Crude oil prices extended their losses and sunk to fresh four-year lows late last week as expectations of a cut in OPEC oil production faded following the Saudi Arabian oil minister’s comments a day earlier. On the New York Mercantile Exchange, light, sweet crude futures for delivery in January traded at $72.22 a barrel, down $1.47. January Brent crude on London’s ICE Futures exchange fell $1.92, or 2.5%, to $75.83 a barrel.
The continuing slide in crude oil prices has led to the devaluation of the naira.
Many Nigerians are into the blame game again talking down on the apex bank. The CBN has been using the nation’s reserves to defend the naira and it has gotten to the point where it can no longer do so. Nigeria has devalued the naira each time there is a crash in oil prices.
It is sad that since 1986, Nigeria has embarked on economic adjustment that has led nowhere. It has continued to depend on crude oil export for much of its foreign exchange and revenue. In time past, Nigeria boasted of its resources from export of cocoa, cotton, rubber and groundnut. The expectation is that by now, Nigeria would no longer be exporting raw produce but semi or finished products. It is sad that Nigeria in this age and time, still exports crude oil and imports refined petroleum products in which a lot of foreign exchange is expended.
It exports raw cocoa and imports chocolate etc. Nigeria has no business importing refined petroleum products, chocolate, cotton, rubber and vegetable oil. Importation of these products has encouraged capital flight from Nigeria.
The capital flight that hit the Nigerian economy has continued unabated as individuals and corporate bodies are still moving funds massively out of the country as well as changing from naira to dollar. In four weeks, a total of $4.7 billion went out of the country. For instance, the amount of foreign exchange flowing out of the country rose to $1.402 billion in a week. It moved astronomically to $1.071 billion. The foreign exchange outflow went further up to $2.019 billion. This gives a total of $4.701 billion in four weeks for which data were available.
Indications are that at this rate, the country will finish up the reserves and will face acute shortage of foreign exchange for imports.
Unless and until Nigeria begins to add value to its primary produce, the local currency will continue to be weak and face devaluation whenever there is external shock. From 1967 to 1970, Nigeria fought a civil war without going into debt. After the civil war, development plans were embarked upon, Nigeria’s public finance was sound and healthy. But with the oil boom in the late 70s, the government and people of Nigeria focused only on easy money and threw the baby and the bath water through the window by neglecting its traditional sources of revenue.
Export-oriented institutions like Nigerian Import Export Bank (NEXIM) and Nigeria Export Promotion Council (NEPC) that would have helped the nation generate more foreign exchange have been criminally neglected by past administrations.
Mr. Robert Orya, Managing Director of NEXIM, had said that in 2012, NEXIM trade finance was in the region of N7.3 billion which saw Nigeria earning $58.655 million, with 4,386 new jobs created. Also in 2013, the bank assisted in financing N9.435 billion worth of exports from Nigeria which resulted again in the creation of an estimated 5, 661 jobs and foreign exchange earnings of $75.746 million. In the first five months of 2014, the bank spent N5.106 billion financing non-oil export and has already provided $27.3 million in guarantee to exporters. It is estimated that about 24,139 jobs have been created this year alone through the bank’s intervention in non-oil exports.
Confirming growth in non-oil exports, the Central Bank of Nigeria said in its 2013 annual report that Nigeria’s non-oil exports that year reached $2.97 billion by year-end, up from $2.56 billion recorded in 2012, a 16 per cent increase. In addition, non-oil exports to members of the Economic Community of West African States (ECOWAS) reported a remarkable improvement of 20 per cent, with a total value of $375.339 million, as against $312.478 million recorded in 2012. This is also a huge improvement from $276.527 million reported in 2011.
Cocoa and cocoa preparations have continued to dominate the top 10 products exported from Nigeria to different parts of the world, according to the report, during the interactive session between the NEPC and Manufacturers Association of Nigeria Export Promotion Group. In 2013, for instance, a total of $758,640,303 worth of cocoa and cocoa preparations was exported, translating to 36 per cent of world export. This was followed by sheep, goat skin and leather, sesame seeds, aluminum, rubber, tobacco products, cotton yarn, and woven fabrics. Others included copper, cashew nuts and edible nuts, prawn, shrimps, fish and crustaceans.
Nigeria is currently exporting tobacco products, plastics and rubber footwear, noodles and biscuits, polythene bags, milk products, iron and steel, insecticides, beverages, tomato paste and fruit juice to African countries like Ghana, Niger, Togo, Benin Republic, Burkina Faso, Guinea, Mali, among others.
Revenues from crude oil sales account for nearly 90 per cent of monthly allocations to federal, state and local governments by the Federation Accounts Allocation Committee (FAAC).
Mbam former chairman of the body described the revenues from solid minerals as very positive in the present administration’s bid to diversify the economy. The significance of this development may be lost to many Nigerians. For the first time in years, the solid minerals sector is contributing to the federation account. To have generated N1.7billion from solid minerals for distribution among the three tiers of government is an opportunity the nation should grab and encourage a further development of the non oil sector.
If this government decides to focus on non-oil sector, it can in a matter of four years turn the tide over the nation’s continued dependence on oil. There is no magic in the exchange rate phenomenon. If an economy is productive and export-oriented, the higher the exchange rate, the cheaper its product to importers. This is why a country like Japan and now are not so much bothered by the exchange rate. Nigerians must wake up and make their economy productive.
