Dwindling Crude Oil Price: Implications for the Nigerian Economy ‘=By Salvo Rabia Ishak and Stephane Row A. fer ite rbescment of the Gross Figure 1 Nigerian Rep faoee Domestic Preduet (GDP) in 2018, Nigeria tuned out to be the bigsest[/POpUIAHIOA 165 milion (2013) ‘eonomy in Affca and the 26th worlds = (Geo, While Nigeria revealed a midcle | Liquid Reserves (Remaining) [15.12 baron Darrel (1/4/2016) !ncome ($3,416 per capi), diversified and fist + ee 2,925 thousand b/d (2015) _rowth expected by IME in 2015) the relative uid Reserves/Proauction |i7e yeas Political stability, the diversification of te | biG FR eae) sncouraged optimise iota ete [S86 Reserves (Remaining) _|ao.21 ter (4/4/2078) encouraged optimistic forecasts. ‘The + oceace drow ofoaiaewatcn aes, |; Procuction 4.57 beta (2015) 4 Jumia and the inessble expansion of : eulywood. banking services and [G88 Reserves/Production | 27.7 years tclecommunicton are examples of Niels Sour tagatecerongor¥ en Note Reserves reforproucing ests andrhse underdevelopment and exude technealresaven However, the Atican tion has several ere Vomeniandess NesknesesNigeareninsanatura-resource politcal and governmental organizations nd Libyatasnot led the expected collapse of Sun 906 of Be Soa eam Powel emo olen the pie adc a nde Mia ct Cerigs The of a ony, Wal por Braevstbirimerets The Oxaizatonfthe ania nia paste ate was ‘Sour Sg br i du sctvies provide Petroleum ‘Exporting Counaon (OPEC) Soong Seas oe product wo big Suen i 5 eee etme, rdw ote eine Win pce aeee eed Mtoe of hse ig iteueh with 23 mboed (milion bares pet the conten of the cold wie Preendy, tae REXTSNETED dy) the country still stugeles to leverage ts otbaneation, inde the iflacce ef ae, 1 the production of the trdtional Be porary a aaa mame eMilae | odin, Stu Anbi, verte dere Of serpin Se yo, a a the poverty that affects about $59, of ts heellprice, ‘evolution inthe US has cerilysecelerted ‘Sls ve istetecamimmeandaosyWhlesmedscisderiedopinprce traumas roa net Steal ps Eady Treen awl nd & do Seay w pl ren enon cream era Ta Po Seca aaah sae, Mawson Anaticen sale prauecn to slow down lanoaion het eea oe sehen SSicnan crn cimlaees fm tems of rodition ors snpy a ply and demand pg boo hm potential ‘ducationrinfactricturedetslopment rll he direction ofthe price is increasingly poncrofolland ar And gant ea ALSI11 pec burel ofBomny Lighterde il, tcl time in modem history they ported es han the federal budget was secured with ¢ Reasonsfor the DwtndlingOt Price theirexpors, aiprce tebe ne meatndecncin | Thecaren Alloa mecca beinced MEM oy and 8031 maycrate linger Neeatmmt mutate several cach aught romana 8 cis Oboes oe ans ‘nay create challenges for Nigeria, Through the challenge oisentiythereee ate: ‘mark share while facing the sompetiion oF ce rh the sucrose oli. The werd economy is sgh, After tcorvenionl eis, compen of Somony ritbeaceaeme % Nesiin yeanofintse growth he BRICS wesiowing roduc ea lcs nner a le ‘conomy willbe asersed. down due to the stration oftheir production 8900 in eserves. ls own ol cone Gene Sondre br erechcataping Ss mai pt cfc Sane Spuepeect femme CARN rolnacariety metas Stone cums (ima wseaneny MAOTE cement Siaihetaticneciaae! Geetgrnmstal ven Gravaicy aee tect ichigo iota dimer neal Wiha Sepsis th ne ie yer ee seaman aa Torso US atl predator ew ce ast {ably explained by the inherent inetasticiy of ie The current geopolieal turmoil in Jaq, ont is Sa a dome es jae Sem” Bef eran cu ond ey Spt and onde em ta soc Ti aso ie stat en et op arene (Si, em cl Sons et ‘Stool ty ct pesca nr et era Soc" met eon ed spa located in strategic areas where sountnes or ours of counties have alway tried to secure their influence. Wea the stably of thes ‘gions is ensured, the price rnin relay Stable. However, the upset of he ryioee stability may lead toa deamate change ft rice of oll in the intemational market. Fer _Xampl, the invasion of Kuwait by lag andthe 9-11 tacks are well known histories! events ‘hathad impacts on el piece, Jn additon, since the early 19305 producing ‘counties ave unified their influence nee ‘ures: US Eneray Information Administration and Thomson Reutre, 