News / Africa

    Budget Woes Hit Nigeria Amid Oil Price Crash

    Rocky Year Ahead for Nigeria Amid Oil Price Crashi
    X
    February 09, 2016 8:04 PM
    The global fall in the price of oil has rattled the economies of many petroleum exporters, and Africa’s oil king Nigeria is no exception. As Chris Stein reports from Lagos, analysts are predicting a rough year ahead for the continent’s top producer of crude.

    Nigeria has more people and more money than any other country in Africa, with much of its wealth coming from one industry: oil.

    While the National Bureau of Statistics says oil makes up only about 10 percent of GDP, in reality petroleum plays an outsize role in the economy.

    Oil accounts for 69 percent of exports, according to the NBS, and around 70 percent of government revenue.

    But after several years at more than $100 per barrel, the price of oil has cratered, falling to under $35, and few analysts expect the price to rise sharply this year.

    Though the fall in oil prices is caused mostly by factors beyond Nigeria’s control, it has had a major impact on Nigeria’s economy, and has sent the government of President Muhammadu Buhari scrambling to respond.

    “Impact of fall in oil price is, to put it mildly, catastrophic,” said Bismarck Rewane, chief executive of Lagos-based advisory firm Financial Derivatives Company.  “In terms of preparedness to deal with the magnitude, we are totally ill-prepared.”

    The increase in American oil production and the slowdown in growth by several major Asian economies have been credited with bringing down crude prices.

    The effects are already being felt in Nigeria.  Economists are cutting growth forecasts, while international investors have called for Nigeria to do as oil producers Russia and Brazil have done and devalue their currency.

    The government has resisted those calls, and instead imposed import restrictions and spent its reserves to buoy the naira’s value.  Nonetheless, the currency is selling on the black market for about 50 percent less than its official value.

    “It really reflects the fact that Nigeria is still very dependent on oil for government revenue, for spending by government, for FX (foreign exchange), for the banks, for the oil companies,” said Dolapo Oni, head of energy research at Ecobank.  “So it still reflects the fact that the economy, though it has revived, it’s not well-structured.”

    The downturn comes at a crucial time for Buhari’s government.  He took office last year, having won election on promises to crackdown on corruption, fight the Boko Haram insurgency in the northeast and build up industries other than oil.

    Those promises carry high price tags.

    In order to defeat Boko Haram, for instance, Nigeria will have to keep up military pressure against the group, while also rebuilding towns and villages the terrorists have destroyed, and provide jobs and education to people in the impoverished northeast who could otherwise be swayed to join the militants.

    The drop in oil hasn’t stopped Buhari from unveiling an ambitious budget proposal that hikes spending by about 25 percent and includes money to renovate Nigeria’s dilapidated infrastructure and give cash grants to poor Nigerians.

    The proposed budget calls for the government to borrow about $9 billion.  Buhari spokesman Garba Shehu said the government would also look at ways to cut costs and run more efficiently.

    As for rebuilding the northeast, Shehu said Nigeria would ask international donors for money.

    Nigeria has missed some opportunities to take advantage of low oil prices, while capitalizing on others, Oni said.

    The country should be stocking up on crude for when the price goes up in the future.  But Nigeria’s refineries don’t have the storage capacity to do that, Oni said.

    Oni did credit the government with taking action to overhaul the state-owned Nigerian National Petroleum Corporation and wind down the costly subsidy system that is meant to keep the price of gasoline and diesel low, but has been called prone to graft by anti-corruption campaigners.

    “This oil price is actually pushing us to make some reforms,” Oni said.

    You May Like

    Taj Mahal Battles New Threat from Insects

    Swarms of insects are proliferating in the heavily contaminated waters of the Yamuna River, which flows behind the 17th century monument

    Self-doubt, Cultural Barriers Hinder Cambodian Women in Tech

    Longtime Cambodian tech observer Sok Sikieng says that although more women have joined profession in recent years, there remain significant factors hindering women from reaching tech potential

    Trans-Adriatic Pipeline to Boost European Energy Security

    $4.5 billion-pipeline will become operational in 2020 and will deliver gas from Azerbaijan’s Shah Deniz II field to southern Italy

    This forum has been closed.
    Comment Sorting
    Comments
         
    by: Michael Njorku from: Lagos
    February 10, 2016 4:15 AM
    "Nonetheless, the currency is selling on the black market for about 50 percent less than its official value."...this is not true. Perhaps you meant to write 50% "more" - its certainly not less
    In Response

    by: Ben
    February 10, 2016 7:15 AM
    No Michael, at 300:1 compared to the official 200:1, it is "less", not "more". Best, ...

