Covid-19 sends economic team into panic mode over 2020 budget

…Diversification, reducing cost of production vital – Dangote

…Over-reliance on oil hurting economy – Emefiele

…Capacity to finance oil development lacking – Kyari

The sudden and unexpected drop in crude prices to just over $30 has thrown the global oil market into commotion especially economies that hugely rely on oil receipts as major source of revenue like Nigeria.

The situation worries government and other stakeholders in the economy, who are now looking for ways of diversifying for better output.

Minister of Finance, Budget and National Planning, Zainab Ahmed, called on different sectors of the economy to begin to plan adequately and think of ways to live a life without oil.

Ahmed stated this at a round table discussion organised by the Central Bank of Nigeria (CBN) tagged “Going for growth 2.0” which held in Abuja on Wednesday.

“We need to put our hands together to weather the storm. We need to work together to take the opportunities provided by this very harsh reality.

“There is no doubt that the combination of crude oil price crash and coronavirus will put severe strain on our budget revenue, forex and many sectors, we are drastically reviewing the budget as well as redoubling our effort to raise revenue and plug the leakages and intensify engagement and support of sub-national entities and the private sector in our economic recovery and growth programmes.

“Notably, the Presidential Initiatives on the 10 Agri-value chains and sustaining the momentum on infrastructure investments and major capital projects for which we are in the process of accessing external concessionary loans,” she explained.

She said the Federal Government had initiated plans to form a savings policy to reduce the volatility of the country’s economy to external shocks.

“We also need to mobilise local savings. Even before the crash of the crude oil price, the Ministry of Finance, Budget and National Planning had reached out to the private sector and formed a committee to fashion out a National Savings Policy.

“This will enable us infuse into the Capital Market various instruments to suite several investors need. This will include long term instruments that will be suitable for investor groups that have patient capital such as Pension Funds,” she stated.

While making his contribution, President of Dangote Group, Aliko Dangote, said for Nigeria to record meaningful growth, there must be a considerable reduction in the cost of production.

He said the crash in oil price has become very important for us to have a solution and the solution is by diversification of the economy, adding that agriculture and manufacturing will be the key sectors to focus on.

“To achieve to inclusive growth, we must revisit the high cost of production and find a way or reducing it.

”It is disturbing that we as a country cannot produce what we consume. Only in 2019, our imports was about $42bn which is not sustainable and we cannot continue like this.

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“To have a Population of 200 million and grow at 2.7% cannot be sustained,” he said.

He further stated that there must be a conscious effort and political will to implement diversification plans by government.

“We have been singing about diversification but we haven’t done anything yet, we need to make our country a producing country and act now because Nigeria imports everything except fuel and iron rod and we don’t have much infrastructure.

“As it is, it is impossible to diversify without taking consideration of certain things, they include interest rate, long term funds and the support by the central bank to create enabling environment.

“Similarly, instead of focusing on imports, Nigeria can adopt the Ethiopian government style where they encourage imports of machines to come and produce in the country rather than just importing directly,” he added.

On the achievements of the Dangote group, he said the group has built two cement terminals to ease congestion and by the end of the year, Nigeria will be the largest exporter of cement in Africa.

He also said that by the end of 2020, Nigeria will also be the largest exporter of fertilizer in sub Saharan Africa.

Similarly, the Group Managing Director of the Nigerian National Petroleum Corporation, Mele Kyari, said that when the oil market collapsed on Monday, everything collapsed completely in global economies.

He said oil is the only commodity where when the price goes up, beneficiaries will panic.

He specifically identified oil development financing as the major challenge facing the Nigerian oil sector, especially as coronavirus threatens global economy.

“Coronavirus has brought several issues especially in the financial sector as there is decline in consumption. As it stands, there is a global demand of 100 million barrels per day and the spread is affecting the demand, but one of our greatest challenge is that we do not have the capacity to finance oil development in Nigeria.

“We can take oil production to 3 million barrels of which we are determined, but the problem still remains that we have a huge challenge which is the capacity to finance oil development in Nigeria.

“The current crude oil price globally is $30 per barrel and if you factor cost of production of Nigeria which is about $15- $17, you realise that we’re completely out of business,” he added.

According to Kyari, “there are currently 12 stranded LNG cargoes without hope because currently there is a collapse in global demand due to coronavirus”.

Earlier in his welcome address, the Central Bank governor, Godwin Emefiele, said the recommendations put together in the 1st session have been implemented by the CBN, and have contributed to the successes recorded in improving access to credit for Nigerians in 2019.

He, however, expressed worry due to the many challenges facing the country especially over-reliance on oil receipts.

“GDP growth remains below our annual population growth rate at 2.6 percent. Second, our reliance on crude oil for more than 80 percent of our foreign exchange earnings and sixty percent of government revenues, means our economy is exposed to the impact of the coronavirus on crude oil prices.

“Projected declines in revenues as occasioned by the drop-in crude oil prices constrains the government’s ability to meet its infrastructure commitments in 2020, which is vital if we are to achieve double digit growth.

Given this challenge, it is imperative that this roundtable session comes up with well-structured funding models that will mobilise funds from banks and other financial institutions to fund critical infrastructure projects, while providing attractive returns to investors.

“This session is more relevant today than ever before, given the external headwinds that the Nigerian economy faces, such as the effects of the trade and technology wars, and more importantly the recent spread of the coronavirus, which has emerged as a major threat to global growth in 2020.

“The impact of the coronavirus across over 100 countries has affected global supply chains, as well as demand for goods and services.

“Commodity prices have also been affected, as crude oil prices have plummeted by over 45 percent since January 2020,” he highlighted.

He added that agriculture must be taken seriously by providing infrastructure and funding to farmers so as to shift attention from oil.

“Our reliance on crude oil revenues beginning in the 70’s was the advent of our problems in Nigeria. Oil rose from 3 percent of our total exports’ earnings in 1960 to over 90 percent by 1976. Today, oil constitutes close to 80 percent of our export earnings.

“Our dependence on oil exports contributed to the decline of our local industries as well as our agricultural sector, as it enabled an excessive reliance on the imports of goods and services.

“This reliance on imports contributed significantly to the challenges we now face in our agricultural and manufacturing sectors, but more importantly, it resulted in the loss of job opportunities for Nigerians.

“Our craze for imports of everything and anything supported factories, farms and the creation of jobs in other nations, while turning our industries into warehouses for these imported goods.

“Today, the current leadership under President Muhammadu Buhari is working to deal with high unemployment levels, as well as the smuggling and dumping of goods in Nigeria, by putting in place policies that support increased production of goods in Nigeria.

Ladies and gentlemen, if we do not deal with these issues, the challenges of kidnapping and banditry would only fester, as those involved in these nefarious activities would only resort to these activities with intensity in the absence of job opportunities,” Emefiele further stated.

He assured stakeholders that recommendations will guide the fiscal and monetary authorities on measures that could help in supporting greater growth of the Nigerian economy.