2015Pye Dwindling Crude Oil Price: Implications for the Nigerian Economy Con fom Page 19 decline because OPEC production was ‘ecinngblancing theneteffec. “The OPEC Influence i decreasing but sullreprsents 40% ofthe market ‘Ata meatng in Vienna on Novembor 270 2014, OPEC, which controls nearly 40% ofthe ‘word oll markt (abut 30 milion barels), Tiled to reach agreement on production cus, sending the price tumbling citing fea of oss of ‘marker share as reaon. Howeve, eure Experts postulate the following reasons to be behind OPEC’ incentives Yornot ating down itsproductin, OPEC tategy fallowing the rice of oil to fall and put high-cost producers. out of business By 80 doing the OPEC is mindful of fhe experince ofthe 1970s, whens big leap the proe prompied huge investments in new fields and altemative. energy Ieaing’ 10 & Gecade-long ght inthe market Moreover, this Strategy may. push many allemative energy produces and hale gas projects invexors into Frninupey as many of them havea breakeven ‘pos of only $70 pe bare. Thus, keeping pice $50 would have a major repereussion onthe Us shale projects and allerative energy reducers, Investment inthe US oil and ght Stotor declined by 37% in 2013 duc 10 lower ‘ride ol pce which one of the major divers ffthe cra oi supply sie i The pon OPEC eourinies may also suffer fiom the curent deision of the organization. Russl, Bral and te United States have Boon competing with OPEC members in the fnteatinal markets, The tent agreement between China and Russia treiened OPEC azeess to the growing markot andthe ‘rzanization is tely to scare the supply of their resources to the Tutu economic champions Lower crude oll price, varying perspectives the case of Nigeria Nigeria has started to feel the negative impact of the fll in global oil price andthe county needs to brace up for tougher Himes fed by reviewing is expenditures and building esonomi Buffers through, budgets basedon modest ol pres. Given the economic consequences of divining il prices t would fur the eure account balance (largely the difference between fur camming, on exports and. spending oo Imports), reduce growth ofthe external reserve (Grom which the Cental Sank of Nigeria spends In suppor of the naira), and by pushing up impor costs (we are an Import dependent conomy) dive up inflation, penalizing the "The following are both direct and indirect impacts on the Nigerian economy. TL Loss of government revenue: The Nigerian federal budget is ated on Conserve estimate of fe world prise of ol ‘The Federal Government sete revenue by a set formula to the states and local government councils, which are. motly Aependent om it because they can raise ite ‘trough local taxes on thei own impoverished tnd-under developed local economics. Under 2011 figutes, 62% the ily average cra production acrued tothe Nigerian goverment (St00earel, 22 mbood, GS30.3 goveramental evens), Due the dwindling pric which go the price o 547% the FGN would be caring (65233 per yar, under the same level of roduion cpa (bi slow dove #00), ‘Risin ovvengsiosof GS pryens imines nao py, the oguaint of 8 of he (orambiques GDP). i Derese in public invoamens: With dccreasing revenues, the. government fas Stared proposing atatety ‘polices 1 the {atonal defense dae ha lead bee ut in 301S;postelacoal asians will acer anne ith ogave inpec the cours ormpetivencs (Niger oad densi 8 /Fo¢ Indi, power genesaonis 3). ih Decline Excess Crude Account ‘Apa fom the federal budget tbe sovereign ‘Wealth fond of Niges wil aio face deceased ageblites 0 support te nnd of the frre {Gernon, Th Nigerian governs cloned {Eat it whdrew GS! tse debe ed fo peroleumprodicts marten Tissdvets he Toes of revenue and scammed deb owed t tothe ava remit of iies om the pevoleumprodect ‘eNela Deelstion: With he fli i priethe Nath maonal ereney of Nicht Wil alo face destensed capebiies to poo the needs ofthe tre generation, The Nigerian soverment dlonre ht wibdrow C3110 ‘Sle das ovedpeslur sods markets wll make thao defend the currency which Toay ace the ports eapay oF country tnd weaken the Blaceof ade since Nigeria’ exports re minyresoucesarven ‘Miniter of