410 views | Elochukwu Benjamin | April 17, 2020
Nigeria’s government and citizens have been urged to make genuine efforts towards diversifying the nation’s economy due to increasing revenue shortfalls from crude oil and its derivatives occasioned by COVID-19 global lockdown.
The call came from a Non-governmental organisation, Amaka Chiwuike-Uba Foundation (ACUF) in Enugu on Friday.
Board Chairman of the foundation, Dr Chiwuike Uba, while speaking to newsmen in Enugu said if there is a lesson Nigeria can learn from the economic effects of COVID-19 pandemic and its attendant economic implications, it is to look beyond oil.
Uba, a developmental economist and governance expert, advised the federal and state governments to commence full-scale, all-directed and immediate diversification of the economy.
In his words, “whereas the changes in oil production may lead to a marginal increase in the global oil price, the market would experience a glut almost immediately, due to the continuing decline in oil demand due to global lockdown.
“Though the 9.7 million BPD cut would in short-term, help the market not to fill international storage facility, which is about 75 per cent filled, the current size of oversupply and additional oil supply would throw back the market into its state before the cut in oil production.
“According to analysts from Goldman Sachs, the Coronavirus crisis will slash demand by 19m BPD in April and May.
“The forecasted figure is way too big compared to the 9.7m bpd agreed as oil production cut, hence, too little and too late to prevent a decline in prices in the coming weeks as storage capacity becomes saturated.”
He continued, “More so, American oil producers may not cooperate with this cut as it would amount to controlling prices, which would amount to violating the competition law in the US. The USA is currently the world’s biggest crude producer.
“According to history, previous oil production cut deals were typically violated by oil producers a few weeks after the commencement of implementation. Mexico already disagreed with the quota allocated to the country and instead opted to reduce the country’s production by 100,000 BPD.
“Also given that the effective date for the implementation of the deal is May 1, countries with high production capacity such as Saudi Arabia, within the next few days will continue to line up tankers – conveniently. Until May 1, such countries would have the spigots wide
Uba, however, said that the new production cut deal may not benefit Nigeria in any way, adding that the expected improvement in the oil price would be minimal and short-lived as a result of the reasons afore – outlined reasons earlier.
He said: “Do not forget that Nigeria is already producing below its production capacity for a long time now. Hence, affected by both production quantity and price. Even when Nigeria benefits from an across revenue from the global production cut, the would-be revenue may end up being shared by the national and sub-national governments without real plans for investment to jumpstart the dying economy.”
According to him, instead of deploying all the money appropriated for COVID-19 for palliatives, it is important to channel some of the money to an investment in massive productive infrastructure across Nigeria.
He noted that the funds proposed to employ 774,000 people to sweep road till December 2020 should be used to build cottage industries and/or invested in agriculture.
The economist said this would not only provide jobs for people in a sustainable way but will also add to the production and revenue of the nation.
“The US $150m withdrawn from the Sovereign Wealth Fund (SWF) to augment the monthly sharing by the governments should have been appropriately invested in the social sectors. The big question is what would happen when we deplete all the savings,’’ he said.
Uba stressed that it was time to start making the right investments, if not, medium and long term implications of COVID-19 on Nigerians would be so devastating, adding that government must reduce wastages and frivolities associated with current governance structure and systems.
“Obviously, that is the most veritable way out at this point given the much that has occurred, the demand destruction, too much debt-making and destruction, high unemployment, poverty level and high fiscal deficit,’’ he said.