Obama in his inaugural speech proposed a vigorous search for alternative energy to drive the world’s largest economy. Nigeria is the fifth largest exporter of crude oil to the US. The country’s economy is highly dependent on revenue from oil amid demands for a diversification of the economy.
For the Nigerian economy, — which is already facing a decline of revenue as the price of crude oil came falling, depleting foreign reserves and putting pressure on the exchange rate, — this only means one thing: if Nigeria continues to be solely dependent on oil, it will stand to suffer tremendously from Obama’s alternative energy plan.
The Governor of the Central Bank of Nigeria (CBN), Professor Chukwuma Soludo, has warned that the energy policy of the new American administration may spell doom for the Nigerian economy. ‘The Nigerian government must take vital measures to diversify the economy especially towards agriculture since the collapse in the price of crude oil in the international market may worsen if the search for alternative sources of energy begins to bear fruit.’
The Central bank Governor was also quoted as saying that, ‘With the Obama government proposing to invest heavily on alternative energy sources, there is a permanent threat to oil as mainstay of the Nigerian economy. Unless we take urgent steps to address the situation by also finding an alternative to oil as the mainstay of our economy, we might be back to the similar crisis we witnessed in 1982 when the price of oil crashed, government revenue declined and it became difficult for government at all levels to pay salaries. There was also the abandoned projects syndrome, increased import of almost anything until government was forced to place a ban on foreign currency trafficking because it was being abused.’
The global financial crisis has led to a decline in oil prices from record highs in July last year hitting well over $147 per barrel to a record four year low of $40 per barrel in the month of December, 2008. Nigeria is the world’s eighth largest oil producer and depends on crude oil for over 80 per cent of its foreign exchange earnings.
Freefall of Naira
Meanwhile, the free fall of the naira engendered by dwindling inflow of foreign exchange due to tumbling oil prices has returned the country to the days of massive capital flight and speculative bidding by banks. The Central bank of Nigeria has been blamed for attributing the collapsing naira at the inter-bank market solely to currency speculators who buy and hold currency to sell later to make more profit. Currency dealers claim that the exchange rate at which the CBN is giving on the dollar is too high, forcing them to sell at a higher rate.
According to the CBN website, no fewer than 13.9 billion dollars in corporate funds were massively repatriated within the spate of eight weeks between last year September and November. This phenomenon which coincides with the global economic downturn could also be linked to investors moving funds to compensate their losses elsewhere.
Obama’s determination to shift focus to alternative energy sources comes at a time when more demand for oil is needed to jump-start Nigeria’s economic machinery. The Nigerian economy almost solely dependent on oil has also come under severe criticism from economists in the country who have been advocating for a diversification of the economy following the Niger Delta crisis which has slowed down oil production by 20 per cent.