Regina Otokpa ABUJAThe Nigeria Extractive Industries Transparency Initiative (NEITI) has called on the Federal Government to protect the country from the perennial oil price volatility by weaning the country off the unhealthy dependence on oil.
NEITI, in its latest policy brief, titled: ‘Insulating Nigeria from Perennial Oil Price Volatility,’ urged the Federal Government to adopt sustainable strategies for robust fiscal cover for the Nigerian economy during periods of cyclical oil price shocks.
A statement made available to newsmen yesterday in Abuja, NEITI’s Director Communications and Advocacy, Dr. Ogbonnaya Orji, said price volatility was described as a constant feature of the oil market which exposes oil-dependent countries like Nigeria to regular economic crises when oil prices tumble, accompanied with severe pain that lingers beyond the price crash.
The policy brief, which examined the impacts of COVID-19 on the nation’s economy, said it has put Nigeria’s public finances, and by extension its economy, in dire straits. “The 2019 coronavirus disease has thrown most countries into the throes of sudden and multiple crises…exposed the inherent economic vulnerabilities of resource-dependent countries like Nigeria.
This is largely due to the sudden exslump in oil prices, caused by the collapse in oil demand as countries imposed lockdowns in a bid to contain the health crisis. “The virus will eventually be tamed. Oil prices will go up again. So, the pain of the moment shall pass. But the next slump in oil prices is not a matter of if but when.” The brief which described the predicaments faced by resource-dependent nations as ‘sequence of delusions, dependencies and distortions,’ explained that this dependence ultimately creates severe distortions to the economy where productive sectors become moribund as they are crowded out by the extractive sector. It added that an inevitable consequence or disturbance in the flow of revenues from such resources produces an automatic threat to the economy of such resource-dependent country. Further analysis of total federation revenue against oil prices revealed a very strong close relationship between oil prices and government revenue within the period under review. Thus, as oil prices rise, the federation revenue also shots up; and as oil prices fall, federation revenue dwindles.
“A look at oil revenue as a percentage of total federation revenue showed that from 1981 to 2014, oil revenue consistently accounted for about 65 per cent to 85 per cent of total federation revenue. It is only in recent years (2015 – 2018) that oil revenue was below 60 per cent of total revenue.
And this can be attributed to low oil prices and increased efforts to boost non-oil revenue.”
In addition, the policy brief recommended a “level-playing field for all operators, including Nigeria National Petroleum Corporation (NNPC) and a more deliberate strategy for boosting local refining capacity so as to reduce the pressure on external reserves from importation of refined products while positioning Nigeria to meet the refining needs of the Africa sub-region.