Source: .com.ng


The slump in oil prices would not have hit Nigeria so hard if the country had sufficiently diversified its economy and created an industrial base for refining its crude locally.

Oil importers from India to China and Morocco, are benefiting from a fall in oil prices, which is cutting into energy costs and giving a boost to their domestic economies.

“The sharp drop in petroleum prices is a huge boon for most African countries, but the continent’s oil-producing countries can expect hard times,” said James Stent, of research firm Good Governance Africa (GGA) in a Nov 26 note.

“Only a few countries on the continent have developed a diverse set of export products. More countries should follow Morocco’s example and create less vulnerable economies.”

Refined petroleum was the most valuable merchandise import in Nigeria in the second quarter of 2014, according to data from the National Bureau of Statistics (NBS).

The country imported N315.68 billion ($1.87 billion) worth of Motor Spirit (gasoline) in the second quarter of 2014.

Oil has fallen into a bear market, fueled by supply gains from U.S production reaching a 30 year high.

Oil-slump

Brent, which peaked around $115 a barrel on June 19, has plunged by 32 percent this year.

Falling crude has more than doubled the share prices of Indian oil refiners such as Bharat Petroleum Corp., and Hindustan Petroleum this year.

The Nigerian Stock Exchange (NSE) main benchmark stock index has sold off by -16.32 percent in the period, as investors dump shares over the falling naira currency and oil.

The oil and gas sector which makes up only 15 percent of GDP contributed 84.5 percent of exports in Q2 2014, the NBS data showed.

Government revenues are equivalent to 25 percent of GDP in South Africa, and 24.5 percent in Morocco but make up only 12.2 percent of Nigeria’s $520 billion economy, with oil taxes equivalent to 75 percent of the revenues.

“Something must be amiss…There is need for structural reforms in Nigeria,” said Ayo Teriba, CEO of research firm, Economic Associates.

“We cannot produce goods for export in absence of rail reforms. Nigeria should refine its oil for the global markets, just like America is doing,” Teriba said.

Not changing the structure of the economy to give an upside to domestic firms when oil prices fall means leaving the country exposed to the unpredictable volatility of prices set in international markets.

The value – added to Africa’s resources happens almost exclusively in the developed world, according to GGA.

“This leads to situations where Nigeria, one of the world’s largest oil producers, cannot satisfy high internal demand…and crippled by an insufficient public power grid, uses fuel to generate private electricity.”

To ease the pressure on the naira and maintain macro – stability, the Central Bank of Nigeria on Tuesday tightened liquidity, hiked reserve requirements for banks and devalued the currency.

The CBN’s moves which might not have been necessary in a more diversified economy, may slow growth in coming quarters, even as Q3 2014 numbers from listed consumer goods companies show the consumer may be getting tapped out.

“There needs to be a short to long term approach to volatility in oil prices,” said Laoye Jaiyeola, supervising director of the Nigerian Economic Summit Group, at Business Days energy conference held in Lagos on Tuesday.

“We need an agenda on reforms. We need to do more privatisation, bring down the cost of governance and eliminate leakages and wastages.”

I love this transformation agenda
Jonathan till 3044

holatin:
I love this transformation agenda
Jonathan till 3044

It's a proposed agenda by economists, not GEJ's agenda.
GEJ's government don't think this way