Dangerous warning signal

Amidst unsettled debate about the true state of the national economy, the International Monetary Fund and other global institutions have warned that the current US shutdown may have devastating effect on Nigeria’s oil price. How prepared is the country for the possible backlash?

The budget impasse in the United States of America (USA) which has led to the shutdown of its public sector, if prolonged further, poses a severe threat to Nigeria’s dwindling revenue from crude oil. Apparently, The US might be unable to pay for its imports from Nigeria.

This is the reality which both the Nigeria’s Finance Minister and Coordinating Minister of the economy, Dr. Ngozi Okonjo-Iweala and the Managing Director, International Monetary Fund (IMF), Christine Lagarde agreed to last week on the sidelines of the ongoing World Bank/IMF meeting in Washington.

Lagarde, who spoke at a news conference that heralded the offi cial opening of the ongoing annual meeting of the World Bank and the IMF in Washington DC., said that as far as Nigeria is concerned, “clearly, we would have to look into how it would affect the price of the oil, because Nigeria is an oil consuming and exporting country.

“We are, as I said, currently working on this analysis and engaging in a dialogue with countries.’’

She said that the shutdown would have negative consequences for the US economy and also very negative consequences outside of the U.S. economy.

Although Lagarde stressed that the IMF does not take a stand and does not make recommendation as how politically such matters can be resolved, she however stressed that “When it affects largest economy in the world, we are bound to not only look at the immediate domestic consequences, but also have to look at what happens elsewhere.

“And we have to engage in a dialogue with our members to see how they can best prepare for that and anticipate,’’ the managing director said.

Lagarde said that the effect of the shutdown might materialise in various channels in different economies.

“In Nigeria, it would include the trade channel because the US economy would have to balance its budget and would certainly reduce its economic activity starting from the third quarter onward.

“The second channel, which is probably going to be much more active, is the fi nancial channel, where as a result of uncertainty and material, practical issues having to do with impaired versus non-impaired securities, we are likely going to see.

“If that matter is not resolved, we are likely to see volatility, uncertainty and consequences on the rest of the world,’’ she said.

Dr Okonjo-Iweala, who addressed the world press with the Secretary-General of Commonwealth, Kamalesh Sharma, and the Prime Minister of St. Kitts, Densil Douglas, on the outcome of the Commonwealth Finance Ministers’ Meeting, also said what was happening in the US could create uncertainty for people in developing and emerging countries.

The face-off, she said, could affect Nigeria’s $500 million Bond and the Euro Bond, adding that if the crisis lingers, it would also affect interest rates.

She said there was need for a stable and regulated international system, adding that the US government’s budget debate and the debt must be “urgently “resolved so that we can have stability in our fi nancial system.”

Okonjo-Iweala, who spoke on a wide range of issues on the outcome of the Commonwealth Finance Ministers’ Meeting, said the body was considering looking inwards in sourcing for funds to address some of the region’s development concerns.

She said there was need for Domestic Resource Mobilisation, adding that such efforts would require, in the case of Nigeria, the strengthening of tax collection.

She said the Federal Inland Revenue Service was doing a great job in this regard, stressing that there was need to do a proper audit on whether companies that provided for tax in their books duly remitted such to the government as required.

On the Petroleum Industry Bill (PIB), she said its passage would provide an environment for the oil companies to operate in a more certain and clear terms of engagement, arguing: “Even if it is not perfect, it will provide an environment for our oil companies to have more certainty. I know the oil companies don’t like it too much because the fi scal regime is tougher on them in that PIB than what they had before, but we are urging them to support it, so that we get it through, and then later on, we can begin to amend, but the way we have it now, we really need it to go through.”

She said the PIB’s passage would enable the government to commercialise the Nigerian National Petroleum Corporation (NNPC), and make the sector to be more transparent.

Incidentally, the warning is coming at a time when there appear to be a discordant tune about the true state of the Nigerian economy which Okonjo- Iweala had consistently defended as stable and virile.

Already, Nigeria is currently suffering declining revenue from crude oil due to the perennial problems of oil theft and pipeline vandalism, which has resulted in lower allocations and a whopping backlog on payments to the three tiers of government. The situation is creating an impasse between the federal government and the state governors.

Though Nigeria’s export to the US halved in 2012 and has further fallen sharply in 2013, data from the US Energy Information Agency (EIA) indicated that Nigeria still exported as much as 31 million barrels of oil to the US in the fi rst quarter (Q1) of 2013. The data further showed that Nigeria earned a total of $42 billion between January and June 2013 from its overall crude oil export.

According to data from the National Bureau of Statistics (NBS), Nigeria’s crude oil export generally declined 19 per cent in Q1 2013 compared to a year earlier due to developments in the international oil market and crude oil theft.

