THE DISCOVERY OF OIL: THE GENESIS OF OUR WOES – BY IYANDA RAUF

One will not be wrong to say that ever since crude oil was discovered and subsequently exported in commercial quantity, the destiny of Nigeria has been tied to it. This is because there is a positive relationship between the price of oil in the global market and the Nigerian economy. When the price soars, we enjoy and, if otherwise, we suffer. This is a very disheartening reality that we have come to accept but why is this so? Let’s go down memory lane a bit.

Prior to the discovery of oil and its subsequent exportation, agriculture was the mainstay and driver of the Nigerian economy. One cannot but yearn for the good old days when Nigeria prided itself as the major exporter of cocoa (from the west), palm and rubber (from the east) groundnut ( from the north) and the likes. Major infrastructures that have stood the test of time were built from the proceeds of agriculture. Testimony to this assertion can be found in schools like Obafemi Awolowo University, University of Nigeria, Nsukka and others. Besides, apart from agricultural produce, Nigeria is a repository for mineral resources like gold, silver, tin, columbite , iron ore etc. but all these were abandoned in favour of the black gold, the crude oil and that was the genesis of the mess we are in today.

The oil boom of the 1970’s propelled Nigeria into unprecedented economic stardom as funds were trooping into the country in form of foreign exchange. The level of prosperity at that time blinded us to the reality that petrodollar will not come in indefinitely.

The discovery of shale oil by the United States in 2013 and the infiltration of global oil production by non -OPEC members which led to oil glut, led to the fall of the price of crude oil, from its glorious high. The price of crude oil which was as high as $146.15 per barrel in July 2008 came as low as $28 per barrel in January 2016 before gradually finding its way to the top of the trajectory. As at this morning, its $54.79 per barrel.

And because Nigeria's economy is majorly oil driven, it is not insulated from the volatility in global oil price. The fall in oil price has among other things led to: paucity of funds for financial services; inflation induced by currency depreciation and lastly recession.

The major source of capital for the oil marketers is bank loan. They finance the importation of refined crude oil from abroad through the loans they are offered by the commercial banks. However, due to continuous dwindling of the oil price, they are getting little profit, and sometimes loss. Hence, they are unable to repay their loans, a scenario having a strain on the capital adequacy of the concerned banks. Sometimes around early 2016, it was reported that several oil marketers owed banks to the tune of #5 trillion. And if they failed to repay these loans, then, without doubt, a big lacuna and disruption will be created in the financial market. As a result, unemployment will be inevitable as banks, unable to finance their activities, will have no options but reduce their work force. Added to the problem of unemployment is the issue of bank failure, as banks  have no choice but to fold up if they can no longer meet their obligations to depositors, owning to lack of funds. And that was the reason further access to loans by oil marketers was stopped by the CBN in 2015 to curb the effect of bad loans.

During the era of boom, in 1971 and more recently, in 2008, the value of the Naira appreciated considerably. It is interesting, at this juncture, to note that a dollar once exchanged for N0.90. Gone are those days! At present, officially, the greenback exchanges for N305 while in the parallel market, it oscillates between N497 and N500 compared to 2016 when a dollar was exchanged, officially for N197.

Because the naira is depreciating, losing value as a result of market forces, prices of commodities and, in extension, services are sky rocketing on a daily basis. This is traceable to the fact that most almost everything in Nigeria is imported, from toothbrush to toothpick and Nigeria, aside crude oil, exports nothing. Hence, the increase in overall price level, resulting to inflation.

Almost everyone, including the uneducated, are now familiar with the word ‘recession' even though only few really know what it is. Well, it is a significant decline in economic activities. To the economists, it is when the GDP growth rate declines continuously for two consecutive quarters (6 months).

The decline in oil price should be an eye opener for the government and I commend the government for channeling significant effort in that respect. However, the effort needs to be intensified. The Small and Medium Enterprise (SME) should be empowered and encouraged. Loan should be made easily accessible to them as they are known to create employment opportunity and ensures regional or sectoral balance. Their continuous thrive in an enabling environment will ensure rapid economic growth as they will voluntarily pay taxes into the government coffers.

Epileptic and erratic power supply must be checkmated as virtually all economic activities revolve around the use of power supply. It would be unfair to ask a barber, for instance, to pay tax when he buys fuel every day to power his electric generator.

Lastly, government should prioritise the security of lives and property and also beef up its anti corruption stance. This way, investment will increase and reliance on oil will be nipped in the bud.

Nigeria shall, again, be great.