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Foreign Debt, Democracy and Checks and Balances



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  • Foreign Debt, Democracy and Checks and Balances

Democracies have been on the wrong end of the publicity stick in recent decades. The rapid economic expansion in relatively autocratic countries like China, Singapore, and South Korea in the 1970s has implanted the idea that democracies might not be best suited for rapid economic growth. Of course, most conveniently ignore the autocracies like Zimbabwe, Venezuela, and Cuba where things go horrible wrong.

Still within this context, the argued advantage for democracies is they prevent the worst from happening. While they may not allow too much flexibility in policy, they prevent the kinds of disastrous decision-making that lead to economic collapse. In essence, the “check and balances” prevent policy makers from theoretically destroying the economy through bad decisions.

Nigeria has been a democracy since 1999. At least we have been a democracy in the sense that we have elections, there is rule of law, and there are institutions that are supposed to guard and protect Nigerians and their future. You can argue about how democratic we are in practice but at least we are somewhat better off than we were thirty years ago. Our freedom house score, a ranking of democracies, is 50, which is a bit of a way from the ideal democracy at 100, but is also not as bad as the least democratic countries which have scores around one. The question then, in terms of our democracy’s ability to prevent policy makers from making the worst decisions, is “are we really democratic?”

We can think of this question in the context of the recent debt debate. Just a quick recap, in the face of collapsing revenue due to the crude oil price crash in 2014, the federal government continued its spending spree, opting to bridge the gaps with debt instead. The result has been an acceleration in debts to the point where debt servicing costs now consume about sixty percent of actual revenue. Not satisfied with the precarious situation, the federal government is proposing to continue the spending boom, and is looking to raise an additional $5.5bn from external sources.

Ironically, we have been in this situation before, when we were not a democracy, but during the era of military dictatorships. In the 1980s, faced with the same scenario of collapsed crude oil prices, the military regimes opted to keep the government spending policy going and closed the gap with debt instead. The early 1980s were the period of “jumbo” loans from various external sources. In hindsight we know those decisions were bad as the loans were frittered away, and the debt went on to cripple the activities of government for the next two decades. The country would not get out of that problem until the debt forgiveness deal in 2005, almost 25 years later.

We were not democratic back then and the institutions which should have prevented that outcome did not really exist. There was no debt management office to monitor and publicize actual debts. There was no national assembly to check the actions of the military regimes. The civil society and press were also not in very good shape, in terms of their ability to go against the military regimes.

This time around we are democratic and have all these institutions. Will we end up with the same scenario, with debt problems that cripple government for decades, or will our institutions act to ensure a different and better outcome this time around?

The federal government typically thinks in four years cycles, and on issues such as long term debt problems, it is expected that they will lean towards the path of immediate benefits and not think too deeply about the longer term costs. This is where the other institutions, who are theoretically supposed to take a longer-term view of things, have to stand up and demonstrate that they know their role in democracies. Specifically, the national assembly is the institution charged with protecting the long-term interests of Nigerians and they must demonstrate that we are indeed a democracy, and we are capable of avoiding the worst decisions.

The question of whether this new request to seek for $5.5bn in foreign loans is economically sound or not is not really what is at stake. The real matter is ensuring that we do not fall into the same debt spiral like we did under the military in the 1980s. If we do, then it would mean that our democracy is really only just on paper.

• Nonso Obikili is an economist currently roaming somewhere between Nigeria and South. The opinions expressed in this article are the author’s and do not reflect the views of this medium.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq,, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Nigeria Pumps 236.2 Million Barrels in First Half of 2024



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Nigeria pumped 236.2 million barrels of crude oil in the first half of 2024, according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC).

This figure represents an increase from the 219.5 million barrels produced during the same period in 2023.

In January, Nigeria produced 44.2 million barrels of crude oil while February saw a slight dip to 38.3 million barrels, with March following closely at 38.1 million barrels.

April and May production stood at 38.4 million barrels and 38.8 million barrels, respectively. June’s output remained consistent at 38.3 million barrels, demonstrating a stable production trend.

Despite the overall increase compared to 2023, the 2024 production figures still fall short of the 302.42 million barrels produced in the same period in 2020.

This ongoing fluctuation underscores the challenges facing Nigeria’s oil sector, which has experienced varying production levels over recent years.

On a daily basis, Nigeria’s crude oil production showed some variability. In January, the average daily production peaked at 1.43 million barrels per day (mbpd), the highest within the six-month period.

February’s production dropped to 1.32 mbpd, with a further decrease to 1.23 mbpd in March. April saw a modest increase to 1.28 mbpd, which then fell again to 1.25 mbpd in May. June ended on a positive note with a slight rise to 1.28 mbpd.

The fluctuations in daily production rates have prompted government and industry leaders to address underlying issues.

