By GEB
THE possibility of opening up the Venezuelan crude reserve, following the United States invasion of the commodity-rich country, has stirred anxiety and may deepen Nigeria’s revenue crisis. Already, concerns are being raised that the crisis could create a $10 billion hole in the 2026 budget alone. Ironically, this fear would have been needless had the country’s administrators demonstrated the will beyond rhetoric to diversify the economy beyond the oil sector.
If Nigeria’s rising economy caves into another oil glut and market crisis, it would not be as a result of insufficient lessons but because the country has chosen to turn a deaf ear. From the Iran-Iraq War to the COVID-19 haemorrhage, Nigeria has experienced all the multiple boom-and-bust cycles that have trailed the modern petrodollar economy. Each time the crisis returns, the country realises the need to diversify its foreign exchange earnings and revenue sources to break the oil concentration risk. But little effort is made when the tap starts running again.
The prospect of opening the Venezuelan crude reserve, estimated at 303.2 billion or close to 20 per cent of global reserves, has placed over $60 per litre bet on crude. In a worst-case scenario, the country could lose much more, especially with the oil production target set far at a level not seen in recent years. A moderate snap in prices could upset the economy significantly.
Nigeria’s deepening revenue crisis is once again being laid bare by this possibility. For an economy that is still structurally dependent on oil receipts to fund budgets, stabilise foreign exchange earnings and service huge debt obligations, volatility in crude prices and supply trends amounts to a survival threat and market inconvenience. Breaking this jinx is thus not an option but a policy choice that holds the key to the country’s self-sufficiency dream and the economic survival of the entire country.
Nigeria should not remain a perpetual victim of oversupply fears, geopolitical shocks and changing energy alliances. But this will become a reality only if resources and strategies are mobilised to develop an alternative pathway to reduce the current exposure to the vagaries of the market and the anxiety that comes with uncertainty. Of course, the stakes are high. But this is not the time for navel-gazing. Leadership demands responsibility. Hence, those charged with the responsibility of leading the country at this critical time must roll up their sleeves for the task of building a parallel structure to the grossly insufficient petrodollar economy.
A drop in oil prices means a fiscal deficit for both the federal and state governments. Given the tight revenue-expenditure equation of recent years, such a hole means more borrowing. And with the hollowness of the economy, each time the crude market sneezes, the entire external sector and, indeed, the economy catches a cold. Besides 1967, when the economy contracted by 15.74 per cent in response to the systemic risk triggered by the Civil War, modern downturns experienced by Nigeria were linked to the oil market crisis. The most recent incident was in 2000 when the economy contracted by 3.6 per cent following the sharp drop in the prices of oil during the height of the COVID-19 pandemicc. From the Structural Adjustment Programme (SAP) gambit to subsequent attempted economic reforms, the government has paid lip service to weaning the economy off the risk of oil dependence, with dire consequences for the entire economy.
After years of campaigns to significantly reverse the low contribution of the non-oil sector to the country’s foreign exchange earnings, the non-oil input remains benign. For instance, as of 2024, oil still contributed 88 per cent to the country’s export, leaving significantly low 12 per cent for non-oil, a sector successive administrations said they were committed to bringing to speed with crude to end decades of hydrocarbon dominance. Reversing this trend will require more than promises. It surely requires policy actions that will both address market rigidities and build critical infrastructure needed to develop value chains of sectors where the country has a comparative advantage.
This crisis comes at a time when the government says it is committed to macroeconomic stability. But it is incompatible to seek to commit to stability and, at the same time, rely on an extremely volatile commodity. That will amount to a high-risk gambit. The government must, as a matter of urgency, start the process of creating a more sustainable system – one that is less susceptible to exogeneity.
In warfare, one should maximise factors that are within one’s control. And so should building an economy.
In the immediate future, the government should attend to the deteriorating port infrastructure to increase faster access to seaports. The country cannot commit to boosting non-oil exports and fold its hands while goods get damaged on their way to ports. This is the least the country must do to grow its exports. Efforts at building an efficient system should extend to the human factor. No government employee – whether direct or otherwise – should be given a free pass to frustrate genuine efforts to increase the country’s revenue and economic activity through export. That should not be treated as less than a criminal offence.
Beyond this, there is one more thing about the crisis erupting from Venezuela. The collapse of the South American country illustrates a deeper truth. That oil wealth alone cannot sustain an economy in the face of governance failure, lack of diversification and perpetual deterioration of the social system. Nigeria is at risk of a similar calamity if it does not pivot to economic safety. The best way to stay is to work on an alternative source, as if there were no crude.
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