The recent foreign exchange reprieve granted Nigeria by the gradual rise in oil prices, and on which she has staged an economic recovery, appears threatened by reported drop in prices of crude oil. However, Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, insisted there were no immediate threats on the economy from the development. Chineme Okafor reports
The steady rise in Nigeria’s foreign exchange earnings and build-up of external reserves, which started about five months ago, came under threat recently from derived shock from the recent fall in oil prices in the international market.
Depending more on oil sales for 90 per cent of its foreign exchange earnings and 70 per cent of total revenue, Nigeria, could be hard-hit by any new drop in prices of crude oil, and her recent attempts to stage an economic recovery would be impacted badly.
The country had only recently began to rebuild her foreign reserves which was depleted by the cyclical drop in oil prices and oil production interruptions by militants in the oil-bearing Niger Delta region.
Some days back, data from the Central Bank of Nigeria (CBN) also indicated that her external reserves had risen to $30.039 billion, derived primarily from oil sales, which it inferred were recorded on a steady increase of between 2.3 per cent and 2.75 per cent since January 2017.
The data also noted that other than oil prices, a drop in militancy in the Niger Delta had also led to an improvement in the country’s foreign exchange earnings, but these improvements came under some seeming threats from the reported oil price drop.
That week, Reuters reported that oil prices fell by two per cent, while rising US crude inventories and shale oil production in recent months became some sort of challenge to the production cut efforts initiated by members of the Organisation of Petroleum Exporting Countries (OPEC) and non-OPEC members in December 2016, to reduce a global glut and shore up prices.
Price Drop and Likely Impact
As reported by various media outlets, after data showed crude oil stocks in the US, which is the world’s top oil consumer, swelled by 8.2 million barrels penultimate week to a record 528.4 million barrels of stocks, oil prices lost more than five per cent of its trading values – its sharpest dive in a year.
Though, the impact of the sliding oil prices are yet to be felt in Nigeria, market analysts which spoke with cautioned that the external shocks would eventually hit the country’s foreign earnings and reserves.
The Director General of the West African Institute of Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, pointed out that if oil prices continued to slide, it would definitely have a negative effect on the country’s external reserves.
Ekpo said: “Let’s just hope that it rises again. That is why we have always said that the price of oil is very volatile. That is why you cannot depend on it for long-term development.
“Certainly, if this continues, it would affect the amount of dollars the CBN can put in the market. That is why some people have been asking if what the CBN has been doing in the past three weeks is sustainable.”
He further stated: “Effectively, in the long term, the structure of the Nigerian economy has to change towards earning FX from other sources instead of crude oil. We must also understand that the US has stopped buying our oil because of the shale oil produced in the country.”
Also, the Financial Derivatives Company Limited stated in a recent note that the ability of the CBN to sustain its fight against currency speculation as well as preserve the value of the naira would depend largely on the country’s crude oil earnings.
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