World economy on the cliffhanger
The global economy has been hit real hard, owing to the COVID-19. Do you still say we must not hold someone accountable? Someone must be held accountable for any catastrophe that afflicts over 3 million people in world nations, kills over 500,000 people, and throws the economies of the nations into irretrievable nosedives. You can […]
The global economy has been hit real hard, owing to the COVID-19. Do you still say we must not hold someone accountable? Someone must be held accountable for any catastrophe that afflicts over 3 million people in world nations, kills over 500,000 people, and throws the economies of the nations into irretrievable nosedives. You can not tell me we must not sue the Chinese. Sure China knows how this coronavirus got out of hand to cause the ongoing havoc of killing people worldwide.
Oil prices fell to minus $3, that is, below zero per barrel for the US already hit by losses of over 2m jobs and over 40 thousand deaths. For Nigeria, it is an unbelievable tragic joke. Like the Hausa proverb, when it is beyond your power, turn it into a joke and make sense out of it. The country entered this week with a nightmarish scenario. There is no joke that can make sense out of that one. Nigeria’s sweet crude the Bonny Light had traded at a little over $20 for June deliveries. The tragedy is that it costs Nigeria $22 to produce its barrel. Thus suddenly, even to a local trader, the goose is no longer laying golden eggs. Does anyone remember the cliche, ‘oil is a wasting asset in the economy, we must diversify’? Well most of us imagined that the oil beneath our earth would finish, and never that we would wake up one day and find that the product is worthless. We thought we had time. Now it has happened. Chai, let me borrow from Dame Patience Goodluck Jonathan. Unfortunately, economic diversification is not an overnight process, and should have began as soon as oil was discovered in the 60s. We can not be seeking diversification today against tomorrow.
This current crash threw a spanner in the works with the 2020 budget projected at an anticipated oil price of $57 per barrel. When the decline became imminent the government was forced to revise the projection downwards to $30 per barrel. Now the price is down to $22.3 and costing Nigeria $22 to extract, and even after that, with no storage capacity, floating tankers are rented each at over $350 per day. It is a mess we are in.
The implications are grave for a hand to mouth economy like Nigeria’s. Without sales, state governments will get hit immediately. Salaries are imperiled since payment is dependent on collection from the statutory revenue allocation itself dependent entirely on the previous month’s earnings from oil sales. All other revenue sources have for long, been made minor. We will thus be lucky to get April salaries, but without a dramatic positive change in the global oil market scenario, salaries for the month of May will be hard to come forth.
Our immediate challenge is what to do with millions of barrels of extracted crude stored on rented storage tankers on the high seas. Alas, now is not the time to wish we had refining capacity. For years we got our knickers in a twist over our moribund local refineries and only talked and “chopped” without taking the needed bold step to refine our crude. We may now have to turn to Dangote whose refinery is almost on stream though not quite. Can Dangote uptake the crude? Or do we now give legality to those clandestine modular refineries that local experts had put up to good use then, though we blew them up? Even if we did that, it is like sticking a finger in the dyke. The dam is all but burst.
While the price war between Russia and Saudi Arabia was raging, Finance Minister Zainab Ahmed announced fiscal measures that slashed the capital budget by 25%. The Nigerian National Petroleum Corporation (NNPC) jettisoned payment of subsidy on refined products, and even if it has not been officially announced, the global recession has swept Nigeria along with it as we stand at a loss what to do about our predicament. Zainab Ahmed had cautiously told Nigerians that the Administration was seeking a total of $6.9bn from multilateral lenders to combat the impact of the coronavirus pandemic, allaying public fears emphatically that this was not an IMF Loan as misunderstood. She announced that “Nigeria does not intend to negotiate or enter into a formal programme with the International Monetary Fund, at this time, or in the foreseeable future.” Shall we use the funds from the multilateral lenders to pay salaries? The lenders will not let that happen.
The situation calls for quick action, even as the government is desperately battling the COVID-19 pandemic. I think the economic think tank should come up with a salvage plan that offers immediate desperate and long term solutions. We need political unity, rallying all our experts around the national flag, no matter the political party affiliation, to offer a roadmap for the onward journey. The time is right for a multipartisan cooperation on ideas.
At the state level, governors need to prepare the minds of their citizens for the coming harsh times. Without doing so, workers’ unrests would disable all efforts to find local solutions such as seeking alternative revenue sources, and engaging mechanisms that ensure that all harvested revenues go into the coffers of the government. Much state local revenue is presently being frittered away and mismanaged.
The global COVID-19 pandemic is taking its toll, on the high and the low without discrimination. All world powers are in panic mode over unemployment arising from closed down factories, grounded airlines and local transportation systems, shut down markets and hotels and every means of livelihood. It is very unfortunate that on one hand, the ordinary folks are being hit hard by the disease of COVID-19, and even harder still on the other hand, by the government policies to contain the pandemic. In order to earn, they risk being infected and devoured by the virus, whereas locked down again, they risk being compromised by hunger. It is a no win situation. To the land compatriots. To the land for food crops.