Oil price and the Nigerian economy

The latest foreign trip by President Muhammadu Buhari to Saudi Arabia and Qatar was obviously in relation to the continuing slide in the international price of crude oil. With oil as Nigeria’s major foreign exchange earner and with its price going down in the international market, Nigeria is urgently in need of an upward swing in oil price in order to stave off economic recession and stabilize growth. This objective is one requiring the support of other oil producers in the international system. The role of Saudi Arabia as the largest Organisation of Petroleum Exporting Countries (OPEC) producer is key in this regard. Given that the current poor run of oil in the international market is reportedly owing to a glut, one viable way of nudging the price up would be to cut production, the hard task here being how to convince the biggest producers to do so. It is therefore probable that President Buhari was in Saudi Arabia to lend his voice to persuading the country and its neighbour, Qatar, on the propriety of cutting their massive production in order to help ignite an increase in the international price of oil. We believe that President Buhari’s trip is in order, as the health of the Nigerian economy is critically dependent on the international oil market at this point. It is also welcome news that both Saudi Arabia and Qatar, during the visit, shared President Buhari’s position on the need to curb production in order to arrest the declining price of oil. We are aware that nobody could logically deny the imperative of curbing and cutting production within a context in which decline in price is caused by a glut. However, the problem with the current situation of oil is that none of the largest producers is ready to embark on any production cut for now, both for national and strategic interest. Saudi Arabia had spoken against production cut earlier, not only to preserve its national revenue, but also as a strategy to control and protect OPEC’s share of the international oil market against the onslaught of shale oil, which has a higher cost of production. The thinking was that the decline of oil price would get to a state that would push shale oil producers out of the market, thus preserving OPEC’s share. And even when that seemed to have been achieved in a way, the lifting of international sanctions on Iran, a contender for regional power posture alongside Saudi Arabia, made the situation more complex, as Iran made it clear that it would not join in cutting production, as it was just returning to the market. The implication of this is that the politics surrounding the price of oil is a rather complex one that would not be amenable to the simple case of cutting cost to improve price, as there are many interests lurking around the commodity. Indeed, it could be said that Nigeria, in spite of the critical nature of oil to the health of its economy, is not a major player in the international politics surrounding oil, which would limit the influence and the result of the trip by President Buhari on oil diplomacy in spite of the promises made and the sentiments expressed by both Saudi Arabia and Qatar. There is a sense, therefore, in which Nigeria needs to move beyond the criticality of oil in order to address the issue of proper development of its economy. The ill health of the Nigerian economy on account of the decline in oil price is principally because of its mono-cultural nature and the refusal to diversify the economy. Rather than the president spending much time bemoaning the decline in oil price, therefore, he should be working to remove the undue reliance of Nigeria on oil revenue. A country of an estimated 170 million people should not be depending on free oil revenue for survival. Again, it is important for the Nigerian government and Nigerians to realise that there are other developed and developing countries without the blessing of oil which nevertheless are able to rely on the productivity of their citizens to achieve remarkable growth. The government should see its principal task as freeing Nigerians from the betrothal to oil and making them to face other productive ventures that would ensure that the economy functions, grows and develops without the hiccups and tensions from the oil market. The Nigerian government has been mouthing diversification of the economy for a long time and it is surprising that the economy has remained tied to the apron string of the oil sector. The present administration must go beyond statements to pursue the actual diversification, through which other sectors would be energized and made to function for the growth and development of the Nigerian economy. The country would continue to experience economic dislocation if it remains mono-cultural in its economic architecture. The path to a viable future and healthy economy, therefore, is not to romanticize a return to higher oil prices, but to go beyond oil and make the Nigerian economy truly diversified in terms of being multi-cultural and multi-sectoral in its functioning and workings, such that it is sustained through the massive contributions from all its bourgeoning sectors and productions.