13 December 2014, Lagos – The Director-General, Lagos Chamber of Commerce and Industry, Mr Muda Yusuf has said the sliding oil price is significant and disturbing, adding that it is at its lowest in four years.
Speaking with The Nation, Muda said for an economy that is 95 per cent dependent on oil for its foreign exchange earnings; and 85 per cent dependent for revenue, this development should be a cause for concern.
He said the single most important vulnerability of the economy is its heavy dependence on oil.
“Crude oil market conditions have profound implications for the Nigerian economy. Current trend with oil price pose major downside risks to some key macroeconomic variables and the general economic conditions. The main impact points include: government fiscal operations, naira exchange rate, capital flow reversals, stock market, foreign reserves, inflation, interest rate among others,” he said.
He added that the declining oil price means reduction in revenue inflows, adding that this has implications for the capacity of government at all levels to meet their statutory obligations.
He said: “Most states are over 80 per cent dependent on statutory allocations which make the impact of declining oil price very profound.This is even moreso when the culture of big and profligate spending has been entrenched. Already, some states are having issues with the payment of the salaries of their workers. Many have issues with payment to contractors. Major adjustments in government spending [at all levels] are clearly inevitable.
“The good news in all of these is the likely moderation of cost of fuel importation. This is well known to be a major burden on the finances of the country.The share of the nation’s resources committed to fuel importation and fuel subsidy is horrendous and perhaps scandalous. It is hoped that declining oil price would moderate this cost.”
However, the major way forward to tackle the scenario, according to Muda, is for the government to focus more on the non oil sector.
“The non-oil export sector is likely to profit from current situation, especially where production processes have high local content. Although the capacity of the non-oil export sector is low at the moment. However, there is hope that if the government concentrate on the non oil sector , there will be a boost to the government revenue and the economy,” Muda said.
– The Nation