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Oil Prices Fall And The Nigerian Economy

The Current Reality
Oil Price fall in Nigeria

Sequel to the stock market crash of 2008, oil prices fall has come to take its toll on major oil dependent economies of the world and Nigeria as an oil dependent monocultural economy has been yet again badly affected by this. While crude oil earnings account for 95 percent of Nigeria’s foreign exchange earnings, it should be recalled that Nigeria first suffered from oil prices fall in 1978. General Olusegun Obasanjo was Nigeria’s Head of State and Commander in Chief of the Armed Forces as at that time (1978). The oil prices fall then led to a situation where Nigeria had to borrow from the International Monetary Fund (IMF) to finance her budget owing to the fact that the expected revenue from which the budget was to be financed dropped heavily as a result of oil prices decline, as such, the budget had to be financed through borrowing.

Apart from the interest the nation had to pay while servicing the debt, the International Monetary Fund (IMF) mandated the country to devalue her currency. As a result of meeting the devaluation condition, the Nigerian currency which stood at 80 kobo to $1 was devalued and the US dollar strengthened against the Naira. That heralded the era of currency devaluation in Nigeria.
Such situation has reoccurred and one can only be left baffled as to why Nigeria still remains a monocultural economy till date. Most of the countries that were affected by the 1978 oil prices fall in the international market had guarded against the likely effects oil prices fall on their economies by opening up other leading sectors. Oil that used to be sold at $109.63 per barrel is now being sold at below $70 per barrel and this development is adversely affecting Nigeria’s economy.

One of the effects of the oil prices drop on Nigeria’s economy is reflected in the recent devaluation of Naira. Prior to the oil prices fall in the international market, $1 exchanged for N160 but in an attempt by Nigeria’s policy makers to adjust in line with the oil prices fall, the Naira was devalued to around N200 for $1 and as a result of the devaluation, general price level of goods and services have increased in Nigeria.
Another effect that the oil prices decline is likely to have on Nigeria’s economy is the erosion of the excess crude oil account. The 2015 budget of Nigeria is set at a benchmarked oil price of $65 per barrel and if oil prices drop below that value, the excess crude oil account will no longer be in existence.

The Way Forward
In spite of all the aforementioned effects of the declining oil prices, Nigeria can forestall all effects associated with further oil prices decline by opening up more leading sectors. The President Goodluck Ebele Jonathan led administration should ensure his transformation agenda covers all the economic sectors of Nigeria. If this is achieved, Nigeria will have a balanced polycultural economy, hence, Nigeria’s economy will be able to absorb associated with fluctuations in the level of economic variable(s) in her sectors.

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