A shift away from oil

The year 2014 is ending on a rather thorny note for Nigeria. From about the middle of the year, the price of crude oil which the country heavily relies on for its revenue started plummeting at the international market. Oil revenues account for more than 75 percent of the country’s total earnings. The price of Brent crude which Nigeria produces dropped from $115 per barrel (p/b) in June to $68.62 p/b as at end of November.

The sharp drop in the oil price as a result of various factors, including glut in the market by OPEC countries, low demand of the product in international market, and oil boom in China and the US, two heavy buyers, has taken Nigerian government back to the drawing board.

Already, government has scaled down the 2015 budget oil benchmark to $65, below the $77.50 it used in 2014. The calculated reduction in revenue projection for next year is an indication that there will be revenue shortfall in 2015 for government. Nigeria produces about 2.4 million b/d and exports 2.2 million b/d.

The planned cut in spending by government as a result of revenue shortfall and the devaluation of the naira in the face of the dwindling foreign reserves, of course, will have reverberating effect on the economy. Expectedly, the rate of inflation may go slightly high above 8 percent if not controlled effectively.

In the face of all the challenges resulting from the slide in oil price, different sectors will respond in diverse ways. Manufacturers, for instance, may respond with certain measures, such as cutting jobs and raising prices of goods in order to remain in business. And as feared by manufacturers, by charging higher prices for products resulting from higher production costs, there may be a slide in demand for goods.

Next year, it is also expected that some infrastructure projects would suffer setbacks and this would push contractors to reduce workforce.

Even though Ngozi Okonjo-Iweala, minister of finance and coordinating minister of the economy, though, had reassured that Nigeria is not at a crossroads yet, this is certainly the time to checkmate profligacy and begin serious diversification of the economy to obviate further external shocks arising from the dependence on oil.

Economic diversification, in our view, must include mechanisation of the agricultural sector; increasing the tax-to-GDP rate by widening the tax net; deepening of the manufacturing sector, which, for us, must involve a holistic approach to develop all manufacturing sub-sectors that are begging for attention; granting of sectoral waivers rather than to individual companies; and checkmating importation of essential goods without adequate duty payment.

Furthermore, as government considers other sources of funds to keep the economy running, it should at all times tackle ‘leakages’ and embrace prudence in the management of national resources.

Intermittently, Nigeria had battled with the consequences resulting from decline in oil price. This time, there is every tendency that Nigerians will soon forget the shocks and negative impact on the economy the moment the slide in oil price reverses only to begin another round of discussion on diversification whenever there is decline in oil price.

We appear to be going in circles as a nation. This is the time the private sector and stakeholders must put heat on both state and federal governments to develop various non-oil industries as streams of income and sources of employment.

As manufacturers and other key stakeholders have warned, there seems to be no better time than now when all of us in Nigeria will have to look beyond oil, especially with the unpredictability staring the world economy in the face. Narrowing on getting alternative income through agriculture, solid minerals and tourism might be solutions as some countries today rely solely on any of these sectors as the bedrock of their economic survival.