Finance, Dx. Ngo Okonjo- Iweala Lower Economic Growth: Sigaifcane Ap inh i pric, cording the Natio! ‘Burotof Stamos (NBS) alate detine fof about Sain the th quer ale ‘merchandise td a 2014 Merve the a “le of merchuadne trade stood wt G$32.1 Furthermore this gue indents «delve of (GSLAS comparedttherevious qua "i. Lower investment appt In order to restore thelr profi, the Inenaonal Ol Compares vill prosesivey delay or canel thet Forsion Diet investment Ths lato? over may pred over te over eeonony de 0 the ove mentioned. fcr For Instance, Ngai may wines delays inthe ‘omplstion of the” S00 000b/d. Dangote Refinery. Andi inpacts areata be assessed Onexitinget de profi ‘ir Reduced Employment: The major iver ofthe Niger ecoomy Te th ol snd gas Sector Lower pie wil slow dows i andes fnveament and aces whereby reduc level of employment in he county do oo dependency of the Nigerian ecomomy I ay Denil vt in jb en erpeily for small {ndignous lend gas companis tat cannot Sstin themselves the periodoflowpiceand ‘illspread dependent ser vi Foreign Renews Deleon: Nis’ focign exchange reurver ft GSMS by Saat 13,2015 dow to20.29 fom GS43.24 ‘yea eae, owing 10 devas by the {da Banco Ngetatn defend theNaiass ‘esultoffilingeradeolprieinthe word This fmpounexmot pay for abe mont of impor With wo ear of frien reserves, Risin i {ready reputed tobe in trol conideing the ‘spundengy level ofthe county on importation ix. Imported Inflations: From the microceonomic. perspective, Nigeria isa finshed good impor dependent economy. With ‘ery lie of angining produced Yo a sigaiicant Gegree domestaly the country ust rely on Importation fore taj of it economic goods, even food. A more expensive dalla rom falling ol pice will mean tore expensive Imports for the merchant The merchant must ‘ow pass on that ded expenae othe conser totrakeven, leading oiation 1 Stock Markst impact: Declining ll price hurts both consumer erenta socks and oe twsed stock. The All-Share Index (ASD in Nigeria which tracks the general market, ‘movement ofall ised equities onthe Exchange, fncluding those listed on the Alternative Securities Market" (ASeM), regardless. of capitlzation ad. significantly dropped in fespoose to the declining ol price. The AST was §307e on Iseh Jane 2014 and aow stood at 28-Feasat 14th January, 2015, ‘Concasion| ‘The current decining oll price hes been aocing nd will continue to affecrtbeNigarian oonomy. The level of dependency of the ‘county is symptomatic of th "resource curse” faced by ‘several major natural resources Producing nations. Although the specialist ‘gre this situation maynot at he fos forthe ration wealth requires policy, soci and economic changes Nigeria expects to Keep ts Poston an the lobal sene and its inluene a Menace, However, onthe postive sie, he dvindling ofthe crude price saat entey aad omen fix Nigeria duc to the existence of sever Structural strengths and underlying bpporunies. The county's dversitiaion may attasastbllizer, supported by cheaper acco ‘sources. The industry. the aricultur and even Teservioe sector nay Benet rom the fl The demography wil support the atonal markst tnd provide outlets to the local suppliers end ‘anufactres. In addin, should ct as 3 ‘leupeall Accelerate the diversification of scooomy and reduce the dependency op oil ‘venue, supporting the emergence of national ‘xportchanpons. 1, Suengten the Nigeria Sovereign Wealis Fund and. save for the fare unforeseen situations, as Norway or Abu Dhabl did inthe pastin diversifying theirinvestment "i Stabilize the governance ofthe country to coffer ‘an attactve environment for Foreign Direct investment Tv. Explore the potential of new energies, captlring on Nigaran ass, such as water, ‘Sun wind "Promote sharod-value model been the NOG andthe 10Cs by encouraging operational ‘excellence, OPEX tnd CAPEX eduction, le Vocal content and. equilibrate “These strengths and opportunites will be invenigted in he nent issue ofthe analysis oF ‘pros impacts onthe Nigerian economy. ‘Salou Rabu Ithok ts a staff of NNPC eat whe Stephene Ressler ith he “Petroteum Counc! (WPC). The article reflec: the authors’ own though andanelts