INDUSTRIALISTS and economists have expressed worries over the falling prices of crude oil, Nigeria’s major foreign exchange earner, saying that it will have a negative impact on the nation’s economy.
Experts who spoke with the Nigerian Tribune said there were indications that the likely disruptions in the nation’s income projections for 2009 would lead to job losses, increase in production costs and prices of goods.
They said that there were also indications that if the government’s expectation on the inflow of foreign exchange was not met, it would have much negative effects on the foreign reserves which in turn would weaken the naira.
Oil prices dropped from a peak of $147 a barrel in July to $46 a barrel this week, a situation that forced the Federal Government to base the 2009 budget on $45 per barrel benchmark for crude. The N2.8 trillion 2009 budget also has a projected deficit of one trillion naira.
There are fears that the Federal Government’s revenue projections may not be realised if the crude oil prices fall further while several also fear that the government may be forced to take drastic measures internally to shore up its revenue base which in effect will increase production costs of manufacturers who in turn will be forced to increase prices of their products.
According to Mr. Vincent Nwanma, an economist and a lecturer at the Lagos Business School, the government’s revenue projection may be affected both by the falling prices of crude oil occasioned by the financial crisis in the United States, United Kingdom and some parts of Asia as well as the crisis in the Niger Delta.
He said the situation might force the government to rationalise the areas of focus of the 2009 budget, adding that if the government decided to cut down on its recurrent expenditure, this might lead to job losses and unrest in the country.
Nwanma added that if the inflow of foreign exchange was poor, the projected 8.2 per cent inflation rate might not be feasible as manufacturing companies would be affected and would in turn increase prices of goods.
In his own comments, the Director General of the Kaduna Chamber of Commerce, Industry, Mines and Agriculture (KADCIMA), Mallam Usman Garba Saulawa, said the Federal Government was likely to look inward to source for shortfall in the 2009 budget occasioned by the dwindling oil prices.
He said there were rumours that the government was being advised in some quarters to increase taxes, saying that such a thing would be ill-timed and would increase cost as well as prices of goods.
According to Dr. Jonah Uzodike, an economist, there was no way the dwindling crude oil price would not affect the government’s projections for 2009, either for good or bad.
He said if the financial crisis in the developed world persisted till next year, oil prices would fall further and reduce the inflow of foreign exchange into the country.
The development, he said, would further put pressure on the provision of infrastructure and the existing industries “most of which are operating at low capacities.”
In his own reaction, Dr. Ayo Teriba, Chief Executive Officer of Economic Associates, said the falling oil prices should not be seen as a permanent issue.
He said the situation might not last till the second quarter of 2009. “The current price is the panic price. The US and Europe will not panic till the second quarter of 2009.
“The present phase in US and Europe is a phase they are not likely to stay long in. We may be doing our own economy more harm by dying before death comes,” he added.
Dr. Teriba warned that if panic was created over the falling oil price, foreign investors would feel that the nation’s economy was weak and would flee, and would stifle the inflow of foreign exchange.
In a research report published last week, Merrill Lynch, a United States bank, said crude oil prices could fall as low as $25 if the global recession extended to China.