    By the Numbers

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Vietnamese-American Youth Optimistic About Obama's Visit to Vietnami
    X
    Elizabeth Lee
    May 22, 2016 6:04 AM
    U.S. President Barack Obama's visit to Vietnam later this month comes at a time when Vietnam is seeking stronger ties with the United States. Many Vietnamese Americans, especially the younger generation, are optimistic Obama’s trip will help further reconciliation between the two former foes. Elizabeth Lee has more from the community called "Little Saigon" located south of Los Angeles.
    Video

    Video Vietnamese-American Youth Optimistic About Obama's Visit to Vietnam

    U.S. President Barack Obama's visit to Vietnam later this month comes at a time when Vietnam is seeking stronger ties with the United States. Many Vietnamese Americans, especially the younger generation, are optimistic Obama’s trip will help further reconciliation between the two former foes. Elizabeth Lee has more from the community called "Little Saigon" located south of Los Angeles.
    Video

    Video First-generation, Afghan-American Student Sets Sights on Basketball Glory

    Their parents are immigrants to the United States. They are kids who live between two worlds -- their parents' homeland and the U.S. For many of them, they feel most "American" at school. It can be tricky balancing both worlds. In this report, produced by Beth Mendelson, Arash Arabasadi tells us about one Afghan-American student who seems to be coping -- one shot at a time.
    Video

    Video Newest US Citizens, Writing the Next Great Chapter

    While universities across the United States honor their newest graduates this Friday, many immigrants in downtown Manhattan are celebrating, too. One hundred of them, representing 31 countries across four continents, graduated as U.S. citizens, joining the ranks of 680,000 others every year in New York and cities around the country.
    Video

    Video Vietnam Sees Strong Economic Growth Despite Incomplete Reforms

    Vietnam has transformed its communist economy to become one of the world's fastest-growing nations. While the reforms are incomplete, multinational corporations see a profitable future in Vietnam and have made major investments -- as VOA's Jim Randle reports.
    Video

    Video Qatar Denies World Cup Corruption

    The head of Qatar’s organizing committee for the 2022 World Cup insists his country's bid to host the soccer tournament was completely clean, despite the corruption scandals that have rocked the sport’s governing body, FIFA. Hassan Al-Thawadi also said new laws would offer protection to migrants working on World Cup construction projects. VOA's Henry Ridgwell reports.
    Video

    Video Infrastructure Funding Puts Cambodia on Front Line of International Politics

    When leaders of the world’s seven most developed economies meet in Japan next week, demands for infrastructure investment world wide will be high on the agenda. Japanese Prime Minister Shinzo Abe’s push for “quality infrastructure investment” throughout Asia has been widely viewed as a counter to the rise of Chinese investment flooding into region.
    Video

    Video Democrats Fear Party Unity a Casualty in Clinton-Sanders Battle

    Democratic presidential front-runner Hillary Clinton claimed a narrow victory in Tuesday's Kentucky primary even as rival Bernie Sanders won in Oregon. Tensions between the two campaigns are rising, prompting fears that the party will have a difficult time unifying to face the presumptive Republican nominee, Donald Trump. VOA national correspondent Jim Malone has more from Washington.
    Video

    Video Portrait of a Transgender Marriage: Husband and Wife Navigate New Roles

    As controversy continues in North Carolina over the use of public bathrooms by transgender individuals, personal struggles with gender identity that were once secret are now coming to light. VOA’s Tina Trinh explored the ramifications for one couple as part of trans.formation, a series of stories on transgender issues.
    Video

    Video Amerikan Hero Flips Stereotype of Middle Eastern Character

    An Iranian American comedian is hoping to connect with American audiences through a film that inverts some of Hollywood's stereotypes about Middle Eastern characters. Sama Dizayee reports.
    Video

    Video Budding Young Inventors Tackle City's Problems with 3-D Printing

    Every city has problems, and local officials and politicians are often frustrated by their inability to solve them. But surprising solutions can come from unexpected places. Students in Baltimore. Maryland, took up the challenge to solve problems they identified in their city, and came up with projects and products to make a difference. VOA's June Soh has more on a digital fabrication competition primarily focused on 3-D design and printing. Carol Pearson narrates.

    Special Report

    Adrift The Invisible African Diaspora