Uche Usim, Abuja
As the world grapples with the latest crude oil crash caused by the coronavirus (COVID-19) epidemic, the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mr Mele Kyari has urged Nigerians to brace up for an unsavory economic climate in months ahead as the journey would not be rosy.
He said the bumpy ride would be felt for up to three months, regardless of the improvement in crude oil price in the international market.
Speaking at the second edition of ‘Going for growth’, a consultative forum with the Central Bank of Nigeria (CBN) Governor, held in Abuja on Wednesday, Kyari noted that 12 cargoes of LNG were currently stranded across the world, with 50 Nigerian oil vessels roaming the international waters without any market to sell the product.
Kyari also noted that Nigeria’s challenges have been worsened by high cost of crude production, a development that threatens to evict the country out of the globally competitive sector.
He said: “When the oil market collapses, everything collapses. It signifies the importance of the oil market.
“Iraq dropped their prices by $5 and Saudi Arabia by $8 in some locations. So, when your crude oil sells at $30 and you’re dropping it by $8, it means that in the market, you’re selling it at $22. That’s a huge problem that can be accommodated in some production environments like Saudi Arabia. Today, the best of our production system in Nigeria is $15-17 a barrel.
“So, there are many countries whose cost of production is $30 and we’re one of them. So, when the price now goes to $22 and we’re producing at $30, we’re out of business. Beyond that also, we have competition.
“But we have expectations and we have plans. The belief is that we can shift our reserves from 37-40 million barrels in the next two to three years. Inasmuch as our expectations are high, we must produce crude today even at low prices. The market operates in such a way that we don’t know what tomorrow will bring. The assumption for this year was $60 a barrel as an average.
“Now, we are faced with sub-$30 and potentially, we haven’t seen the bottom. We hope we’re seeing the bottom and if it is not, it’s a huge challenge that creates a cycle of problems for us and difficult to manage. It’ll affect all sectors. We don’t have the capacity to finance the oil and gas industry in this country. If we don’t do this and with the competing needs and resources across the world, what it means is that we cannot compete because nobody will want to put his money here.
“With the oil market slump on Monday, the realities on ground is beginning to dawn on us” he stated.
In his remarks at the event, the CBN Governor, Mr Godwin Emefiele said the apex bank was ready to intervene in the health sector following the outbreak of COVID-19.
According to him, plans are afoot to support the government by helping to develop specialist hospitals across the country.
He added that the bank’s intervention would be in the area of diagnosis and surgery, pointing out that this would reduce the foreign trip to oversea countries being embarked on by Nigerians in search of medical attention.
He said: “Given the impact of coronavirus, I heard some countries are trying to ban export of some pharmaceutical products, we must look inward at this time.
“CBN is also working to support the pharmacy and pharmacology industry” he said.
On why Nigerians do not patronize made in Nigeria sanitisers, Emefiele urged people, owners of patent outlets and pharmacies to buy such products being produced in the country.
He said the apex bank would soon add sanitisers to the lists of products on foreign exchange restriction.
He said the country must take advantage of this development in ensuring diversification of economy, being the major economic thrust of the Buhari administration.
He noted that the situation where 80 per cent of Nigeria’s foreign exchange earnings makes the country totally vulnerable to global oil volatilities.
He said relying on crude oil since in 1970s had become a problem for the country, hence the need to change the narrative.
Emefiele disclosed that the findings that would be generated from the roundtable discussion would be immediately presented to the president at the end of the event.
Also speaking at the event, President of Dangote Group, Mr Aliko Dangote said the time has come for Nigeria to fully diversify her economy.
“There are two ways to diversify the economy which can be driven through agriculture and manufacturing.
However, to achieve inclusive growth, there must either be backward integration or import substitution. To an extent, our economy is great because we have a good local market but we need to improve on our exports.
“It is disturbing that we as a country cannot produce what we consume. Only in 2019, our exports was about $42 billion which is not sustainable and we cannot continue like this. To have a population of 200million and grow at 2.7% cannot be sustained
“We have been singing about diversification but we haven’t done anything yet, we need to make our country a producing country and act now. Nigeria imports everything except fuel and iron rod and we don’t have much infrastructure.
“Another area the government needs to look at, is our cost of doing business. It’s too high in Nigeria.
Also, the government must look at improving power supply and infrastructure because these are the areas that will boost the SMEs.
“As it is, it is impossible to diversify without taking consideration of certain things, they include interest rate, long term funds and the support by the central bank to create an enabling environment.
“Similarly, instead of focusing on imports, Nigeria can adopt the Ethiopian government style where they encourage imports of machines to come and produce in the country rather than just importing directly.
I was shocked to hear that Customs received N1.3 trillion Customs duties last year, it simply shows that the economy is not working because if it is, Customs won’t take that as Customs duties”, he stated.
On the achievements of the Dangote group, he said the group has built two cement terminals to ease congestion, adding that by the end of the year, Nigeria will be the largest exporter of cement in Africa.
“Also, by the end of the year, Nigeria will also be the largest exporter of fertilizer in sub-Saharan Africa”.
Earlier in her remarks, the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed said the government was enhancing the Nigerian Customs Service to strengthen its Trade Facilitation functions through automation of its functions and putting up the National Single Trading platform to boost trade facilitation.
“But we also need to mobilize local savings, even before the crash of the crude oil price the Ministry of FBNP has reached out to the private sector and formed a committee to fashion out a National Savings Policy. This will enable us to infuse into the capital market various instruments to suit several investors’ needs.
“This will include long term instruments that will be suitable for investor groups that have patient capital such as pension funds”, she added.