The Nigeria Extractive Industries Transparency Initiative (NEITI) is urging the government to insulate the economy from the perennial oil price volatility.
It stated the government could accomplish this by detaching Nigeria off its unhealthy dependence on oil which accounts for the bulk of the country’s revenues and foreign exchange earnings
NEITI made the call in its latest policy brief, entitled: “Insulating Nigeria from Perennial Oil Price Volatility,” released in Abuja.
In the brief, NEITI urged the government to adopt sustainable strategies for robust fiscal cover for the Nigerian economy during periods of cyclical oil price shocks.
NEITI said, “Price volatility is a constant feature of the oil market, exposing oil-dependent countries like Nigeria to regular economic crises when oil prices tumble.”
It remarked that although price slumps had always been accompanied by severe pains that linger beyond the price crash, COVID-19 would eventually be tamed.
“Oil prices will go up again. So the pain of the moment shall pass. But the next slump in oil prices is not a matter of if but when,” the agency stated.
The policy brief examined the impacts of COVID-19 on the nation’s economy, explored inherent dangers in natural resources dependence and recommended ways through which Nigeria could be insulated from the challenge.
A trend analysis of oil price shocks by the policy brief covering May 1987 to May 2020 showed that the global economy had witnessed about eight oil price shocks in 34 years.
“A look at oil revenue as a percentage of total federation revenue showed that from 1981 to 2014, oil revenue consistently accounted for about 65 to 85 per cent of total federation revenue,” NEITI stated.
It added, “It is only in recent years (2015 – 2018) that oil revenue was below 60 per cent of total revenue. And this can be attributed to low oil prices and increased efforts to boost non-oil revenue.”
Further analysis from the report showed that revenue from oil export had consistently contributed over 90 per cent of total exports revenue.
This indicated the dominance of the oil sector in the generation of foreign exchange.