People & Money

Nigeria and IMF’s roseate outlook, By Uddin Ifeanyi

The domestic environment has been far from business-friendly in the last eight years.

From its closure of borders, through to its sundry bans on importation of diverse commodities, the message has been, if not of a predilection for autarchy, then of a clear preference for dirigisme. A messianic leader, dubious of the intentions of the private sector, has strengthened the state’s nanny instincts — if not its competence. This is why the drop off in domestic investment has not been restricted to the oil and gas industry alone.

That the International Monetary Fund (IMF), last month, dropped its estimates for global output growth for this and next year (from its January 2022 forecast) did not come as a surprise. Neither was it shocking that much of the brunt of this revision will be borne by advanced economies, including the huge 110 basis points by which gross domestic product growth in the euro zone was lowered for this year in the Fund’s World Economic Output update for April.

Today, the war in Ukraine is as big a cog in the wheels of European economies, as was the recent pandemic. Beyond Europe’s dependence on Russia for much of its energy needs, the world is struggling with a shortage of commodities, including fertiliser, of which Russia and Ukraine account for a large share of global production. The resulting supply shocks have applied the brakes to production globally and in Europe, more so. Rising prices, which was an issue long before February 24, has received a stonking boost from the war in Ukraine.

If consumer spending was always going to be crimped by all these, China’s lockdowns, in pursuit of its zero-COVID policy (most recently of Shanghai, its financial capital), could not have come at a more inauspicious time. As input from China have tapered off, global supply chains have tightened further across industries.

Also Read: IMF Upgrades Global Growth Forecast, Nigeria to Expand 1.5% in 2021

In all this, it matters that the Fund’s outlook for Nigeria remained positive. Along with the likes of Saudi Arabia, where real output is now projected to grow by 7.6 per cent this year (up 2.8 percentage points on the Fund’s January call) and by 3.6 per cent next year (up 0.8 percentage points), output growth in Nigeria is now expected to come in at 3.1 per cent this year and next. In other words, for Nigeria, the Fund nudged its estimates for local growth up by 0.7 and 0.4 percentage points this year and next respectively. For context, sub-Saharan Africa is expected to grow by 3.8 per cent this year and by 4.0 per cent next year.

…all of the additional positive stories about the country from the Fund’s latest commentary on the global economy is a conversation about crude oil. Does it then matter that despite the price of Bonny Light…crude oil production in Nigeria in March this year at 1.24 million barrels daily — (is) 20 per cent down on the 1.26 million barrels it produced daily in February?

Africa should hurt from the food and fuel price increases that are the most immediate upshots of Russia’s invasion of Ukraine, as has Egypt, currently contending with sky-high wheat prices. The Fund believes that “Higher food prices will hurt consumers’ purchasing power — particularly among low-income households — and weigh on domestic demand”. On the upside, the increase in oil prices is now expected to lift “growth prospects for the region’s oil exporters, such as Nigeria”.

In other words, all of the additional positive stories about the country from the Fund’s latest commentary on the global economy is a conversation about crude oil. Does it then matter that despite the price of Bonny Light, the nation’s premium crude blend averaging US$102 per barrel this year, compared with the US$60 per barrel that it averaged last year, the Organisation of the Petroleum Exporting Countries (OPEC) records crude oil production in Nigeria in March this year at 1.24 million barrels daily — 20 per cent down on the 1.26 million barrels it produced daily in February? Or that in 2020, the country was producing 1.5 million barrels daily?

If the rate at which the balance on the nation’s gross external reserves are growing (currently the consequence of the nation’s Eurobond issues) is any indication, then the answer is a big “Yes”. Put simply, global oil prices have been supported by U.S.’ restrictions on the importation of Russian fuels as by the war in Ukraine, at a time when Nigeria’s crude oil export capacity has been impaired by underinvestment in the sector.

It is easy to indict the ongoing energy transition for the domestic oil and gas (upstream) industry’s woes. As the oil majors have come under pressure from newly-active shareholders flying the environmental, social, and governance ensign, they were always going to quit marginal fields such as ours. But the domestic environment has been far from business-friendly in the last eight years.

It is easy to indict the ongoing energy transition for the domestic oil and gas (upstream) industry’s woes. As the oil majors have come under pressure from newly-active shareholders flying the environmental, social, and governance ensign, they were always going to quit marginal fields such as ours. But the domestic environment has been far from business-friendly in the last eight years. This is as much about the serious deterioration in the state of security, a huge explanation of the ease with which felony is alleged to be taking place across the crude export infrastructure. As it is about the Buhari administration’s famous “body language”.

From its closure of borders, through to its sundry bans on importation of diverse commodities, the message has been, if not of a predilection for autarchy, then of a clear preference for dirigisme. A messianic leader, dubious of the intentions of the private sector, has strengthened the state’s nanny instincts — if not its competence. This is why the drop off in domestic investment has not been restricted to the oil and gas industry alone. And why across the different sectors of the economy, businesses’ strategy departments wrestle with how to respond to dwindling final demand, rather than what to do to boost productivity.

It is also the reason the IMF’s outlook for the economy this year and next might have been acquired through rose-tinted eye-pieces.

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