Much against popular expectations, the more bountiful the export dollars, the bigger also will be our economic headache!
The Nigerian government is currently in a joyous mood for a sustained increase in the global price of oil, as the black gold hits $70/barrel on Thursday, January 11, 2017. This is best of time for Nigeria but there are reasons we should not celebrate this fate.
For the government, it means more for Nigeria since oil sector accounts for about 90 percent of total revenue of government. Effective budgetary implementation, increase in economic activities and employment generations are basic attribute always quoted with a jump in oil prices. Much against popular expectations, the more bountiful the export dollars, the bigger also will be our economic headache!
In fact, it is never a celebration mode for the country as government or business sector of the economy will be faced with higher costs of operation. One which will eventually be transferred to the individual in form of higher taxes and the higher price of goods and services.
Looking at the current economic structure of Nigeria, here are reasons Nigerians should 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 last Yuletide season explains how an increase in global oil price will impact prices of gasoline/fuel, transport and goods and services. The person to bear this burden is usually the people whose income level might be the same despite the jump in the price of crude oil.
This picture is real as oil is used in many ways in stimulating the economy. If the cost of oil rises, it affects the cost of shipping goods, natural gas drilling and transport among others. The cost of materials made from oil also rises such as asphalt for road construction and another chemical.
Since Nigeria is an import-dependent nation, the final consumers are made to bear the burden of in form high price of goods and services.
2. Salaries don’t increase to offset increase in prices
Worker’s salaries are never reviewed to offset the rise in prices. Hence, creating an 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 don’t benefit the whole economy
Despite oil sector is an economic driver in Nigeria, high oil prices would only empower the sector without necessarily impacting other sectors. Theoretically, high oil prices would lead to jump in employment and aggregate demand but this is only for employees within the oil and gas sector. This is because there is no active petrochemical sector in the country.
Nigeria being dependent on import for the supply of its refined oil-products makes the benefits to evade the citizens. Hence, making the high oil price not to translate into increase welfare for Nigerians.