Augustine A. Ikein, Niger Delta University/Federal University of Nigeria, Bayelsa, Nigeria
Date of Publication:
Oil marketsare highly vulnerable tointernational geopolitics of major powers and oil is known to be a weapon of choice for both consumers andproducers alike. For Nigeria and other oil producers, a period of high oil prices creates a good stream of benefitsin increased income. In time of oil price down turn, the country Nigeria suffers from serious economicdislocation as a result of oil related external exposure. This pattern has plaguedNigeria for decades because ofexcessive oil dependency and inadequate diversification to enhance its commodity export base.
Review of Nigeria Oil Export Dependency:
Nigeria, from the past empirical studies show that thenation’s economy is highly vulnerable to oil price shocks. There is always a pattern of increase innational income through higher export earnings in periods of oil price hikes then offset by lowincome earnings during periods of lower oil prices. Thus, there is direct relationship between oilprice changes and government revenues and expenditures patterns.
In 2000, Nigeria received 99.6 percent of its export income from oil, making the world’s most oil-dependent country. Despite the huge earnings from oil, Nigeria remains one of the most food insecure countries in the word. Oil production has also had profound effects on Nigeria’s domestic sector.
Nigeria’s Oil Dependent Economy and External Exposure
When price of oil declines the nation suffers from instability, economic dislocation, decline in foreign reserves, currency devaluation, unemployment, youth restiveness, militancy and social strife. Also, oil price decline has negative consequence for the national currency naira because the nation is lacking enhanced export base in other goods and services. Oil price decline result in lower value of the naira. In 2014 – 2016, oil prices have fallen by about 70%. The exchange rate is about 150 naira to one dollar but when oil price fall the depreciation of the naira resulted to the same 70% or $ 1 to N250 – N300 naira foreign exchange exposure.
The costly social consequence is that for decades Nigeria is no longer an agricultural society because it has shifted more towards crude oil export dependency. Therefore almost every item in its market place that is produced or consumed depends on the price of the dollar.
The gains in crude oil production and export have created appearance of easy way out with oil money which in turn as resulted in on intended spread of lazy syndrome as though only crude oil can suffice national survival. The truth is that the nation is suffering in the midst of plenty given the fact that the nation is highly endowed with abundant natural resources yet to be fully tapped. Further to this truth also lies on the age long over dependence on crude oil has made the country to fail in non-diversification of the economy to create sustainable development.
Nigeria Can Create its Own Oil Boom through Economic Diversification
Nigeria needs planned policy change with the capacity to produce and transform it economy by creating the right enabling environment in all sectors to increase its export base and at the same time enhance its internal productive capacity to produce substitute goods to replace expensive imported goods for a more self reliance viable economy that can avert excessive external dependency. For this reason Nigeria should embark on areas of specialization in every state or geopolitical zone base on resource endowment so that each zone will become a revenue earning centre for the country.
The first step for Nigeria is economic diversification that can begin in the oil sector itself while the major planned economic diversification should start simultaneously in both agricultural and solid mineral sectors.
Nigeria can create its own oil boom from the opportunities created by the boom, doom and burst cycles in the volatile international oil market. Nigeria has options that are available in its domestic energy economy. The first order of events is to reform its downstream oil sector that is highly external dependence. Nigeria imports 60 million liters petrol to support its domestic use. The Nation can independently revert it by building modular refineries in the Niger Delta Oil region. The Niger Delta can produce at least 100,000 metric tons of petrol, diesel, aviation kerosene and other petrochemicals. It will create medium and small related business that can create employment and job creation.
Historical Observations on Resource Use and Technical Progress
There is significant scholarly evidence linking dependence on natural resources with poor governance (the resource curse). Whatever the differences among oil exporters like Nigeria, Venezuela, Saudi Arabia, Russia, Iran, and Iraq, all have one thing in common: Oil revenues have corrupted the political system, turning it into a deadly struggle for the spoils.
Any policymaker in an oil dependent economy is likely to agree with this proposition that oil price increases hold no permanent boom. For any national economy of any nation and therefore oil dependency is a false panacea to sustained growth and development.
Oil and Geopolitics: Implications for Nigeria and Other Oil Producers
What is needed is international co-operation for industrialized nations or major energy consumers to seek co-ordination and co-operation between oil consumers and producers to avert any national or global economic catastrophic consequences when we consider Edward L. Morse 2014 observation that lost market share and lower prices could pose a devastating challenge to oil producers dependent on exports for government revenue. Growing populations and declining per capita incomes are already playing a central role in triggering domestic upheaval in Iraq, Libya, Nigeria, and Venezuela, and in that regard, the years ahead do not look promising for those countries. Shale oil revolution should also lead to the prevalence of market forces in international energy pricing. Economic diplomacy sometimes appears to be a punitive game for those powers that dominate the world trade relations. The developing world holds no permanent control to their goods and therefore sometime forced to yield to superpower economies in the world trade relations, the shale oil itself may have its own uncertainties in the future…
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