The cookies already crumbled on crude oil prices, and the Organisation of Petroleum Exporting Countries cartel is desperately holding on to straws, any straw, to survive. But you should be thoroughly alarmed how the Harvard, Massachusetts Institute of Technology, World Bank, and Goldman Sachs Investment Bank alumni in the economic driving seat of former President Goodluck Jonathan’s profligate government didn’t see the crash coming.
Maybe, they didn’t think that stargazing (or futurology) was part of their schedule. They should find out what nearly happened to the king’s men (the magicians, astrologers, and sorcerers) who lost out to Daniel at the court of King Nebuchadnezzar. Had God not revealed the dream that the king had forgotten, and its interpretation, to Daniel, all the wise men of Chaldea would have been executed.
It was sweet justice that the Nigerian electorate asked President Jonathan and his men to go after their underwhelming outing. Ahead of the drop, some African oil companies got lured into offshore exploring via leveraged buy-outs of some foreign-owned oil companies. In 2014, they bought small oil fields from some oil majors who saw the future coming.
Shell sold its Oil Mining Licence 29 for $2.7bn to a consortium of Aiteo and Talaveras; Nigeria’s Oando Plc, that bought ConocoPhilips for $1.7bn, was lucky to have substantially recouped its outlay on a purchase that Americans would have called a “lemon,” a bad deal. But will certainly be less ambitious in the near future expansion plans. Nigeria’s economic planners should have wondered why the OMLs that normally run through 20 years before the licence is renewed were suddenly being hawked.
Now that oil prices have slumped, those yet to pay off their loans will wipe their brows, and pay through their noses, to service the loans. Be reminded, for the umpteenth time, that America’s shale oil is a major cause of the crash in oil prices. By the 4th Quarter of 2014, when America quit buying, Nigeria’s crude oil earning dropped to N1.9tn, and the economy slumped by 5.9 per cent.
According to a report by The Africa Report news magazine, Sonantrach, Algeria’s state-owned petroleum company, leader of the pack of Africa’s biggest oil companies, lost traction to the stagnation. And, to survive, Sonango, Angola’s state-owned oil company is going to have to take a $10bn loan from China Development Bank, to be doled out in measly and humiliating tranches over a 10-year period.
The loan is to enable Angola to build a refinery in the city of Lobito, to produce 200,000 barrels of petroleum products daily. It makes better economic sense to expand to the offshore segment of the oil industry now that the price of unrefined crude oil is going down south.
The Minister of State for Petroleum Resources, Ibe Kachikwu, has wisely caught on to this trick. He proposes to sell Nigeria’s crude oil to the country’s oil refineries, with the hope of halting or reducing importation of petroleum products from countries that have got their oil refining act together.
In 2014, the world price of phosphate dropped by half – from $200 in 2011, to $100 per tonne. Even so, Morocco’s phosphates miner, Office Cheritien des Phosphates, that sells fertilisers to more than 150 companies mostly in the developed countries achieved $1.55bn revenue in 2014.This, in spite of separatist Polisario Movement occupying a large tract of Morocco’s territory that has a large surfeit of phosphates and crude oil deposits.
Experts confirm that oil accounts for a large percentage of the world’s energy consumption, ranging from a low of 32 per cent for Europe and Asia, to a high of 53 per cent for the Middle East. Other regions of the world are South and Central America, 44; Africa, 41; and North America, 40. The world actually consumes about 30 billion barrels of oil per year, with developed nations as the largest consumers. The United States alone consumed as much as 25 per cent of the oil produced in the world in 2007.
The production, distribution, refining, and retailing of petroleum, taken as a whole, represents the world’s largest industry in dollar value. And contrary to the big lie that they tell the world, America’s government provides a heavy public subsidy to petroleum companies. These so-called oil majors get a tax break at virtually every stage of oil exploration and extraction, including the costs of oil field leases and drilling equipment.
The petroleum industry in Nigeria is the largest in Africa. Yet, the National Bureau of Statistics revealed that by 2014, the petroleum industry dipped, and contributed only 15 per cent to Nigeria’s economy. Though the petroleum sector is important, it remains a small part of the country’s overall diversified economy. You may wonder why the entire country wants to collapse because the oil industry has challenges. It is because a large chunk of government revenue is from oil royalty, and Nigeria’s import bill is largely funded from petro-dollar.
The real sector has huge investments, but meagre returns, because of infrastructure deficiency, relatively inferior manufactures, and high product prices, all because government is unable to manage monetary and fiscal policies. The challenge to the Nigerian economy is how to extricate the real sector from the vice grip of government’s uninspiring economic policies.
The economy decelerated in 2015, mainly due to low oil prices, turmoil in financial markets and severe imbalances in the foreign-exchange market. Gross Domestic Product expanded by 3.0 per cent in 2015, far below 2014’s 6.2 per cent. This was the weakest growth in over 15 years, although some analysts project an uptick in 2016 growth. They actually think that by 2017, the economy would expand by 6.7 per cent. Hope is rising.
But the naira is facing a very hard time, as it experiences a painful depreciation that the government appears unable to check. The whipping boy, of course, is the drop in crude oil prices. See how the managers of the economy bungled the 2016 Budget proposal, which the National Assembly should be turning into an Act any moment from now.
In 2014, Stanbic IBTC Bank Plc Purchasing Managers’ Index, that monitors production output and procurement trends in Nigeria, fell from January’s 51.3 to 47.9per cent in February, the lowest reading since April 2015. As a result of this fall, the indicator experienced a dip below the 50-threshold that separates contraction from expansion in business conditions.
According to Stanbic IBTC Bank, “the February PMI reading suggests a broad-based decline in business conditions symptomatic of the challenging macroeconomic conditions as well as the extremely volatile exchange rate on the parallel market. (This)… suggests that the level of economic activity may be weakening as disposable income reduces and access to foreign exchange for import activity remains challenged.”
StanbicIBTC economists contend that the sharp rise in purchase prices can be linked to the wide gulf between official exchange rate of N199 to the United States dollar, and the extravagant parallel market rate that is way up north of N315. The high road to sorting this mess is to quit blaming the fall in crude oil prices, and check the violent depreciation of the naira. And that’s a good way for government to avoid getting Henry Boyo’s dander up