Nigeria stares into the abyss of a life without crude cash

Bloomberg

Africa’s most populous nation is getting almost nothing from its massive oil wealth.
While headline Brent-crude futures have rallied sharply in the past few weeks — rising above $30 a barrel — a glut of Nigerian oil is fetching about $10 less than that. It’s a level that means fiscal revenue for the continent’s biggest economy has cratered.
“It’s now dawned on everyone across the country how severe this threat is,” said Andrew Nevin, a partner and chief economist for Nigeria at PricewaterhouseCoopers LLP. “There is a possibility that at least for three to five years, there’s going to be no revenue flowing to the government from oil.”
Nigeria’s plight is playing
out across the world: from Venezuela to Iraq and Iran, petrostates are grappling with the same bleak future — one where their prized commodity is worth a much less than it was, and where private companies often still want their cut.
Nigeria is faced with the twin challenge of dealing with the Covid-19 pandemic itself, and a slump in the price of crude, Finance Minister Zainab Ahmed said. “It’s a double whammy,” she said. “This has set us back significantly.” Global efforts to fight the spread of coronavirus have driven oil prices so low that they no longer cover the cost of pumping barrels for many companies in Nigeria — let alone providing the government with crucial cash.
Nevin of PwC said at a webinar on April 30 that when oil prices are at around $20 a barrel, Nigeria gets very little for its oil. The commodity normally contributes about half of fiscal revenue.
The rout has been so severe that, having resisted borrowing from the International Monetary Fund for many years, Nigeria has secured its first ever loan — $3.4 billion — from the Washington-based organisation to help plug some of the holes that appeared in the country’s 2020 spending plan. It’s also asked to borrow a further
$3.5 billion from other development institutions, including the World Bank.
As of late April, the IMF was predicting Nigeria’s economy would shrink by 3.4% this year. Previously, it was anticipating 2% growth. “It is no longer a secret that government revenues have collapsed,” said Clement Agba, minister of state for budget and national planning.
Even before the coronavirus halted mass-transportation systems and trashed oil demand, the rise of US shale oil was already proving uniquely challenging for Nigeria. Booming production from shale drastically cut Nigerian exports to the US — once the destination for about 40% to 50% of the country’s cargoes.
Despite near rock-bottom prices, traders said that about a quarter of Nigeria’s crude oil cargoes for loading this month have yet to find buyers. They should normally have been sold out by now. Nigeria’s worst outcome would be that its prices stay low and production is reduced by renewed unrest.