The outbreak of Covid-19 in far way China has gradually made inroads to other parts of the world, including Europe, United States and Africa. The infectious disease which has been classified as a pandemic by the World Health Organisation has taken a negative toll on the global economy with Nigeria taken a big hit.
Worse hit is the oil sector as Nigeria currently depends on about 70 per cent of its revenue from oil and about 95 per cent of foreign exchange earnings. Regrettably, the outbreak of Covid-19 has forced oil prices to an all time low of about $23 per barrel.
Unfortunately, the development has made the implementation of the N10.6 trillion 2020 budget unrealistic stemming from the fact that a large chuck of the revenue earnings are predicated on the price of oil which benchmarked a price of $57 per barrel and a daily production of 2.2 million barrels per day(bpd).
With the above figures, there is no gain saying the fact that the economy is under severe threat as the country may find it difficult to meet its financial obligation in the months ahead, except the situation improves.
Recently the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mr.Mele Kyari, at the Central Bank of Nigeria (CBN) Round Table Discussion in Abuja stirred the hornest’s nest when he revealed that about 50 cargoes of the country’s crude oil are roaming the waters without buyers.
This stems from the fact that majority of the buyers of our crude oil most in Asia and Europe have shut down their factories in a bid to curtail the spread of Covid-19, a development that has drastically reduced demand for Nigeria’s oil.
It is, however, ironical that while countries with low oil production cost are not feeling much of the hit as they are getting patronage for their oil through further discounts, Nigeria remains at the receiving end as its high production cost of $17 per barrel compared to that of Saudi Arabia at $5 per barrel, this has further put us at a disadvantaged position.
According to Kyari, in the face of the Covid-19 global pandemic, countries like Saudi Arabia have given discount of $8 and Iraq $5 to their off-takers in some locations, meaning that when crude oil sells at $30 per barrel, countries like Saudi Arabia is selling at $22 per barrel and Iraq selling their crude at $25 per barrel.
But while other proactive countries are taking steps to cushion the effect on their economy, Nigeria appears to be foot dragging with no meaningful strategies to ensure we sell our oil in an era where trade has become very competitive.
After its initial foot-dragging the managers of the economy were forced to review downwards, the oil price budget benchmark in a bid to adjust Government’s expenditure, especially the ones that have to do with recurrent expenditure. It also reduced the pump price of PMS in line with global reality but all these knee-jerk policies are at best cosmetic
Some other areas managers of our economy have failed are in their inability to save for the rainy day, the result is what we have in our hands now, an economic recession. Following closely is the fact that we still have not been able to diversify our economy despite the lip service paid by successive governments to this all important task to ensure a mix that can provide the cushion in the event of a drop in the price of any of our priced commodities.
In 2004, former President Olusegun Obasanjo, created the Excess Crude Account (ECA) for the purpose of saving oil revenue in excess of the budgeted benchmark which had a balance of $20 billion in January 2009.
Unfortunately, that account has been depleted by N6.48 trillion is seven years. However, within the same period, only N4.7 trillion was transferred into the account. The Current Balance of the ECA stands at $71.8million, a far cry from the $20 billion in January 2009 and might not be able to provide the desired cushion effect.
According to statistics from the Ministry of Finance, between January 2012 and December 2018, the Federal Government withdrew a whopping sum of N6.48 trillion from the ECA despite the efforts of the FIRS to ensure income leakages from taxable individuals and companies, the newly introduced stamp duties and the increment in Value Added Tax.
Persistent demand by States to fund various programmes and the inability of the Federal Government to generate adequate revenue to fund its operations had put pressure on it to draw down from the account. However even with this withdrawals, state and local government still owe their workers months of living wages, this was espoused during the last general elections as one of the failures of government.
Speaking at an interactive session with members of the Senate committee on finance, The Accountant General of the Federation, Mr.Ahmed Idris, had recently said that the $325million in the ECA had been depleted to $71.8 million as at March 2020. The AGF said the balance in the ECA stood at $325 million as at the end of 2019 and went further tp explain that the National Economic Council (NEC) agreed to invest $250 million into Nigeria Sovereign Investment Authority (NSIA) while $4 million was paid as professional fees.
With a decaying healthcare sector, a nonexistent industrial and manufacturing sector and a highly pressurised and volatile economy, our government has not been able to prove their competence in handling the affairs of the over 200 million Nigerians. Nigerians expect and demand better. The government must act and show proof of why they should remain when the time comes again to choose who steers the wheel of this once great nation. Nigerians simply wants good decisions and strategies that will safeguard their life, investments and future. If that is not the business of government, then what is? If the government cannot provide this then why does government exist?