combination of falling prices and reduced oil exports due to Niger Delta
violence have prompted Nigeria to reduce its federal budget for next year. World prices plunged below $70 a barrel last
week before rebounding slightly, but have tumbled from July's $147 high. OPEC ministers plan to meet this week to cut
world output. Because of the Delta violence,
petroleum now brings in only 20 percent of Nigeria's gross domestic product (GDP).
However, it draws 99 percent of export earnings and raises 85 percent of
government's revenues. On Friday,
finance minister Shamsuddeen Usman acknowledged Nigeria's bid to reduce
expenditures next year. Analyst and
soon to be Managing Director (CEO) of the First Bank of Nigeria, Sanusi Lamido
Sanusi says he expects Nigerians
to weather the storm as long as they can shield their economy from a shaky
international stock and investment climate.
"For us, the major export
remains oil and gas, and of course, oil prices have taken some beating, and the
past couple of weeks of domestic woes in the Niger Delta mean that we are going
to see a reduction in government revenues.
However, in Nigeria, the budget was always benchmarked at the price, I
think, of $55 a barrel. And we have $60
billion in foreign reserves, enough for 40 years imports, so the immediate
impact, I think, will not be risky there on that front," he said.
Bank executive Sanusi
cautions that African investments tied to the international troubles of western
banks, financial institutions, and stocks could compound the low returns on
energy goods, minerals, and other high-value commodities. But he is optimistic about the intensive
bailout and encouraged that African economies can sidestep the brunt of the
stock market has taken a big battering.
Hopefully, investors have taken their money out. And there is fear that some of the banks may
have been exposed to the capital markets substantially with most margin loans,
and this may throw them into liquidity problems," he said.
The extent of the
international rescue effort means banks may regain enough confidence to resume
lending and other commerce. However,
for energy and other resource values to bounce back, Sanusi says, depends on a
series of recoveries tied to the US domestic markets and a resurgence of
production by leading manufacturing giants China and India, who he says drive
world demand for fuel and raw materials.
"The price of oil has been
driven largely by strong demand from China and from India, and a lot depends
now on whether demand from America causes an increase for Chinese goods. I think we're going to see some greater participation
by the United States. I think that in
the attempt to focus on domestic issues, there might be a reduction in the
trade deficit with the price, and that might affect demand for these
commodities, so our expectations of moderation in the price of energy and in
the price of commodities, but they will not crash to the bottom," he said.
But Sanusi cautions that
African countries that are less endowed with the resources Nigeria possesses
may face significant belt-tightening.
think it's critical for us because Africa has been on a growth trajectory in
the last three or four years, and if anything happens to the world economy
today, and we are back into recession that takes time to track back to Africa,
the steps that have been taken by Europe and by America have been drastic and
extreme. I think those efforts have
taken them by surprise, but I suppose they've been consistent with the enormity
of the problem. The most important
thing is for no one to be under any illusion that these measures have been
needed because the only solution to the problem is it may take a long time. We believe that it would take six months to
twelve months before we will begin to see capital come back to the same level
that has come into Africa just a few weeks ago," he said.