Nigeria Can’t Cope With Global Pandemics Amid Vanishing Oil Revenue
Earlier this month, shortly before the global outbreak of the Coronavirus, also known as COVID-19, the price of oil tumbled from $68 to $30 per barrel. It’s a double whammy for oil-dependent countries, but particularly Nigeria, one of the world’s most volatile economies. With oil accounting for 96 per cent of Nigeria’s exports and over 75 per cent of its revenue, and with oil prices permanently in a downward spiral, Nigeria is utterly vulnerable, unable to cope with major pandemics, such as COVID-19!
Thankfully, Coronavirus hasn’t swamped Nigeria, and one prays it doesn’t. But, God forbid, if COVID-19 hits this country in its full force, the truth is that Nigeria can’t cope with the ensuing health crisis, economic emergency and social calamity.
Nigeria simply lacks the medical or scientific capability, the social and institutional capacity, including a welfare system, and, of course, the economic wherewithal to deal with a multi-faceted global pandemic.
This is not a piece about COVID-19 and Nigeria’s response to it; that’s for another day. But the perfect storm of the pandemic and the oil price crash presents an opportunity to highlight the perilous future that Nigeria faces if it remains dependent on oil income. It’s a bleak, even catastrophic, future!
In February this year, the IMF warned that “global demand for oil will peak by 2040” and that most oil-dependent countries would face dire financial straits. It said that “oil-exporting countries must be ready for a post-oil future sooner rather than later”, but noted that “governments in oil-producing countries are dangerously under-prepared for the global shift away from fossil fuels”. Recently, at a major energy conference in London, I asked a renowned energy economist about the IMF’s projection. His response was that the 2040 timeline was even optimistic; he reckoned the peak could happen by the mid-2030s!
The truth is that the age of oil is over. In the Bible, there’s a reference to “when money failed in the land of Egypt”. Well, oil too will soon fail in the world. Sadly, Nigeria is not heeding the IMF’s warning to be ready for a post-oil future. It is utterly unprepared. We will come to that shortly, but, first, why is the future of oil precarious?
Well, at best of times, oil is problematic because its price is internationally-determined, very uncertain and unpredictable. As a result, oil-dependent countries are at the mercy of the vagaries of the world oil market and buffeted by oil price and oil revenue volatilities. But the situation will get worse for three reasons. First is the “age of oil abundance”. There will be massive supply overhang, given the discovery of more oil reserves, which would keep oil prices down. Second, Western countries are investing heavily in green energy, and this would lead to the availability of alternative and cheaper sources of energy to oil. And thirdly, as we have seen with the effect of the Coronavirus on oil demand, oil is acutely susceptible to demand shocks. This will increasingly happen as population growth slows in the West and as demand shifts to electric cars and more environmentally friendly energy.
This was why the IMF warned of a dire financial future for oil-dependent countries. As supply of oil hugely increases but demand drastically falls, oil prices would collapse; for Nigeria, which relies on oil income for over 75 per cent of its revenue, that’s a doomsday scenario.
