For the first half of this New Year, OPEC is foreseeing many downside risks in oil markets. That is certainly not good news for Nigeria’s economy.
In 2018, the collapse of crude oil prices sparked unpleasant memories of the 2014 and 2015 crash in world oil prices. The Buhari administration found itself in unchartered waters of the vastly polluted Niger Delta creeks. It has continued to struggle to revive the economy amidst dwindling oil revenues compounded by unemployment, poverty and economic sabotage.
Global poverty projections released by The Brookings Institution in 2018, based on data from the World Poverty Clock, has since shown that Nigeria overtook India as home to the largest population of people living in extreme poverty, with over 100 million citizens currently living on less than $2.00 a day compared to India’s 73 million
Based on the world poverty projections, signs of Nigeria’s leadership failures are even more glaring as over 100 million Nigerians are in danger of falling into extreme poverty by 2022. This startling revelation implies that despite being the largest oil producer in Africa, Nigeria is still unable to translate its oil wealth into rising living standards for its growing population.
Nigeria’s predicament began with the OPEC crisis of the early 1970s, which led to significant changes in the world oil market as the price of crude oil skyrocketed from $3.00 per barrel to $12 per barrel in 1974. In the wake of the oil boom, the Iranian revolution of 1979, and subsequently the Iraq-Iran war that began in 1980 both contributed in further increasing the price of crude oil from a $14 per barrel in 1979 to $35 per barrel in 1981.
Analysts say the most provocative policy of the Nigerian government was the dependence on oil resources as a source of foreign exchange earnings to the detriment of agriculture.
However, the collapse of oil prices in 1986 produced severe consequence such as a shift in the global economy that triggered a crash of the stock market, soaring inflation, and high unemployment rate in Nigeria.
By implication, the dependence on oil revenue to finance national development has made the country’s economy highly susceptible to oil price volatility.
Following the decline in oil revenues in 2015, the Buhari administration was forced to seek economic diversification and has identified agriculture as one of its key goals to help address the country’s dependence on food imports.
There has also been significant progress in the Telecoms industry which seems to carry the weight of employment in Nigeria.
A report from the National Bureau of Statistics shows that Nigeria’s economy grew 1.81 percent in the third quarter of 2018. In the quarter under review, Nigeria recorded an average daily oil production of 1.94 million barrels per day, lower than the average daily output of 2.2 million barrels per day.
The oil sector contributed 9.38 percent to real GDP in the third quarter of 2018, while the non-oil sector added 90.62 percent.
The non-oil sector grew by 2.32% during the third quarter, driven mainly by the Telecoms industry, in addition to agriculture, manufacturing, Trade, Transportation and Storage, as well as Professional, Scientific and Technical Services.
Despite the rhetoric on economic diversification, crude oil still accounts for an 81.1 percent share in Nigeria’s total exports.
Perhaps, the growth in the non-oil sector has not translated to improvements in the living standard of Nigerians due to high unemployment rates. For instance, data from the National Bureau of Statistics show that the total number of Nigerians classified as unemployed, meaning they have no job at all or worked less than 20 hours a week, increased from 17.6 million in the fourth quarter of 2017 to 20.9 million in the third quarter of 2018.
Also, the national unemployment rate rose from 18.8 percent in the third quarter of 2017 to 23.1 percent in the third quarter of 2018. When compared against the 87 million Nigerians living on less than $1.90 a day according to The Brookings Institution’s report, the evidence is overwhelming that millions of Nigerians are living in extreme poverty.
However, OPEC Secretary General, Mohammad Barkindo, said before a meeting between the oil cartel and its allies, OPEC+, “amid the hopeful signs, the outlook for the first half of 2021 is very mixed and there are still many downside risks to juggle.”
OPEC+ has been cutting production in an effort to balance supply and demand, the importance of which was highlighted during the coronavirus pandemic, when demand for oil plummeted.
The initial cut of 9.7 million barrels per day (bpd) has already been eased to 7.7 million bpd, and the group are planning a gradual rise of 2 million bpd this year, with 0.5 million bpd increase starting in January.
With continued uncertainty about the outlook for the year, it is unclear if OPEC+ will be able to continue boosting supply, and the organisation plans to meet on a monthly basis to reassess market conditions.
“Curbs on social and economic activity remain in place in a number of countries, and there is concern about the emergence of a pernicious new strain of the virus”, Barkindo says.
OPEC expects global oil demand to be led by developing countries, rising to 95.9 million bpd in 2021, up 5.9 million bpd from 2020. This follows the forecast of global economic growth of 4.4%.