The country shipped 83 per cent of crude to Europe in April 2013 compared with just 30 per cent three years earlier as a result of US shale gas, according to data from the IEA.

Dr. Kingsley Moghalu, CBN deputy governor, Financial System Stability had stated at a lecture he delivered at the Golden Jubilee ceremony of the pioneer graduates of the University of Nigeria, Nsukka (UNN) that the nation’s economic performance had been rather weak.

Moghalu had regretted that Nigeria’s economic performance does not refl ect its endowments. “With a population of 170 million people, Nigeria is generously endowed with human, physical and natural resources.

“The country is ranked the 6th largest producer of crude oil and also has the 6th largest gas reserves in the world. It also has very signifi cant reserves of solid minerals which remain undeveloped. The country is richly endowed with about 34 different types of solid minerals in commercial quantities in about 450 locations across the country.

“Regrettably, Nigeria’s economic performance had been rather weak and does not refl ect the country’s economic performance,” he stated.

He had noted that other emerging economies; in particular Malaysia, South Korea, China and India who were behind or at the same economic pace with Nigeria in terms of growth in industrial production in the 1960s and 1970s have transformed their economies.

According to him, “these countries are not only far ahead of Nigeria but are major players in world economy today. “Between 2005 and 2010, the average growth in industrial production for China, India, Brazil and Malaysia was 16.0, 8.0, 3.6, and 2.5 percent, respectively while Nigeria recorded only 2.1 percent,” he said.

Shortly after Moghalu’s lecture, Okonjo-Iweala debunked the claims that the economy is in a comatose state and challenged anyone with contrary information about the economy to come out for a debate.

Okonjo-Iweala who spoke at the Independence Anniversary lecture organized by the Lagos Chamber of Commerce and Industry (LCCI), stated that “The micro economy is stable, the economy is doing well. We may experience cash fl ow problem; that does not mean the economy is in problem. Nigeria is an asset rich country and its economy remains strong. If we are not doing well, people will not be coming to invest in the country,” she said.

The Minister pointed out that President Goodluck Jonathan and his cabinet members are not losing sleep over the nation’s problem adding that the present challenges are not peculiar to Nigeria.

“We are not an island. Some of the problems we are facing are not strange. Even South Africa is battling with unemployment, and the government is fi ghting hard to salvage the situation. We are progressing and developing. There are a lot of emotional statements going the rounds. Some people are saying Nigeria’s economy is comatose. If the economy is comatose, where did Dangote see money to invest in refi nery? If the economy is comatose, the private sector would be carrying placards by now,” she said.

Incidentally, the Central Bank of Nigeria (CBN) in a statement signed by its Head, Corporate Communications, Ugo Okorafor also described the statement credited to Moghalu as misleading and inaccurate.

The statement explained that Dr. Moghalu gave a contextual background on the Nigerian economy and the quest of Nigeria to become one of the top twenty economies in the world by the year 2020, noting that in that context, he noted that Nigeria’s economy had historically not performed up to its full potential relative to the country’s endowments and the economic achievements of emerging market economies such as those of China, Brazil, Malaysia, and South Korea, some of which were at similar levels of development with Nigeria in the 1960s.”

The apex bank stated that it was therefore misleading to create headlines suggesting that Nigeria’s economy is presently “weak” when, as a matter of fact, Nigeria has achieved GDP growth rates averaging 7 per cent, over the past five years.”

Nigeria, according to Okoroafor has a robust macroeconomic environment, including a stable banking system, foreign exchange stability, and single digit inflation.

Some analysts who spoke with Business Courage on the issue at the weekend advised that the government should move beyond rhetoric and work towards stemming the tide of the likely consequence of the ongoing budget crisis in the United States.

The source who spoke under anonymity said that though the government is still trying to diversify the country’s revenue earnings away from oil, it should adopt a more proactive and sustainable approach to confronting the problem of oil theft which he claims would worsen the country’s fi nancial crisis.

Recently, the London-based Chatham House provided what seems to be a more precise account of how Nigeria’s oil worth several billions of dollars are stolen, sold and proceeds laundered in world fi nancial centres.

Chatham House estimated that 100,000 barrels per day of oil was stolen from pipelines in the Niger Delta in the fi rst quarter of 2013 alone, excluding the unknown quantities stolen from export terminals.

The theft, the report stated, amounts to fi ve per cent of Nigeria’s current two million barrel per day production but stressed that it has a wider impact because oil companies are often forced to shut down pipelines due to damages caused by oil thieves.

In its 70-page report entitled Nigeria’s Criminal Crude, Chatham House stated that “Nigerian crude oil is being stolen on an industrial scale. Proceeds are laundered through world fi nancial centres and are used to buy assets in and outside Nigeria.”

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