How Nigeria can survive oil price slump

Oil prices drop

Oil prices drop

Oscarline Onwuemenyi

11 January 2015, Abuja – As the country prepares to face tough economic and fiscal conditions in the advent of the steep decline in the prices of oil in the international market, industry analysts are promulgating urgent actions that need to be taken to, in the immediate, cushion the effects and, ultimately, forestall a long and harrowing slog through the economic wilderness that may be the effect of the oil price slump for the mono-export-based economy.

In his pre-New year address, President Goodluck Jonathan has asked Nigerians to endure the effects of the current drop in global oil prices, saying the nation will survive it.

President Jonathan said the oil price drop is nothing compared to 2008 to 2009 when oil was sold for $40 per barrel. “Of course, if t‎here is a drop in oil price, it will affect us in one way or the other. We tell our people to bear with us. It has happened before in 2008, 2009 that was almost about $40, we survived as a nation.

“This time, by all predictions, it will not even go as low as that, we will surely survive it. The economic team is working very hard to stabilise it and we believe that although there may be temporary inconveniences, it will definitely not bring the economy down” he said.

The President further stated that his government would “seek other avenues, apart from oil, to generate the funds needed to pull through the trying times we expect will come” with the international oil quandary.

Meanwhile, newly-elected President of the Organisation of Petroleum Exporting Countries (OPEC) and Nigeria’s Petroleum Resources Minister, Mrs. Diezani Allison-Maduekwe, has demanded that the country move away from doing business as usual and reformulate its approach to make it more competitive in order to weather the challenges of crude prices slump.

Allison-Maduekwe who noted that Nigeria was in challenging times over the drop in world crude oil prices, was of the view that immediate action was needed to insulate the economy in order not to go the way of some other oil producing countries who are already experiencing the adverse consequences of price fall.

Speaking recently to journalists in Abuja, she said the right indices and parameters must be put in place to attract the right end user markets.

She said: “Nigeria has to be much more competitive at this time and going into the future. We cannot continue to do business as usual. We must ensure that we have the right enabling parameters and indices in this country to attract the right end user markets, end user demand for our products because they are so many other countries that would be competing for those end user markers and to get that end user demand.

“So, we will have to sit down and reformulate our entire approach over the next month or so. In fact, immediately, to ensure that we are in fact at the cutting edge of competitiveness, we make ourselves competitive in the market and we are able to garner and take those end user markets.”

The Minister observed that she was assuming the presidency of OPEC at a challenging time and would work towards stabilizing the price of crude oil as quickly as possible.

She added: “This is a very challenging time as you know for OPEC and for the global crude oil world as a whole. Quite clearly, there has been a battle of wits between certain OPEC countries, the big players and certain non-OPEC countries who are big players in the world crude oil production markets at this time.

“So, it is a challenging time to take over as OPEC President at this time and our prayer of course is that we will be able to stabilize the crude oil prices per barrel over this period because it is critical as many countries both OPEC and non-OPEC countries are suffering immensely.

“Even as we speak, Venezuela has gone into austerity measures and is measuring food because they were completely dependent on oil. Angola, Algeria, Iran are all under duress as is Nigeria because it has affected our budgetary benchmark.

“And even non-OPEC countries like Russia who will not cut production are already seeing a drop in the value of their rubble.”

Other stakeholders have called for the removal of subsidy on oil and gas products, insisting that only in a fully deregulated system can private investors be encouraged to build refineries and invest in the industry.

The General Manager, Corporate Services at the Petroleum Equalisation (Management) Fund, PE(M)F, who spoke in an interview with SweetcrudeReports in Abuja, noted that until the full weight of market forces are unleashed on the system through the removal of subsidy, the petroleum pricing system would continue to be rigged against the ordinary Nigerian.

According to Nnadi, “We all understand the reasons there is a global slump in oil prices, but the Nigerian scenario is not helped by the absence of sufficient local refining, which would have helped to ease the strain on the pockets of commuters. And we cannot have the right environment for investors to come in and build the refineries we need as long as government continues to completely regulate the industry.

He further posited that, “The question consumers need to ask is what is the real cost of importing products into the country. The fact remains that if we had pursued subsidy removal to the end, you will find out that people may end up paying much lower for the petroleum products they consume.

“All the government and promoters of a fully deregulated market need to do is to clearly communicate to the consumers that they stand to gain more when there is vibrant competition in the system,” he added.

Nnadi noted that the creation of the Subsidy Re-Investment Programme (SURE-P) which came as a result of partial removal of subsidy two years ago have seen a lot of physical and social development, but noted that government would surely be able to do more for the economy if subsidy was removed completely.

According to him, “If you remove the whole subsidy, you will see more infrastructural development including better roads for commuters and, thus, less money spent on maintaining vehicles, and government can also invest in numerous other social and welfare issues to improve the quality of life of the average Nigerian.”

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