Why Nigerians should not be happy that crude oil is at $70
Much against popular expectations, the more bountiful the export dollars, the bigger also will be our economic headache!
This might be good news for Nigeria but there are reasons to approach this development with caution.
For the government, it means more for Nigeria since the oil sector accounts for about 90 percent of total revenue of government. Effective budgetary implementation, increase in economic activities and employment growth are basic attributes always quoted with a jump in oil prices. Much against popular expectations, the more bountiful the export dollars, the bigger the economic headache!
Looking at the current economic structure of Nigeria, here are reasons Nigerians should not celebrate much of the soar in global oil price.
1. It is not only oil prices that rise, cost of goods and services rises as well
Nigeria’s experience during the last Yuletide season explains how an increase in global oil price impacts prices of fuel, transport, goods and services. Those who bore the brunt were the people whose income level remained the same despite the jump in the price of crude oil.
When the cost of oil rises, it affects the cost of shipping goods, natural gas drilling and transport among others. Also, the cost of materials made from oil - such as asphalt for road construction, also rises.
Since Nigeria is an import-dependent nation, the final consumers are made to bear the burden of in the form of high prices for goods and services.
2. Salaries don’t increase to offset increase in prices
Worker’s salaries are never reviewed in line with the increase in prices creating economic discomfort for the people as there is limited access to needed goods and services.
Considering Nigeria where citizens have to pay and provide all needed social services, from water, transport, education e.t.c., the welfare situation of citizens might be on the way down. Thus, affecting the general productivity level in the country.
3. Spike in oil prices does not benefit the whole economy
Despite the oil sector being the main driver of Nigeria's economy, high oil prices would only empower the oil and gas sector without necessarily impacting other real sectors. Theoretically, high oil prices should lead to a jump in employment and aggregate demand but this is only for employees and players within the oil and gas sector. This is because there is no active petrochemical sector in the country.
Nigeria dependent on refined petroleum import would any benefit associated with this high oil price evades the citizens. Thus, not to translate into increase welfare for Nigerians.
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