it should not be about oil alone

“Why didn’t I come when the treasury was full? Oil price was over $140 per barrel and when I came, it slipped down to $30. Why me?”

President Buhari…. February 2016

Interesting statement to come from any leader, first of all he is playing the victim…. but that is immaterial, the real topic I want to focus on is the fixation of the political class on crude oil.

Lets break down that statement,

first is “why didn’t I come when the treasury was full? “

the treasury was “full”, the treasury in May 2015 held about $30b, with savings of $1.75b…. however, what is “full”? we did PTF with reserves at $1.6b. Only from 2004 did the reserves of Nigeria exceed $11m…. Yes, Eleven Million USD

what about $30 oil?

From 1960 to 1973, oil prices were below $3…. yes, three dollars, by 1968, Nigeria had built the second mainland bridge….and the first refinery .

from 1960 to 2004, the price of oil was below $40, yet during this period Nigeria built Tin Can and the Central Business District in Abuja, University of Nigeria, the Ikot Abasi Aluminum Smelter, the International airport in Abuja, and the NLNG…. throw in hosting All Africa games and FIFA World Championships….etc

So the issue is not how full the treasury is or how much the price of oil is, we have shown that above.

What has happened is that crude oil from 2005 broke to the $50 price and kept going up, and what was supposed to be a windfall price became a “normal” price.

The politicians actually began to believe that oil prices could never fall, …so much so the House of Representatives in 2014 posited that “within this decade oil prices should always hover around $125 a barrel” …… this explains why that are amazed by $30 oil.
Thus the nation is caught in a significant trauma on the news of falling oil with the cry led by the politicians, …

As oil fell, the new Government held its first National Economic Council of States Meeting in 2015, what were the highlights? Probe NNPC, review Excess Crude etc etc, oil oil oil…no mention of agriculture, mining or even Nollywood (services)

The Federal and States do not discuss diversification and agriculture when oil price is high, only when its low. In effect, diversification is NOT discussed to create jobs or broaden the base of the economy, the government wants to diversify because the oil income has fallen, and they seek to replace lost cash.

So every day you hear he President, Governors and Legislators lament the fall in oil prices…. spreading a false sense of doom, because they can’t imagine governing with $30 oil prices, they seem unsure of what to do, for example scrapping then allowing domiciliary accounts in commercial banks in less than 6 months.

This fear of $30 oil has infected the stock markets, if you plot the stock market performance to the oil prices, its correlation is incredible positive, as oil falls the stock market falls. This is interesting, it shows investors link the economic fortune of Nigeria to oil prices.

Let’s be clear, a fall in oil price is indeed a fiscal tragedy, it’s a loss of revenues, but my grouse is the reaction (or lack of) to the fall not the fall itself. The IMF has said they hope our response specifically the exchange policy response should be “sensible” …. which implies the current exchange rate policy is not….

Again I have to repeat, from 1960 when Nigeria was created oil only exceeded $40 from 2004….so it’s possible to have an economy and grow that economy with $30 oil…no excuses….

There will be arguments that Nigeria today has a higher cost than 2004, ok, so reduce the cost…. there will be arguments that the population has expanded beyond 2004, ok but that greater population means more can pay taxes, tax them…but we can’t moan over $30 oil…. Mba!

$30 oil has many advantages and opportunities

1. No more spending on subsidies, VP Osibanjo said in Davos this is a saving of $5B by not paying petrol subsidies. how can we deploy this $5b “saving”? certainly no to pay salaries. Perhaps we can consider zero interest loans for farmers, or subsidies on rent for startups or low cost housing. Wherever we do, it must translate to a stimulative, multiplier effect that leads to the creation of jobs.
2. Low oil should make us focus on our gas. we mostly flare natural gas; the solution to gas flaring should not be punitive taxes. Give the gas away for “free” to investors that will relocate to Nigeria build factories that will use our gas and employ Nigerians. Ok “Free” for 15 years…far better than fines.
3. The FGN responsibilities will necessarily have to recede, we can’t fund a massive bureaucracy with $30 a barrel oil, so get the FGN out of land allocation and ownership…scrap that Land Use Act, get the FGN out of railways and port management. However, the real culprit is the huge recurrent cost. We are spending the entire revenue Nigeria will generate in 2016 on paying salaries and allowances of federal employees, then we borrow to build schools…. not good.

Finally, what is important is the executives at federal and state must communicate optimism. There is a $25b infrastructure fund being packaged, my “sauces” say fund raising is going well with solid commitments from the Middle East.

With this fund, the government can spend massively on infrastructure, creating jobs and reflating the economy, that’s a spend of N5t alone…. massive!

communicate that, get the optimism back to the economy, talk up Nigeria, focus on the positives.

It’s our problem, we can fix it…
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