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Doubts Nigeria can endure falling oil prices

12 December 2014, 12:00Okoro Chinedu

Lagos - The declining prices of oil and the subsequent fall in government revenues is likely to result in unrest and worsen political volatility in the country, a socio-economic analyst warned.

John Campbell, Ralph Bunche Senior Fellow for Africa Policy Studies, argued the decline in revenues meant government had has less money with which to manage political problems.

“The decline in government revenue comes at a time of general political instability, and will likely make it worse. Boko Haram, the radical Islamist insurgency in northeast Nigeria, continues to expand,” he stated in a statement made available by the Council on Foreign Relations (CFR), an independent, nonpartisan membership organization, think tank, and publisher.

Meanwhile, the performance of the army and the security services continues to be dismal and marked by human rights abuses, said Campbell.

“Amid the oil slump, there will likely be less money available to revamp them. In general, public confidence in the federal government appears to be low, making it unlikely that there will be willing acceptance of an austerity policy. However it is hard to see how the Jonathan administration can avoid one.”

Campbell raised fears ahead of the national elections are scheduled for February.

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“Elections are the occasion and the venue for competition, often violent, among Nigeria’s fractured political elites. In the past, abundant oil money provided a means to resolve numerous conflicts, to literally “grease the skids.” Now, there is less money available. Beyond Boko Haram and the elections, falling oil prices poses a new challenge to the patronage networks that run Nigeria because for the first time since 1999, government revenues are shrinking and the naira is falling.”

He said should the government pursue policies of austerity, there could be a sharp public reaction.

“An effort to do away with the fuel subsidy could provoke popular unrest in Lagos, which has been relatively free of political or sectarian violence. In the short term, the government could continue to draw down its sovereign wealth fund (established with oil profits during the fat years), but that account would be quickly exhausted,” said Campbell.

“It could also approach international financial institutions for help, though it would be reluctant to do so because of the likely requirements they would impose. The confluence of declining oil prices and government revenue, a failing effort against Boko Haram, and contentious national elections in two months is making it harder for Nigeria to pull back from the brink.”

Nigeria has benefited from an oil boom since the end of military rule in 1999. Prices rose from $10 per barrel that year to $140 per barrel in 2008. As late as June 2014, they remained above $100. However, since June oil prices have fallen by more than 30 percent.

More than 90 percent of the profits from the petroleum industry go to the Nigerian government. Petroleum accounts for up to 80 percent of all government revenue, which was an estimated $20,7 billion in 2014 and more than 90 percent of the country’s exports.

With the fall in oil prices the Naira, Nigeria’s national currency, has fallen dramatically, eroding foreign reserves. In response, the Nigerian has devaluated the naira by 8 percent.

It was quoted at 180 to the US dollar earlier in the week.

- CAJ News

Tags oil price

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