Economic prospects of Nigeria and other African oil producing countries of Angola, South Sudan are looking bright with the consistent rise in oil prices over the past few months. Brent crude has witnessed steady rise of more than 90 per cent since November last year. If the high prices are to hold up for longer, these countries are sure to witness rapid economic revival from the impact of prolonged oil slump and COVID-19, which had weakened their fiscal positions, accumulated reserves. This is especially true in respect to Nigeria, runs a deficit budget. The same situation go on in Angola, not to talk of South Sudan. In Nigeria there is need to invest in repairing local refineries, so that subsidy payment does not eat up the gains of the present wind fall. Nigeria is unique because of its production of Bonny Light crude oil, which is used to fly aircraft.it should be refined in Nigeria.
The latest Regional Economic Outlook (REO) from the International Monetary Fund (IMF) had noted in April that oil prices and early vaccine roll-outs support the outlook for many economies. The recent increase in oil prices is sure to boost confidence, supporting non-oil GDP, which was projected to expand by 2.3 per cent in 2021, with an assumption of average Brent prices around $60 a barrel.
With the brent prices crossing $72 in the last week of June, various forecasts suggest that crude prices could cross $100 in 2022. A Bank of America Merrill Lynch (BofA) forecast recently said Brent will now average $68 a barrel in 2021, compared to an earlier estimate of $63 per barrel. BofA sees the Brent price averaging as much as $75 a barrel in 2022, up from a previous forecast of $60 per barrel.
Nigeria and many other oil dependent economies were impacted by long term decline in prices since 2016 that was accentuated by further collapse in demand following the COVID-19 pandemic.
Between mid-2014 and early 2016, the global economy faced one of the largest oil price declines in modern history. The 70 per cent price drop during that period was one of the three biggest declines since World War II.
Booming US shale oil production played a significant role in the collapse of oil prices from mid-2014 to early 2016. Efficiency gains in the sector lowered break-even prices considerably, making US shale oil the de facto marginal cost producer on the international oil market.
Although supply side interventions by the Organisation of Petroleum Exporting Countries (OPEC) led by Saudi Arabia have been able to limit the oil slump with limited success, the longer-term sustainability is largely a function of global demand.
Look beyond cycles
While the global oil majors and most analysts do not see oil heading to a new super cycle, they acknowledge that prices still have room to rise from current levels because of a strong demand rebound and expected tightness in supply. Trends and cycles in oil demand and prices will remain a major driver of the Nigerian economy for a long time, just as for the Gulf region. There is now urgent need to double up on the path of economic diversification.
The long-term demand slump and low oil prices had driven home the need to diversify government income streams triggering deep fiscal and structural reforms in many sub Saharan African economies in recent times. At the local level min Nigeria here, government should take urgent steps as follows.
First, the country should make its bottomless well of resources to back its currency- the Naira at a rate of N50 to the American dollar while it should do its refining locally. Despite all the talks about oil going out of fashion, Bonny light stands its ground for many years to come. This is a great weapon in the hand of the Nigerian government to negotiate its loans. Without Bonny light no aircraft can fly. So Nigeria flies the world and our economists know this! Why not help government with advice?
Two, FG should pour stimulus packages on small businesses and artisans.
Three, the country should stop giving its crude resources away to the West and China in crude form, more or less giving them for free with the present value of the Naira. These people have nothing for Africa. No plan to make Africa rise and China is the worst of them all! So effort should be made to ban timber export forthwith, whoever needs our timber should come establish factory to process it here.
Four, Nigeria government should scale up agriculture and its value-chain, and export processed products. Three, Nigeria government should activate entrepreneurship and infrastructure. Five, the government should involve in massive human capital development to realize President Mohammadu Buhari vision of lifting 100 million people out of poverty.
The revival in the global oil demand and prices is an opportunity for Nigeria, and African oil countries governments, to accelerate their efforts towards further diversification rather than slipping back to the boom bust cycles dictated by oil market volatility.
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