The Nigerian Political Economy In A Time of Corona Virus, By Bámidélé Adémólá-Olátéjú
Unfortunately, there is no respite because it is a buyer’s market out there. Nigeria’s Bonny light cannot sell because we are demanding higher selling prices than Saudi Arabia and Iraq. Saudi and Iraq are offering generous discounts of between $5-$8 per barrel to buyers. With production cost of $17-$17 per barrel, Nigeria is in a deep hole unless it finds a way to cut production costs.
I expect the beady-eyed to immediately recognise the take-off from Gabriel Garcia Marquez’s profoundly imaginative work of fiction, Love In the Time of Cholera. It is edifying, as the great novel is determined to die for love; indeed it is noble, especially in a time of crisis such as a cholera visitation. It is also possible for the present corona virus pandemic and the accompanying economic crisis not just to reveal the soft underbelly of a dysfunctional society but to trigger off a chain of events that could implode it.
Anxiety ridden Nigerians marvelled at the decisiveness of the president of Ghana, the Oxford educated Nana Akuffo Addo, as he outlined far-reaching responses to the corona virus on Monday. The Ghanaian president virtually put the country on hold in the most stringent measure since military rule. Nigerians applauded, for apart from the valiant efforts of the Lagos State government, the country has not seen such intensity from its own central government. The federal government is clearly not inclined to put in stringent restrictions, including a travel ban. The question is: Why not? It is hardly surprising that people are anxiety ridden in a country with a deficient health infrastructure.
In the last few days, crude oil has shed its value by about 30 per cent, as Nigeria finds itself in the middle of a dog-eat-dog oil price war between Saudi Arabia and Russia, after the Organisation of Petroleum Exporting Countries (OPEC) and its allies failed to extend production cuts, despite weak demand from Europe, occasioned by the COVID-19 outbreak. The fall in oil price could not come at a worse time for Nigeria. The 2020 budget was actually based on 2.18 million barrels of crude oil per day at $57 per barrel before the global spread of corona virus. Last week, the group managing director of the Nigerian National Petroleum Corporation (NNPC), Mele Kyari admitted thus “Due to the coronavirus pandemic, Nigeria has about 50 cargoes of crude oil that have not found landing… this implies that there are no offtakers for them for now due to drop in demand.”
Unfortunately, there is no respite because it is a buyer’s market out there. Nigeria’s Bonny light cannot sell because we are demanding higher selling prices than Saudi Arabia and Iraq. Saudi and Iraq are offering generous discounts of between $5-$8 per barrel to buyers. With production cost of $17-$17 per barrel, Nigeria is in a deep hole unless it finds a way to cut production costs. Even though our own crude oil has better quality than Saudi’s because it is low in sulfur and produces more diesel, jet fuel and petroleum, buyers are buying the cheaper Saudi barrels.
For sometimes now, we have been cushioned by remittances from the Nigerian diaspora. As the DOW plunges to levels never seen since 1987, expect remittances from the Nigerian diaspora to fall sharply because their investment portfolios are hemorrhaging. The question is: If the smart rat has fallen into a trap, what is the implication for the foolish rat?
While struggling to find buyers, things just got worse as freight rates have gone up and the fall in demand is also affecting the Liquefied Natural Gas (LNG) markets, in which Nigeria is a key player. According to Kyari, over 12 LNG cargoes are floating “with no hope of being purchased because there is an abrupt collapse in demand associated with the outbreak of corona virus”. This is the situation Nigeria is in. A recession is inevitable if this pandemic persists till after April and Saudi continues its price war with Russia.
These shocks to the economy highlights the absence of a strategic imperative in every area, including security and the economy. It is painfully obvious that the federal government has no backup budget plan in the face of a crisis. This is patently unacceptable for a mono-crop economy depending on a single resource. There ought to have been an additional budget or two forecasting a collapse in oil prices and basing the budget on $30, even $12 a barrel. This is why we should have developed a British type Government Economic Service, staffed with econometricians, forecasters, scenario planners enabled with supercomputers, decades ago. The tragicomic National Assembly since 1999 has been beating around the bush to establish an American type Congressional Budget Office. There is no succour and direction where it is expected. Giving a patent lack of thought and profound selfishness, Nigerians are not expecting any imaginative response by way of quantitative easing, stimulus and so forth, since the government cannot give what it doesn’t have. We can only shed a tear for the hapless professionals who out of patriotic zeal agreed to serve as the president’s economic advisers. Their reputation, unless they distance themselves from the administration, could soon be in tatters.
For sometimes now, we have been cushioned by remittances from the Nigerian diaspora. As the DOW plunges to levels never seen since 1987, expect remittances from the Nigerian diaspora to fall sharply because their investment portfolios are hemorrhaging. The question is: If the smart rat has fallen into a trap, what is the implication for the foolish rat? We are on our own, as they say. Our earnings cannot sustain the profligate lifestyle we have grown accustomed to. We refused to follow the recommendations and implement the Oronsaye report on the costs of the machinery of government, rein in on corruption and carry out market strengthening reforms. Someday soon, if God is on our side, we will understand that Nigeria sits atop a petard. Shall we rise and sing, “O Lord our help in ages past”.