opinion: The Implications Of The Plunge Price Of Crude Oil On Nigerian Economy By, Sani Michael Omakoji

About late hour yesterday being 20th April, 2020, we got a sad news that the price of Crude oil has fallen to all time low of $0.37, an amount that is 99% lesser in value compare to cost of break-even.

This news got many of our staff who have knowledge of Economics devastated as they all said that the implications of that on Nigerian Economy in particular spell “economic crisis”.

It was at this point, we put a call through to our indefatigable and most reliable Writer, Sani Michael Omakoji to quickly tell us in his opinion, the implication of this ugly development.

In what he titles, “The Implications Of The Plunge Price Of Crude Oil On Nigerian Economy”, he sent in not just an interesting write up but a revelation of the unfolding scenario.
Let us read him:

“Yesterday being Monday 20th April, 2020 will definitely be a day to remember by Members of “Organization of the Petroleum Exporting Countries” (OPEC ) as crude oil price plunged down to all time low since 1999 to $0.37 representing a negative value that cannot even represent 98.9% of break-even cost of production.

What this negative figure ( $ 0.37) represents in actuality is that, Nigeria and other Nations affected have to pay buyers in excess of value of production for those Nations to buy.

As a business Fellow, is there a sense for a seller who is out to make profit to pay Buyers in excess of the cost of production for buyers to buy?

Before we go any further, it is crucial we mention the member countries affected by this price drop to include: Algeria, Angola, Congo, Ecuador, Equatorial Guinea, Gabon, IR Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela.

However, for the purpose of this write up, we shall limit the implications of this ugly development on Nigerian Economy.

Nigeria is a monoeconomy that focuses on crude oil as its major produce even though is blessed with both natural and human resources that can give a robust diversification.

Sadly, Nigeria has failed over the years to diversify the Economy even with different outcries in form of recommendations from scholars and Economic Observers.

It is heartbroken therefore to state that after several recessions in Nigeria inclusive of that of 1985 to 1986 and the recent one of 2016 to 2017, Nigeria is yet to learn her lesson as to give attention to value chain, diversification, commercialization, and total deregulation of real sectors of Economy.

What this current oil price drop implies on Nigerian Economy at this time of COVID-19 pandemic that the whole world is overwhelmed by its destruction is that, Nigeria is definitely heading into recession since it depends solely on crude oil as a power source of its revenue.

In Economics palace, recession does not come empty handed as is accompanied with negative elements like: low standard of living, starvation, poverty, unemployment, downsizing of workers, inflation, high cost of living, devaluation of currency, low investment, high exchange rate and high interest rate.

Perhaps, the multiplier effects of the above are that: there will be high level of crime rate in the land, high rate of prostitution as people must find a way to survive either legal or illegal, and all forms of social evils as frustration would plunge many into a lot of things that would be definitely anti norms and values.

Having spelt out dangers awaiting Nigeria and Nigerians, let me state here that this impending economic gang mire can be minimized through two possible ways, that is, solution in both in the short term and in the long run:

What Nigeria Must Do In the Short-Run?

According Great Classical Economist, Adams Smith in his book, “Common Wealth of Nation”, he says, “It is an economic decision to save for raining days, but of what value do we save for raining days when in the long-run we are all dead either as a result of hunger or pandemic?”

Similarly, Peter Drucker says, “Time is inelastic as one minute spent today can never be regained tomorrow”: this he means to say that “time is of the essence” and must be spent wisely while we still live.

Having extracted above insights from two great Authors, let me say that the money saved in our foreign reserve for raining days, should be brought out for critical expenditures like ‘salaries and money budgeted for health’ as failure to do so might lead to serious starvation that can bring out substantial death rate.

In addition, while I would not be in a hurry to suggest downsizing of workers as it happened during Structural Adjustment Programme (SAP) in 1985, let me advise that our political appointees have to forfeit their sitting allowance, dressing allowance, newspaper allowance and any other allowance as they have to depend solely on their salaries at this critical time.

Similarly, Civil Servants on grade level 12 to 17 have to take 30% pay cut of their salaries in order to reduce the wage bills on government.

Finally, in the short term, galla night, commissioning, and all forms of government’s functions in the class of ‘social razzmazz’ that attract unnecessary spending should be suspended indefinitely until further notice.

What Nigeria Must Do In The Long Run?

Just like the classical Economists are advocates of the short run, the Developmental Economists believe in tomorrow’s investment. Thus, in their views, I recommend the following:

Nigeria should embark on aggressive diversification that will see the resuscitation of Ajaokuta Steel Company and also encourage the mechanization of Agriculture to give Agric a boost which would definitely generate employment, increase government revenue, increase standard of living, and subsequently lead to economic prosperity.

Nigeria should also move from consuming Nation to manufacturing Nation as no Nation of the world succeeds being a consuming Nation.

The comparative analysis, I, Sani Michael Omakoji did on the studies of Nations recently, uncovered that most acclaimed developed Nations before the world was overwhelmed by COVID-19, are all producing Nations as they manufacture one product or more for both their local markets and international Markets.

Nigeria should also move to discourage brain drain in order to harness its human resource and solve technical problems that might serve as an impediment on the journey of ‘diversification, commercialization and deregulation’.

Conclusively, both the short term and long term recommendations should be considered as one is for immediate palliative measure while the other is to serve as long term solution that would avert such economic crisis arising from the crash of price from one particular product as Nigeria would no longer be a monoeconomy.”

Sani Michael Omakoji
Public Affairs Commentator,
City Centre Abuja- Nigeria

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Culled From: www.ourworldgist.com