See Nigeria’s economic dislocation in 2019 on $60pb benchmark as oil dips $46pb
ABUJA, Dec 19 – Nigerian President Muhammadu Buhari presented a 8.83 trillion naira ($28.80 billion) budget for 2019 to parliament on Wednesday, and laid out a plan to drive growth two months before elections.
Reacting to 2019 budget presentation Ndubuisi Ekekwe Founder First Atlantic Semiconductors & Microelectronics, Professor and wrtier Harvard Business Review said that Nigeria’s biggest risk in 2019 is not the national election. But if oil price continues to go south, Nigeria could see massive dislocation where even public sector workers may go months without salaries. Our 2019 national budget was anchored on $60. Today, oil is $46.
Yes, Buhari has presented an N8.8trn budget for 2019.
But the budget is predicated on $60 per barrel of oil benchmark at 2.3m litres per day, a GDP growth rate of 3.01 percent and inflation rate of 9.98 percent.
Analyst Ndubisi insisted that the problem is that oil experts now are incapable because oil is now produced from different channels, beyond OPEC, for them to model price points.
Yes, unlike in the past where knowing the production volume of few countries and putting all into global GDP growth, manufacturing indices, etc, you can say oil will be $AB price.
Today, some men in Oklahoma are pumping oil and no oil can track them. So, like how Internet works on digital distribution, the entry points have been unbounded, tripping markets. Supply glut is here and managing it is moving away from the powers of OPEC.
The bear market in oil keeps getting worse as worries about global growth and a supply glut ratchet higher.
US oil prices plummeted 7% on Tuesday to settle at $46.24 a barrel. It was crude’s weakest close since August 2017.
The deepening downturn in the oil patch is yet more evidence of investors fleeing risky assets as they brace for an economic slowdown. The same growth jitters that are rocking Wall Street — the Dow and S&P 500 are on track for their worst December since 1931 — are infecting commodities. Small-cap stocks plunged into a bear market on Monday.
Recently the DG of the Budget Office challenged government institutions to re-double efforts on revenue collections in Nigeria. They need that because if Nigeria cannot improve revenue collection, next rainy season would be challenging.
It is a fearful trajectory – I am worried. I hope Mr. President and his teams are watching because his 2019 budget is already off by 20% and we are not even in 2019 yet.
That “emergency” declared by the DG of Budget Office and Mr. President’s admission that the economy is in “bad shape” are reasons why everyone must put the country first. We need to deal with our over dependence on oil – that nation’s weakest link – in this generation.
But we need to survive rainy season of 2019, hoping that shale gas entrepreneurs would have distractions, he argued.
The spending plan for Africa’s top oil producer assumes crude production of 2.3 million barrels a day, an oil price of $60 per barrel and an exchange rate of 305 naira to the dollar.
Buhari’s handling of the economy – which emerged from its first recession in 25 years this year but remains sluggish – has become a campaign issue.
The main opposition candidate, businessman and former vice president Atiku Abubakar, has criticised Buhari’s economic policies and has promised to double the size of the economy to $900 billion by 2025 if elected.
The budget is the fourth Buhari has present to parliament since taking office in 2015 but, unlike the others, did not set record high levels of spending as the government seeks to lower debt. He also received a rowdier reception than in the past, with his statements greeted by boos and cheers.
The spending plan is smaller than the record 9.12 trillion-naira budget for 2018 that he signed into law in June. The budget must still be approved by parliament before it can be signed into law, a process that can take many months.
Nigeria’s economy grew by 1.81 percent in the third quarter of this year, the statistics office said last week. And, in a separate data release days later, it said the inflation rate rose slightly in November to 11.28 percent compared with a year ago. ($1 = 306.6000 naira)