OPEC Decision On Price Cut And Its Effects On Nigeria Economy

JEREMIAH BABALEYE

The announcement came in last week Thursday that Nigeria’s daily oil production capacity for the rest of the year will significantly be below the revised volume of about 1.7 million barrels contained in the proposed amended 2020 Appropriation Act.

Based on the economic impact of the Coronavirus pandemic, the Nigerian Government announced a N320 billion cut in its 2020 budget, to about N10.27 trillion against the N10.59 trillion earlier passed by the National Assembly and signed into law by President Muhammadu Buhari.

With the revised budgetary proposal, the crude oil price benchmark was reduced from the previous $57 per barrel to $30, while daily oil production volume was sliced from 2.18 million barrels to 1.70 million.

This decision was made in line with the recommendations of the  Organization of Petroleum Exporting Countries (OPEC) and its major allies to cut their crude production by an extra 500,000 barrels a day and there is no doubts that this will have major implication on Nigeria.

OPEC had reached a preliminary agreement on Thursday after talks went into the night, but the decision had to be rubber-stamped on Friday by the wider group of countries that have been involved in an oil alliance since 2016.

The OPEC decision on Oil Cut and its effect on the Nigerian Economy.

Firstly, it is no longer news that Nigeria is the largest exporter of Crude Oil in the African Continent and the income made from this exportation contributes over 70 Percent of the nation’s IGR.

This cut in price will give the Government tough times in implementing the 2020 Budget as proposed earlier. Already, the Federal Government projected N3.3 trillion as the revenue proposed to be derived from the oil exportation this year and this money has been projected to finance majority of the proposed budget, so this cut in price will directly have an effect on implementing the budget.

Furthermore, this cut in price and drop in value of the oil price in the International Market will a bit reduce our influence and value on the international scene as a nation.

Nigeria is being praised as the largest exporter of crude oil from the Africa Continent, a gradual decrease in the value of this oil will mean a reduction in our value as a nation also.

Not forgetting that this decision on the price cut by OPEC is a result of altercation of World Powers (Russia and Saudi Arabia) with the intervention of the President of the USA (Donald Trump) and it was due to this intervention that led to the cut in price, then it is apparent that the oil terrain is no longer safe for a growing country like Nigeria as we would not like to be just like pawns in a chess game as it stands now.

It is also obvious that the Organization of Petroleum Exporting Countries (OPEC) is being majorly controlled by the East Countries (comprising Saudi Arabia, Qatar etc) as they are majorly the decision makers leaving little or no space for the opinions of countries such as ours. It is high time our leaders in Nigeria started seeing this side of the table and start taking proactive steps to step up our games in International Relations with this other countries.

Positive effects on the Economy

However, having stated the above, it is plausible to also argue the other way round by assessing the positive implications the cut would have on Nigerian economy.

1. It will serve as a wake-up call to our leaders and policy makers on the need to greatly diversify our nation’s E because as it stands today, we are over dependent on crude-oil exportation to finance our economy. It is high time we looked less into the Oil and Gas and look at other sectors of our economy such as the Agriculture Sector, FinTech Sector, Textiles Industry, Coal and other vital natural resources embedded in our soil.

In Ondo State alone, we have several mineral resources such as bitumen, quartz sand, Clay, Granite, Limestone, Talc, Kaolin, Coal, Columbine, Rock, Tin, River, Mineral deposits, Bitumen, which is the 2nd largest in the world, Ocean fronts and the largest coastline in Nigeria, and all these raw materials if developed and invested in will lead to a boom for us as country. Although it may take time, expertise and resilience but it will surely be worth it.

We read in our histories that during the Post Colonial times  before Crude Oil was discovered in Oloibiri , each Region of the nation then had substantial means of Income and Sustenance through Agriculture and Exploration of Mineral Resources. The West then had Cocoa as a lucrative means of sustaining their economy while the North had groundnuts which they produced massively and even built pyramids with it, the East equally explored the Coal embedded in their towns and they made income with it. The revenues that were made from these sectors of the economy were used to build schools that were free especially in the West as led by Pa Jeremiah Obafemi Awolowo, the first skyscraper in Nigeria (The Cocoa House) was also built with this money, the East and West also used the revenues to build the great cities that they have today in Kano and Enugu. Life was indeed good at that time.

I think it is high time we revisited this neglected sectors of our economy and focus less on the Crude Oil.

Basically, whether we like it or not, The Crude Oil is going to go down in value in coming years internationally as the mass production of Electric Vehicles are being championed by people, not forgetting the diverse campaigns by environmentalists, who are concerned about the havoc caused on the EcoSystem by the various gas emissions from the use of the Oil and Gas.

Flowing from the exposition lucidly given above, it is very plain and unequivocal that the impact of the cuts of crude oil exportation on our economy is of two folds: both the negative and the positive.

– Jeremiah Babalaye writes from Lagos.