The Nigeria Extractive Industries Transparency Initiative (NEITI) yesterday revealed that the global economy witnessed about 8 oil price shocks in thirty-four years. The period covered range from May 1987 to May 2020.
This is contained in agency’s latest policy brief, titled: “Insulating Nigeria from Perennial Oil Price Volatility” released on Monday in Abuja.
NEITI also called on the government to insulate the economy from the perennial oil price volatility by weaning Nigeria off its unhealthy dependence on oil which accounts for the bulk of its revenues and foreign exchange earnings.
It therefore urged the government to adopt sustainable strategies for robust fiscal cover for the Nigerian economy during periods of cyclical oil price shocks.
A trend analysis of oil price shocks by the policy brief covering May 1987 to May 2020 showed that the global economy had witnessed about 8 oil price shocks in thirty-four years. 4 of these crises brought about oil price spikes namely; the Gulf War in 1990, War on Terror/ Venezuelan crises in 2005, Global economic expansion and OPEC Plus Agreement in 2018 and 2019. On the other hand, there was a global price fall during the East Asian Financial Crisis in 1998, Global financial crisis in 2008 and 2009, shale oil production period in 2014 and recently during the Covid-19 Lockdowns in 2020.
NEITI stated that “Price volatility is a constant feature of the oil market, exposing oil-dependent countries like Nigeria to regular economic crises when oil prices tumble”. It noted that though, price slumps have always been accompanied by severe pains that linger beyond the price crash, “The virus will eventually be tamed. Oil prices will go up again. So, the pain of the moment shall pass. But the next slump in oil prices is not a matter of if but when.’’
The latest NEITI policy brief examined the impacts of COVID-19 on the nation’s economy, explored inherent dangers in natural resources dependence and recommended ways through which Nigeria can be insulated from this predictable but perennial challenge.
Examining the impacts of COVID -19, the brief noted that the pandemic has put Nigeria’s public finances, and by extension its economy, in dire straits. “The 2019 corona virus disease has thrown most countries into the throes of sudden and multiple crises…exposed the inherent economic vulnerabilities of resource-dependent countries like Nigeria…This is largely due to the sudden slump in oil prices, caused by the collapse in oil demand as countries imposed lockdowns in a bid to contain the health crisis,’’ the brief stated.
On predicaments being faced by resource-dependent nations, the paper described it as “sequence of delusions, dependencies and distortions. First, the onset of resource windfall creates delusion that the country will continue to be rich from its natural resources. Then overtime, the country becomes dangerously dependent on revenues from mineral resources due to this delusion, and also because resource rents are relatively easier to earn and spend.’’