Mele Kyari, Group Chief Executive Officer of the Nigerian National Petroleum Company Limited (NNPC), has highlighted the detrimental effects of oil theft and vandalism on Nigeria’s production capabilities.

Kyari emphasized that addressing these security challenges is critical to boosting production and attracting investment.

Kyari also noted recent efforts to combat illegal activities, including the removal of over 5,800 illegal connections from pipelines and dismantling more than 6,000 illegal refineries.

He expressed confidence that these measures, combined with ongoing policy reforms, would support Nigeria’s goal of increasing daily production to two million barrels.

The Nigerian government remains focused on stabilizing and enhancing oil production. With recent efforts showing promising results, there is cautious optimism that Nigeria will achieve its production targets.

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Crude Oil

Oil Prices Steady Amid Mixed Signals on Crude Demand



Crude oil

Oil prices remained stable on Thursday as investors navigated conflicting signals regarding crude demand.

Brent crude oil, against which Nigerian oil is priced, settled at $85.11 a barrel, edging up by 3 cents, while U.S. West Texas Intermediate (WTI) crude dipped by 3 cents to $82.82 a barrel.

The stability comes as the U.S. economy shows signs of slowing, with unemployment benefit applications rising more than expected.

Initial claims increased by 20,000 to a seasonally adjusted 243,000 for the week ending July 1, prompting speculation that the Federal Reserve might cut interest rates sooner than anticipated. Lower rates could boost spending on oil, creating a bullish outlook for demand.

Fed officials suggested that improved inflation and a balanced labor market might lead to rate cuts, possibly by September.

“Healthy expectations of a Fed rate cut in the not-so-distant future will limit downside,” noted Tamas Varga of oil broker PVM.

However, rising jobless claims signal potential economic easing, which could dampen crude demand.

John Kilduff of Again Capital highlighted the impact of a slowing economy on oil consumption despite a significant drop in U.S. crude inventories last week.

Global factors also weighed on the market. China’s economic policies remain steady, though details are sparse, affecting investor sentiment in the world’s largest crude importer.

Meanwhile, the European Central Bank maintained interest rates, citing persistent inflation.

An upcoming OPEC+ meeting in August is expected to assess market conditions without altering output policy, according to sources. This meeting will serve as a “pulse check” for market health.

Overall, oil prices are caught between economic concerns and hopes of a rate cut, maintaining a delicate balance.

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Crude Oil

Oil Prices Slide on China Demand Concerns, Brent Falls to $83.73



Crude Oil - Investors King

Oil prices declined on Tuesday for the third consecutive day on growing concerns over a slowing Chinese economy and its impact on global oil demand.

Brent crude oil, against which Nigerian oil is priced, dipped by $1.12, or 1.3% at $83.73 a barrel, while U.S. West Texas Intermediate (WTI) crude dropped $1.15, or 1.4%, to close at $80.76.

The dip in oil prices is largely attributed to disappointing economic data from China, the world’s second-largest economy.

Official figures revealed a 4.7% growth in China’s GDP for the April-June period, the slowest since the first quarter of 2023, and below the forecasted 5.1% growth expected in a Reuters poll.

This slowdown was compounded by a protracted property downturn and widespread job insecurity, which have dampened fuel demand and led many Chinese refineries to cut back on production.

“Weaker economic data continues to flow from China as continued government support programs have been disappointing,” said Dennis Kissler, Senior Vice President of Trading at BOK Financial. “Many of China’s refineries are cutting back on weaker fuel demand.”

Despite the bearish sentiment from China, there is a growing consensus among market participants that the U.S. Federal Reserve could begin cutting its key interest rates as soon as September.

This speculation has helped stem the decline in oil prices, as lower interest rates reduce the cost of borrowing, potentially boosting economic activity and oil demand.

Federal Reserve Chair Jerome Powell noted on Monday that the three U.S. inflation readings over the second quarter “add somewhat to confidence” that the pace of price increases is returning to the central bank’s target in a sustainable fashion.

This has led market participants to believe that a turn to interest rate cuts may be imminent.

Also, U.S. crude oil inventories provided a silver lining for the oil market. According to market sources citing American Petroleum Institute figures, U.S. crude oil inventories fell by 4.4 million barrels last week.

This was a much steeper drop than the 33,000 barrels decline that was anticipated, indicating strong domestic demand.

The International Monetary Fund (IMF) also weighed in, suggesting that while the global economy is set for modest growth over the next two years, risks remain.

The IMF noted cooling activity in the U.S., a bottoming-out in Europe, and stronger consumption and exports for China as key factors in the global economic landscape.

In summary, while oil prices are currently pressured by concerns over China’s economic slowdown, the potential for U.S. interest rate cuts and stronger domestic demand for crude are providing some support.

Market watchers will continue to monitor economic indicators and inventory levels closely as they gauge the future direction of oil prices.

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