Strong oil prices to accelerate Nigeria’s economic recovery _OPEC

Inflation remains a challenge

Sopuruchi Onwuka

Nigerian economy which is currently suffering galloping inflation, high unemployment rate and harsh business environment will find relief from anticipated investments in the hydrocarbon industry and improved oil revenue within the year.

The Organization of Petroleum Exporting Countries (OPEC) predicted in its highly regarded monthly report that Nigeria’s local economy would make a difference in growth rate even at a time of overall global economic growth deceleration.

The group which hosts mainly petroleum reliant economies also warned that persisting coronavirus disease outbursts and Russian war in Ukraine have complicated the prevailing global inflationary trends.

OPEC said high rate of inflation would yield a worldwide economic impact, adding that food inflation would pose existential challenge for poor countries.

The OPEC monthly report, The Oracle Today reports, puts Nigeria on both sides of the global oil price impact. Nigeria would benefit from the prevailing oil revenue windfall and also suffer the associated inflation. And mismanagement of the prevailing oil income could worsen poverty in the country and exacerbate hunger.   

The World Food Programme (WFP) of the United Nations listed Nigeria and Sahel Africa as hosting some 22 million people facing starvation as a result of trade barriers resulting from Russian war with Ukraine. Both countries are critical factors in global food supply, jointly accounting for nearly half of global grain export. Russian military blockade has made Ukraine unable to ship out over 40 million tons of grain, and international trade sanctions on Russia has made it difficult to raise bank instruments for international transactions.

Besides acute supply gaps in the international food commodity market, sanctions on Russia have also complicated energy supplies in industrial economies and caused jumps in the cost of production input and product prices across the globe.

OPEC declared in the report that “strong rise in commodity prices in combination with ongoing supply-chain bottlenecks and COVID-19-related logistical logjams in China and elsewhere are all fuelling global inflation, which was already at a high level. Food inflation will likely be an existential challenge for low-income and less-developed economies.”

World Poverty Clock has in the past five years consistently posted Nigeria’s status as the global poverty capital, reporting that the country has greater number of poor people than any other nation on the planet.

The Oracle Today reports that Nigeria’s petroleum dependent economy has since 2016 faced intermittent oil price shocks as different factors shake demand side of the market. Oil prices went below production cost in 2020 following global pandemic lockdowns, pushing OPEC to activate supply balancing measures to buoy up oil value as the global economy adjusts to pandemic shocks and rebuilds energy demand.

National Bureau of Statistics (NBS) puts Nigeria’s unemployment level in 2021 at 42.5 percent, one of the highest in the world. Youth unemployment is calculated at over 37 percent, while attrition rate of small enterprises is put at disturbing 80 percent. Attrition rate of micro, small and medium enterprises reached 95 percent in 2020, according to official figures, indicting low resilience in the local market environment.

Speakers at recent Lagos Employment Summit blame high unemployment rate among the youths on high rate of business failures in the country. They pointed out that mass failure of small businesses in the country result from poor physical, fiscal and regulatory environment for implementation of government’s ease of doing business policies.

Federal government has driven economic diversification and ease of doing business programmes in order to open up new growth pathways and enable private enterprises assist in creating jobs for booming young population.

Measures evolved by OPEC and its allies have since propelled oil prices near 2008 highs, pouring highly needed foreign exchange income into the coffers of petroleum producers to help them recover rapidly from pandemic recession.

In its assessment of the economies of member states, OPEC posted a strong outlook for the country’s economic performance. The organization noted that Nigeria has maintained a recovery trajectory from a contraction of 1.8 percent in 2020, through a 3.6 percent expansion in 2021 to a positive outlook in 2022.

OPEC stated that despite concerns over inflationary pressures amid disruptions to global trade flows and supply shortages, Nigeria’s overall prospects for short-term economic position remain positive.

The report noted that Nigeria’s bright economic outlook in the year would be pushed by improvements in the hydrocarbons sector and energy prices, adding that economic recovery is most likely to continue over the course of 2022.

OPEC also made it clear that Nigeria is not isolated from the global inflationary trend, pointing at official data that indicate 0.1 percent rise in annual inflation, from 15.6 percent in January to t15.7 percent in February 2022. It also noted that food inflation remains particularly elevated above the overall inflation rate, warning that higher food costs related the geopolitical tensions could further fuel inflation.

It further noted that rate of improvement in economic recovery weakened in the month of March, with Purchasing Managers’ Index (PMI) as corroborated by Stanbic IBTC Bank Nigeria dropping from 57.3 in February to 54.1.

In providing an outlook into the global economy for the rest of the year, OPEC stated that the combination of impacts from the ongoing Russian invasion of Ukraine and the resurgence of COVID-19 pandemic would deliver negative short term impact on global economic growth.

OPEC determined that both Russia and Ukraine would face recession in the year, while their war, ongoing supply-chain bottlenecks and COVID-19-related logistical logjams in China and elsewhere, and tight labour market in industrialized nations would fuel inflation across global across the globe.

For poor countries, OPEC stated, “food inflation will likely be an existential challenge.”

The oil exporters’ group downgraded its earlier forecast for global gross domestic product (GDP) growth from earlier estimates of 4.2 percent to 3.9 percent. The revision, according to the report, factored in gradual improvement in the second half of the year compared to the first six months.

“However, further downside risks to this forecast are estimated to be considerable, to stand at more than half a percentage point, especially if the current situation extends into 2H22 or even worsens,” OPEC warned.