Nigeria’s proactiveness in the fight against coronavirus has been remarkably effective. So far, there have been only two confirmed cases in the country and the National Center for Disease Control (NCDC) has put up a tremendous effort to contain it. About 28 people are being monitored across five states and the state governments are giving it their best shots.
The rest of the world has been in awe of the pragmatism that has kept the epidemic at bare in Nigeria and some other African countries. However, while the Nigerian government has managed to curtail its outbreak, the virus appears to have found another way to deal with Nigeria.
At the end of the meeting between members of the Organization of Petroleum Exporting Countries (OPEC), in Geneva last week Friday, oil prices went further down from its already plummeted status as the alliance failed to reach agreement on production cut. And that put the world’s markets at dwindling positions that have seen stocks tumbling and prices crashing.
In the past 24 hours, the oil price has fallen 20% further from 9% on Friday. Brent crude was $45.18 per a barrel and West Texas Intermediate crude, the U.S. benchmark was as low as $41.11 per a barrel.
Update shows that price has nosedived to $30 per barrel, almost half the budget benchmark of Nigeria.
In view of this, President Buhari has set up a committee to assess the impact of coronavirus on the 2020 budget as its effect keeps pushing the oil market downward. The committee chaired by the Minister of Finance/Budget and National Planning, Mrs Zainab Ahmed.
Other members of the committee are the Minister of State, Petroleum Resources, Mr. Timipre Sylva; the Central Bank of Nigeria Governor, Mr. Godwin Emefiele; the Minister of State, Budget, Mr. Clement Agba, and the Group Managing director of the Nigerian National Petroleum Corporation, Mr. Mela Kyari. The committee is to submit the report of its findings to the president on Tuesday.
The Minister of Finance said the committee will have to figure out if the $57 2020 budget benchmark will be reduced. How much will be reduced in case the findings point at reduction? Is also a question the committee will provide an answer to.
Ahmed also noted that it will mean cutting down the N10.59 trillion budget if in any case, the benchmark will be reduced.
But the threat appears to be far more than what these measures can contain. The force responsible for the crash in oil prices is synonymous with coronavirus which is still at large, and lack of agreement among OPEC members on oil production cut has made the situation worse and Nigeria more vulnerable.
Saudi Arabia announced a massive discount to its official selling price for April, as the country is reportedly getting ready to increase its production above 10 million barrel per day mark. The kingdom has placed its production at 9.7 million per day even though it has the capacity to pump at 12.5 million barrels per day.
The disagreement between Saudi and Russia last weekend means that every country will produce and sell at will, a situation that will aggravate Nigeria’s woes due to the cost of production. Unlike Saudi Arabia with the lowest cost marginal cost of production placed at $8.98 per barrel, Nigeria is producing at the cost of $30 per barrel for deep water and $15 for onshore production.
Oil prices are likely going to plunge further in the coming weeks, far below the budget benchmark. Goldman Sachs said it should be expected to fall around $20, which will reduce the budget projection to a fiction and revenue generation from other sectors of the economy cannot assuage the impact. That means, another recession looms as the solution appears to depend more on many external factors that Nigeria could do little or nothing about.
It could be recalled that Nigeria went into recession in 2016 when oil price fell to $27 per barrel, and it took a rebound in the oil market for the country to get out of recession.
Experts are encouraging the federal government to take practical steps to ensure that the situation is arrested before it gets out of hand.
Former Director General of Bureau of Public Service Reforms (BPSR), Dr. Joe Abbah advised: “With oil prices plummeting and public debt soaring, now is the time for the Economic Advisory Council to earn its stripes. Now is the time for president Buhari to listen and take tough decisions on cost of governance. Now is the time for EAC members to walk away if he doesn’t.”
Others have advised the government to remove fuel subsidy, float the naira and cut the cost of governance. Nigeria’s foreign reserve seems to be the only hope since the country has been on borrow spree. Alas it is on life support at $37.5 billion, and with the rate of the oil crisis, its depletion will happen sooner than expected.