Before now, the Nigeria oil sector has been threaten with challenges such as, oil theft, oil pipeline vandalism, oil spillage and wastage, sabotage as well as a volatile oil price regime. Passage of Petroleum Industry Bill (PIB) has been frustrated. Investments of around $28 billion in Nigeria’s oil sector have been lost or deferred since 2010 as a result of the non-passage of the bill, according to government figures: all these happening in spite of the fact that the economy is heavily dependent on oil and gas exports, which provide 95 percent of export revenues.
And then came a shocking revelation early June this year by the Minister Of Petroleum Resources, Mrs Diezani Alison-Madueke that the United States of America which buys at least 45percent of Nigeria’s crude has suddenly reduced purchases to zero following the boom in shale oil production in that country.

“The global economy is changing and Nigeria must adopt sustainable economic strategy. I know many of you must have heard of the shale gas and the shale oil revolution. This has literally knocked out Nigeria from the export of oil to the U.S. …This market called the shale oil and gas has resulted in Nigeria seeking new markets for its oil” she hinted, warning that the situation calls for a change of current policies, which may cause future economic stress no matter how dearly Nigerians hold them.
In a recent report, traders revealed that there were about 40 Nigerian crude oil cargoes still available out of 63 loading in November. It is a legitimate concern for Nigerians to ask: any urgent need for diversification of the mono- economy? Because the current volatility in oil price may have far reaching negative impact on government’s fiscal operations, currency exchange rate, capital flow, the stock market, foreign reserves, inflation and interest rate.
Economic decision makers understand that there is vulnerability in the oil market due to uncertainty in the global economy long ago. For instance, last year at IMF/World Bank meeting in Washington DC, Coordinating Minister of the Economy and Minister of Finance, Dr Ngozi Okonjo-Iweala called for the nation’s economic diversification.
She said ‘’in the short term, we have got a little bit of money in the excess crude account to help us even if the demand for oil drops. In the long-term, we just have to diversify our economy. We have to work hard and fast to accelerate the implementation of the reforms in agriculture so that we are not dependent on import. We have to also even within the same agriculture, accelerate on producing exports, so we have something else other than oil. We have to develop the other sectors of the economy so that they can create jobs and we can get tax revenues out those rather than just depending on oil revenue.’’
Giving a scorecard of her ministry in the last one year at a news briefing in Abuja last month, the Okonjo-Iweala however argued that there was still no cause for alarm despite the nosedive in the price of crude. As long as the country continues to meet its financial obligations, the issue of being broke does not arise.
She unveiled that over N2.4 trillion additional financing, outside annual budgetary provisions had been mobilised from global multilateral agencies and financial institutions across the world to enable various ministries, departments and agencies (MDAs) of the federal government to execute sectoral projects across the country in the last few years. The minister argued that if the Nigerian economy was not growing as being bandied in some quarters, the rate of unemployment and poverty would have been worse. According to her, the government had continued to maintain a tight fiscal deficit, noting that fiscal deficit stood at 1.4 per of the GDP last year; 1.03 per cent in 2014 and is being targeted at around 1 per cent in 2015, saying that borrowing, particularly at the domestic front has been declining, while the country has been adjudged globally to be low in foreign debt.
Since around June this year when prices of crude began its downward trip, all has not been well with the management of federation account, managed by the Federation Account Allocation Committee with its monthly meetings becoming more and more irregular. For instance, its October meeting was scheduled to hold in Enugu, coinciding with the annual meeting of National Council on Finance and Economic Development in the second week. Niger State Commissioner for Finance, Alhaji Hassan Abdulahi narrated his ordeal in Enugu thus “We were in Enugu for three days and on the third day they called us into a room and told us to go back because there was no money to share.” Yet, Finance Minister says there is no cause for alarm.
On the contrary, a more professional, less political Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele confessed that his team was aware of the looming economic crises but active measures are in place to cushion the effects. At the 2014 investiture of the Chartered Institute of Bankers of Nigeria in Lagos, Emefiele declared “I am aware that crude oil prices are dropping and no doubt this presents some form of challenges to Nigeria. I can assure you that the fiscal and monetary authorities are taking action to ensure that we take steps that will enable Nigeria to withstand the shocks that we see,” he said.
Curiously, everyone knows the way out of the challenges. Nigeria has agriculture, the lost identity and tax revenue to fall on in case things fall apart with the economy. Regrettably, however, leaders neglect implementation of policies that will boost agriculture, mining and improve ratio of exportation to importation. Tax revenue from non-oil sources are seen as things for the bin amidst cries by experts for reforms. Little attention is being paid to plenteous tax leakages. The Minister of Finance was quoted to have said that about $250 million per year is being lost as result of leakages in tax.
For instance, Minister for Mines and Steel Development Arc Musa Mohammed Sada asserted that government has no standard scale for knowing quantity of ore mine as 80 per cent of mining are carried out by artisanal and small scale mining companies that deals mainly with illegal miners. He was speaking in Abuja while receiving the Civil Society Legislative Advocacy Centre (CISLAC) in his office. ‘’ The only way the ministry certifies the quantity of mineral produced is through assessment of the quantity of explosive being applied for by the companies as it is difficult for the ministry to be on the mining fields to directly verify the quantity mined despite having branches in each state.’’ Sada said.
Hoes were raised when in 2013 the firm of McKinsey & Company was appointed to do thorough diagnoses on the economy and light up tax holes. It was found that the leakages were in areas like rentals, mine revenue, registered businesses that are not paying etc.
Nigerians await the benefits of the silver line of this report and many others before it. Currently, leakage in export of ore amounts to $15.2 million per annum.
The bottom line of the matter is that falling oil prices portend grave danger for the nation’s economy. The urgent message from this development is that Nigeria needs to diversify its economy and develop the capacity of the non-oil sector to generate much more revenue into the national till.
The price of a barrel of Brent crude, a global benchmark, was recalibrated on October 16, from a near four-year low of $87.74 to $82.73, down from about $115 a barrel in June. Besides, a barrel of the American benchmark, West African intermediate crude, was trading $1.87 lower. That pushed its price below $80 a barrel, to $79.90.
Crude oil prices have dropped by 15percent right from January this year. This has put some pressure on the 2014 budget of each of the states and even the federal government, which was based on a benchmark of $77.50 per barrel. Even though the drop in the price of crude oil is still some notches above the budget benchmark, government’s well-known imprudence and opaque public accounting still make any appreciable drop in the oil benchmark worrisome, particularly since the Nigerian economy is about 95 percent dependent on oil for its foreign exchange earnings, and 85 percent, for its total revenue.
Having measured Nigeria’s economy to be over 80 percent dependent on imports, fiscal deficits are prophesised to be very likely in the months ahead. Effect of this on Nigeria’s short-term economic and fiscal growth may be serious. Already, government has hinted at a cash crunch, with an appreciable decline in the revenue accruing into both the Excess Crude Account (ECA) and the Federation Account. Also, it is envisage that salary payments across the states of the federation may be delayed regarding the dwindling revenue from oil. Already, Governor Muazu Babangida Aliyu of Niger State has warned civil servants and other government workers in the state to expect a delay in the payment of their October salaries