There are genuine public concerns in recent months, that with the receding price of crude oil in the international market, our heavy dependence on oil revenue may diminish any promising prospect for inclusive economic growth in Nigeria.

Although, sluggish economic growth in Europe and China and the rapid development of shale oil, together with increasing alternative sources of crude oil supplies, have all combined to bring down prices, however, the precipitate price fall within the last four months, may, according to seasoned analysts, also be the result of the desperate auctions of crude oil at ridiculously low prices by buccaneering warlords in strife torn nations in North Africa and the middle East. The regular theft of between 10-20 percent of Nigeria’s annual crude output is probably also sold cheaply as goods which allegedly fell off the proverbial back of a lorry.

Ultimately, the world community will become the real losers as such revenue accruals are deployed by contending warlords to purchase weapons and provision of critical support for terrorists and insurgents who seek to destabilise domestic and international trade and security in the same manner that illicit funds from fraud, narcotics and human trafficking also adversely influence capital flows and the world economy.

Indeed, if the current trend persists, and insurgency in oil producing nations also remain uncaged, crude oil price may actually fall below $50/barrel as in 2008, and wipe off over half of Nigerian’s current budget revenue expectations. In such event, there will be a shortfall of over N1tn, which is close to the average sum allocated for capital expenditure in annual budgets; government may consequently become forced to also trim its largely unpopular bloated and socially insensitive high cost of governance in recurrent budgets. Ultimately, revenue shortfalls will lead to extended delays of salary payments for public officers and inevitably also lead to heavy job cuts which would instigate the already high rate of unemployment in the country and further deepen the precarious level of insecurity.

In reality, workers’ lay off will not be a welcome solution to revenue shortfalls as this may create industrial strife which may estrange government from the people; furthermore, the National Assembly may also be reluctant to endorse any budget proposal that would reduce the huge, inappropriate income expectations, allowances, and slush funds to which Legislators and privileged civil servants have become accustomed.

Consequently, government may embark on additional borrowing to fund its budget at ‘premium’ levels; however, the accumulation of such loans could horrendously increase current annual debt service charges from about N600bn to closer to N1tn or over 20 percent of budget. Regrettably, in such event, government and its agencies will seek to borrow from external sources because of the attendant cheaper cost of such funds below 7 percent! We may therefore need to strike a balance between national sovereignty and the selfish dictates of powerful external creditors if we became heavily dependent and exposed to External loans!

Alternatively, government may decide to make up for revenue shortfalls from crude oil by devaluing the Naira; in other words, where each state for example got N160m allocation for every $1m dollar revenue, each state would now get N200bn for the same export revenue, if the Naira exchange rate became officially devalued, to say, N200=$1.

Unfortunately, such a weaker Naira exchange rate will immediately increase manufacturing costs by over 20 percent and make made in Nigeria goods uncompetitive, often against, subsidised imports. Ultimately, Nigeria’s industrial landscape will further contract as was the case after the oppressive devaluation under ex-President Babangida’s administration.
The higher production costs instigated by Naira devaluation will drive higher prices across the board for most goods and services; regrettably however, income earners, particularly the majority who currently live on less than $2/day will become poorer as the current N18,000 minimum wage will buy less and less goods and services in the market.

Although, in nominal terms because of devaluation, salaries and allowances of Legislators and public servants may remain the same, however, in real terms, the total income package will not command the erstwhile purchasing value; in effect, both the rich and the poor will become relatively poorer!

Worse still, further Naira devaluation will make it exceedingly difficult for us to avoid the wasteful payment of over $7bn as fuel subsidy annually; expectedly, if N200=$1, domestic fuel price will also shoot up to about N200/litre without subsidy; however it is, debatable whether the public would acquiesce to 100% increase on petrol and the attendant inflationary impact. 
Nevertheless, the pressure to devalue the Naira is also propelled on the monetary front; market apprehension about Naira stability has increased demand for the dollar as a safer store of value than the Naira; furthermore, political tensions and increasing rate of insecurity prior to the 2015 elections, particularly in the light of the predicted breakup of our country, may also induce the movement of funds away from the Naira; current market indicators suggest a stampede by foreign portfolio investors to offload their Naira holdings and repatriate their funds in foreign currency.
In reality, the Naira exchange rate is obviously ‘eternally’ challenged by the constant excess of the Naira liquidity pitched against CBN’s rationed dollar supplies in the market.

Unfortunately, rather than address and control the real cause of the destabilising, ever present burden of excess Naira supply, the CBN has struggled with its strategies to restrain dollar demand and maintain a stable official exchange rate of about N155=$1 in recent years. Inexplicably, inspite of the fact that Bureau De Change (BDCs) constitute the prime sources of forex funding for laundered money and smuggling of those goods which constrain the growth of domestic industry, the CBN misguidedly, annually officially allocated billions of dollars to over 2000 BDCs in order to support its fixed exchange rate. 

Although, this extremely liberal disposition to BDCs has been mildly reviewed by significantly increasing the mandatory capitalisation, the Apex Bank has also reduced weekly forex allocations to BDCs; furthermore, just last week, the CBN also stopped direct sales of dollars to Importers of electronics, Generators, Information Technology and Telecom equipment; such importers would henceforth source their dollars from the interbank market at a higher exchange rate of between 5-10 percent for now. 

Expectedly, the above measures will only drive forex demand into the black market and ultimately recreate the same multiple exchange rates structure that was condemned in the past; furthermore, the margin between official and black market exchange rates will become wider; increased rent seeking would inevitably also increase and distort economic activities in the same manner that funds from human trafficking and trade in illicit narcotics threaten to destabilise the world’s economy and security.

Instructively, however, for now the most plausible approach to defend the Naira exchange rate will be to stop CBN’s monopoly of the forex market and the usual attendant substitution of hundreds of billions of fresh Naira supply for monthly allocations of dollar derived revenue, this process will extinguish the perennial burden of excess liquidity.