As the global oil and gas industry continues to contend with the plunging crude oil prices at the international market, indications have emerged that Nigeria, Venezuela and Saudi Arabia are the biggest losers of the price crash.
The stakeholders at the Centre for Public Policy Alternatives (CPPA), and Nigeria Natural Resource Charter (NNRC) Energy Sector Public Policy forum held in Lagos recently believed that lack of preparations for unforeseen circumstances dragged Nigeria into the critical situation, which Has eaten deep into the national treasury.
Indeed, the stakeholders agreed that the nation needs good leadership that can secure citizens’ trust through accountability.
Former Minister of Petroleum Resources, and Chairman of the NNRC, Odein Ajumogobia, said it is not surprising that there are fluctuations in oil prices now because there had been similar cases since 1979. However, he noted that the current situation highlights the importance of planning.Ajumogobia pointed out that a precautionary measure such as Hedge proposal was considered during his tenure to mitigate the effect of the prevailing situation, but he wondered why it was later turned down.
The former minister lamented that these are not good times for the country on all industry indices, emphasising that Nigeria is not doing well in both upstream and downstream sectors.“There isn’t enough fund in the excess crude account to cushion the domestic effects of the impact, because the importance of saving for a rainy day has been long neglected by the government,” he stated.
The Executive Director, Wangonet Projects, Tunji Lardner, noted that the political economic profile of oil is a missing factor in Nigeria’s macroeconomic analysis, adding that several companies are going out of business in the service sector and the banks may not be able to help due to high interest rates.
Partner at Advisory, Legal Consultants, Gbite Adeniji, said: “We are at the beginning of a major storm. Contractors are beginning to lay off staff. The implications remain that projects will be cut, while the optimism that brought the indigenous companies into the industry are dampening.
Adeniji, a lawyer specialising in oil and gas laws, expressed worry about the rising debt profile of the nation, which he said was accumulating due to poor management of resources.
“Nigeria’s debt rose from $10.4 billion in December 2014 to $11.4 billion by February 2015. Some states are also in debt, Lagos State has the highest debt with about N117billion, while Kogi state has the lowest debt value. These figures draw our attention to the need for stabilization and planning,” he said.
A renowned economist and the Director General of the West African Institute for Financial and Economic Management, Prof. Akpan Ekpo, also noted that the risks would have been foreseen, but for lack of economic coordination especially between the Central Bank of Nigeria and the Ministry of Finance.
According to him, “The government presented a $65 benchmark price for the budget at a time when the price of oil was around $50 per barrel. The practice of neo-liberalism by the government has failed and means that there is need to reform the entire economic system,”
Another analyst, Henry Adigun, said: “Nigeria is a country with so much waste in many aspects of the economy. It is important for individuals to rethink their budgets by being more prudent. Such improved micro-economy can then offer benefits for the larger macro-economy.
The panel however suggested that government should seize this opportunity to cut down on public spending including wage freezes, scaling down government services, and imposing fiscal measures.
However, it was suggested that government should seize the opportunity to increase tax in order to improve the fiscal regime. This may be in the form of simply widening the tax net without nominal increases in the tax code.
The consensus at the panel also includes: Consideration for constitutional reformation and the actual practice of fiscal federalism, as most states are not economically viable; The country must be ready to operate a federal system that encourages stronger units with a weaker center in order to discourage the rentier and welfare mentality; There is the need to take advantage of the current drop in oil prices to diversify the economy.