Nigeria’s economic future has been dangling in the balance for long. Its current outlook, occasioned by the commodity slump especially in crude oil prices has made its condition even gloomier.
Since resuming office in May last year, President Mohammadu Buhari, has been in a nomadic mode seemingly trying to make Nigeria function again. But no efficient remedy appears to be in sight as all proposed solutions are yet to be implemented.
Oil, Nigeria’s number one terms of trade is in acute decline. To balance its current budget, Nigeria needs crude to sell at about USD 123. But that is not going to happen, at least, not any time soon.
Eighteen nations of the world, including OPEC and non-OPEC members, will meet in Doha on Sunday to discuss a production freeze in other to increase prices. According to a Bloomberg report, these countries have spent $315 billion of their foreign-exchange reserves — about a fifth of their total — since the oil slump started in November 2014.
The same report also revealed that the upshot of petrodollar spend has gone beyond the oil nations and is now affecting international fund managers like Aberdeen Asset Management Plc and global currencies markets.
Nigeria’s Forex market has not been spared either in this regard. Given the diminished state of the NGN against the USD, President Buhari recently signed a currency swap agreement with the Peoples Republic of China. The agreement will allow importers of goods from China to conclude their transactions in the Chinese currency, the Renminbi (Yuan), instead of the dollar.
On the same trip, President Buhari also signed a USD 2 billion to finance his administration’s NGN 6 trillion budget benchmarked at USD 38 pbd for the year.
2016 was predicted to be yet another excruciating year for most of the oil states, according to oil analysts.
So the Doha meeting, aimed at boosting prices was adjudged to be largely cosmetic as countries were already pumping nearly at record levels.
However, as the proposed Doha talks, including the world’s largest crude producers Russia and Saudi Arabia is still under way, Iran, which plans to increase output by about 700,000 barrels a day this year after the lifting of international sanctions in January, has ruled out joining the freeze and will send its OPEC Governor Hossein Kazempour Ardebili in place of its oil minister.
On Friday, oil fell for a third day before major suppliers meet on Sunday in Doha to discuss an output freeze, boosting bonds and sending European stocks lower, with investors wary of potential disappointment from the talks, according to market reports.
At about 1130 GMT, US benchmark West Texas Intermediate (WTI) for delivery in May lost 98 cents to $40.52 per barrel.
Brent North Sea crude for June delivery dived $1.03 to $42.81 a barrel compared with Thursday’s close.
While an agreement to freeze production would help to support oil prices, further gains would be limited as such an outcome is already reflected in the market, analysts believe.
Several other analysts and traders surveyed by Bloomberg were evenly split over whether this weekend’s talks will succeed in capping output, a majority of those who predicted a deal said it would have no impact on actual flows of crude.
So what is in the Doha gathering for Nigeria?
The oil slump started in November 2014 when the Organization of Petroleum Exporting Countries, led by the Saudis, decided to fight for market share — and bury U.S. producers — rather than cut production to support prices as it had done in the past. The policy sent Brent crude, the global oil benchmark, down from an annual average of $111 a barrel in 2013 to an average of just $35 so far this year, according to market report.
But Nigeria has been the worst hit as a look at the above chart shows that Saudi Arabia may not be going cap in hand like Nigeria any time soon. Unfortunately Nigeria previous governments squandered its petrodollars with reckless abandon.
Before now, Nigeria was hopeful on a supply freeze at Doha even if Iran did not join.
In an interview with Reuters, Ibe Kachikwu, Nigeria petroleum minister said: “I expect that we will reach a conclusion on stabilization, stabilize current production as of January.”
Kachikwu foresaw Iran not signing but did not believe that currently, Iran’s entry into the market would create too much of a threat.
However, Saudi Arabia, OPEC top dog and Iran’s regional rival has vowed not to join an output freeze unless Iran does same.
In the end, Nigeria may still need to resort to other means to broaden its revenue bases and make the economy work. Commodities and rent seeking have long defined its past. The part to future can only be paved and walked through if the current administration quit procrastinating and hit the ground running.
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