly to strategic and sensitive sectors of the economy; so as to create a more policy-friendly investments and business climate in the country.
This will accelerate local industrialisation which would foster local production of many imported products and significantly help to reduce dependence on imported products; thereby conserving scarce hard currency.
As at last weekend, crude oil prices remained within the over $67 axis; while the global rate of coronavirus stood at 119,752,517, with 2,653,970 deaths.
In Nigeria, the number has spiked, relatively, at over 160,000 cases and 2,009 deaths.
But compared to top COVID-19 countries, her case can be said to be within the tolerable zone.
Meanwhile, the price of fuel at filling stations continues to run around the N200 per liter range for stations that are opened to Nigerians, willing and able to buy at that price.
On the other hand, most of the stations that are shut are the ones ‘honestly’ displaying the N162 per liter sign for the pleasure of the Petroleum Resources Minister but who are selling at the going ‘street’ rate at ungodly hours to ‘unholy’ middlemen; mindless of the misery, their ‘third party price’ would cause helpless, but desperate Nigerian.
These are the figures that will continue to determine the fate of the Nigerian economy domestically and internationally.
How the managers of the oil industry, in particular and the directors of the economy at large, navigate the nation around these parameters would define the fate of the country and her citizens as the heart of the nation beats nervously towards 2023; its defining concourse.