With global oil prices plummeting, Nigeria’s public jobs may be the hardest hit as one of the measures mooted as a strategy for managing an extended crisis is to reduce recurrent expenditure.
Nigeria has proposed a $78 crude oil benchmark for its 2015 budget, but falling global oil price may deal the country’s plan a big blow as the free fall of oil price continued on the international market. “In morning trade on Monday, the price of crude oil fell below $80 a barrel for the first time since mid-2012 as energy prices continue to plummet around the world,” Business Insider reported. Crude oil price on the market was $87 per barrel last week.
To forestall the devastating effect the continued dip in oil price could have on the country’s economy, Nigeria’s Finance Minister Ngozi Okonjo-Iweala told Financial Times that the government will consider cutting costs, with a public retrenchment scheme by the government likely to be employed.
“We will have to look very hard at recurrent expenditure, and identify overlapping agencies. When the price is heading down, everyone sees the necessity but that does not stop them from hating you,” she said.
Ventures Africa enumerated five reasons oil price drop will be devastating for Nigeria, where it raised concerns about how foreign exchange would be affected. Oil and gas make up more than 90 percent of exports, providing the critical source of Nigeria’s foreign exchange. A collapse in oil prices could lead to the same in Nigeria’s foreign exchange which is crucial to support imports. Foreign exchange rates also influence capital flows- investment funds that move into and out of a country. If oil prices continue to drop it would have an adverse effect on the country’s currency value, making it less attractive to foreign investors. Currently the growing beehive for investors, such fate would be devastating to the economy. Alas, this bad fate may well happen soon, as one of the world’s leading investment banks, Goldman Sachs predicts that oil price will fall to $70 per barrel in the second quarter of 2015.
Goldman Sachs’ Jeff Currie, who made the forecast based it on three key reasons, one of which includes an accelerating non-OPEC production growth outside North America, which the lender says will outpace demand, leaving the global oil market oversupplied.
Oil and gas find in Ghana, Kenya, Uganda, among others have positioned several African countries for potential self-sufficiency in their energy needs. Already, Ghana has said it was reducing gas imports from Nigeria, as it seeks to boost local production, with President John Mahama saying the country was working hard to bring in investors to shore up local production.
While Nigeria’s Finance Minister, Okonjo-Iweala agreed that the situation was grave, she noted that there was no cause for alarm as the country needed a savings of $5 billion in the Excess Crude Account – based on her ministry’s calculation – to stabilize the economy, should global oil price fall below the country’s oil benchmark.
“I think that the excess crude account was built to be able to cushion us at times like this, when we have some kind of difficulties and I think it played that role to perfection during the crises of 2008, when oil fell to 38 to 40 dollars per barrel, even worse than what we have now. At that time, we still saved up quite a lot of money, as such we were able to draw at least for a quite a few months to carry the economy.
“… even if we agree on another benchmark, we still need measures to be in place because we have no idea on whether the oil price will continue to drop or go up,” Okonjo-Iweala told the Senate committee on Finance and Committee on National Planning, during consideration of the 2015-2017 Medium Term Expenditure Framework, MTEF, as a working document for the 2015 Budget.
The Former World Bank Managing Director seems to have it all figured out already, but not the executive nor the legislative will bear the brunt of Nigeria’s over-reliance on oil, it is the public. ‘Looking very hard at recurrent expenditure and identifying overlapping agencies’ means some agencies will be scrapped if the oil price decline continues and several jobs would be lost.