From Africa Recovery, Vol.13#1 (June 1999), page 10 (box within "Nigeria: Country in Focus")

Oil a mixed blessing for Nigerian economy

Nigeria is a major world supplier of crude oil, producing about 2 mn barrels per day, and is an influential member of the Organization of Petroleum Exporting Countries (OPEC). Sales of oil account for more than 90 per cent of the nation's total foreign-exchange earnings, and therefore, the lion's share of the funds Nigeria puts into its multi-faceted development programmes. Because of this substantial contribution, Nigeria could well be described as an oil-based mono-cultural economy, and the country's fortunes often rise and fall with the price of oil.

Based on an exchange rate of 86 naira to the dollar, Nigeria expects to earn N454 bn from oil resources in 1999, more than double the N216 bn it earned in 1998, although the latter was at a much higher official exchange rate, N22 to the dollar. Non-oil revenues (customs duties, company tax, value-added tax, independent revenue) accounted for N167 bn in 1998, while N214 bn is projected to be earned from outside the oil sector in 1999.

Nigeria's vulnerability to oil market shifts is well illustrated by the outcome of the 1998 federal budget, which recorded a whopping deficit of N59.8 bn, due largely to the decline in international crude oil prices, the cut in Nigeria's OPEC quota, as well as the closure of many oil wells in the troubled but oil-rich Niger Delta (see "Delta communities protest neglect"). Oil-related revenue had been projected to reach $9.8 bn, but fell short by 28 per cent, reaching only $6.3 bn. The government's budget assumptions had proved way off the mark. They were based on a $17 per barrel selling price, while oil prices for the year actually averaged only around $12.5 per barrel. The 1999 budget, based on a forecast of $9 per barrel as the average price for the year, is considered somewhat more realistic.

The impact of the slide in oil prices also was felt in the nation's public service, with potentially serious consequences for the country's political stability. In September 1998, the government raised the salary of public employees by about 300 per cent, to N5,200 per month. But three months later, it had to go back on its promise and slashed the amount by almost half because of declining oil earnings. Then in March it reached agreement with the unions on a new monthly minimum wage, N3,500 for federal workers and N3,000 for those employed by the 36 states. But in April workers in three-quarters of the states went on strike when most state governments failed to implement the new wage for lack of funds.

-- Kingsley Kubeyinje and Tony Nezianya

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