How Oil Crisis Can Destroy Nigeria

Nigeria is one of the largest oil producers in
Africa and one of the world’s leading exporters.
Oil makes up to 83 percent of the Nigerian
exports. And now when oil prices are still falling,
Nigeria and Nigerians risk to suffer the biggest
crisis. Here are some consequences…
The global oil prices has plunged more than a third
since June. The national government states that the
budget plan for 2015 to 2017 will be based on an oil
price of $65 a barrel. That means that the wheels
have begun to come off Nigeria’s economy.
1. Naira fall
Oil exports are providing the most important
source of Nigeria’s foreign exchange. It means that
collapse in oil prices leads to the same in Nigeria’s
foreign exchange. On November 25 The Central
Bank of Nigeria (CBN) announced the devaluation of
the naira , with the new exchange officially at N168 to
a dollar.
READ ALSO: Naira Devaluation: Effects for Nigeria
and Nigerians
Besides, foreign exchange rates also influence
capital flows – investment funds that move into and
out of a country. It should be noted that if oil prices
continue to fall Nigerian economy will become less
attractive to foreign investors.
2. Raising national debts
If oil price remains depressed, Nigeria will have to
borrow more to balance its oil revenue-dependent
budget. Currently the country’s external
indebtedness is low at $6.67 billion. If government
revenues fall from a plummeting global oil price,
further debt accumulation could become
unavoidable.
READ ALSO: Federal Government Set To Return Fuel
Subsidy
According to the Senate President, David Mark, the
government plans to reduce fuel subsidies next
year to N458.6 billion from N971.1 billion , citing a
revised 2015 Medium Term Expenditure Framework
and Fiscal Strategy Paper submitted by President
Jonathan.
READ ALSO: Federal Government Spends Up To
N600bn On Fuel Subsidy
3. Emty national reserves
Nigeria’s Excess Crude Account as well as Sovereign
Wealth Fund and other savings schemes are all
funded by oil revenues. If oil price falls, funds will
dry and so too will the country’s ability to withstand
shocks. Although Nigeria has $4.1 billion in its
excess crude account – money kept for such oil
price shocks – it is still a little far off the World Bank
advised sum of $6.3 billion. But some fears exist. If
oil price perpetually falls, the government’s saving-
ability could become weakened.
READ ALSO: EXCLUSIVE: Jonathan, Others Guilty Of
Diverting N8 Trln Oil Funds
4. Sectoral crisis
According to the estimates, 75 percent of the
Nigerian government’s revenue comes from taxes
on the oil and gas sector, and while oil is part of the
14 percent that resources contribute to Nigeria’s
rebased GDP, much of the fast growing sectors-
Manufacturing Agriculture, Real Estate and others,
leverage on the country’s huge oil invoice.
All these parts of a big oil problem can do a critical
harm to Nigeria. The only thing we can hope for is a
better scenario.