The oil price rally

For Nigeria, the good times are here again.  Brent crude, equivalent of Nigeria’s Bonny light, touched a new high of US$62.59 on 6 November fueled by turbulence in the Saudi Arabia and increased compliance by OPEC members with self-imposed production cuts. Already, OPEC is talking about the possibility of crude oil prices hitting US$70 per barrel before the end of the year. Monday’s crude oil price is the highest seen since July 2015. Basically, the President Muhammadu Buhari administration is experiencing its highest crude oil price since it came to power in May of 2015.

With the 2018 budget prepared on a crude oil price of US$45 per barrel, the new oil price is beginning to look like a windfall for the Buhari administration that could significantly change the outlook of the 2018 budget. The government could easily see its revenue projections from crude oil double if the current prices are sustained into 2018.

This oil windfall could not have come at a better time for the government. It is just a year before elections. It is the time of life of the administration that it would want to spend to make an impact. This has been largely constrained so far by the revenue challenge due to low oil prices which contributes an average of 70 percent of Nigeria’s revenues in times of high oil prices.

But the high oil prices could also make us easily forget some of the good habits that we have been picking up in the period low oil prices. Cash strapped states have in the last two years been aggressively doing all they can to boost internally generated revenues. Most states have for the first time taken the promotion of agriculture and the tapping of solid minerals in their states as serious business. The federal government has been forced to offer a tax amnesty in order to boost non-oil revenues.

In the facing of rising oil prices and a boost in revenues collectable from monthly FAAC trips to Abuja, it would not be surprising if states return to their lip service commitment to boosting internally generated revenues. The ideal situation would have been for the government to “pretend” that crude prices have remained at US$45 for the rest of 2018 and save every penny of dollar earned above that amount. But we all know that is not going to happen. Governance in Nigeria is all about sharing in good and bad times and it is not going to “change” now.