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Saturday, March 07, 2015

Oil price and the effect on the economy

The global crisis has really gone to the brim of major discussions internationally and given the concentration of oil aotherith natural resources in Africa. It is essential and of high significance to note the effect of the fall in oil price on the transformation of African and Nigerian in particular. The collapse in the price of global crude prices is generating a lot of unsettle mentioned as well as instability worlwide. The effects on the economy are way numerous considering the angle of observation. 

Firstly, a lot depend on the longevity and severity of the crisis. Persistent low price will deplete foreign reserve, it will affect the budget, it will affect the spending as well as austerity measures and a lot of debt will be insured. Though it must be stated that favorable projection and forecaster as well as banking on the improvement in global economic growth and also Saudi Arabia's staying power in the stand-off with the United States. Though the United States have surely overtaken Saudi Arabia as the world largest oil producer coupled with the slow growth of China and the consequent reduction of its demand for fuels, evolving non OPEC producers and new technologies reducing the fuel for power such as solar power and the likes. 

Oil producers will be most affected at different level or point of contact. African major exporters such Nigeria, DR Congo, Equatorial Guinea, Angola and South Sudan will all be affected as they all depend on oil rent for a large percentage of their government revenue and more than 90% of their export earnings. It will affect Nigeria considering high capital spendings, government salaries and other recurrent expenditures taking a large share coupled with the drop and depreciation of naira. The naira will suffer much because it mainly depends on import for most of its food and consumer goods.

The resilience to buffer the effect of sudden price swing on budgets and development spendings and expenditures will be tested. External reserves, excess crude account for keeping surplus oil earnings that will allow them continue with infrastructural project remain to be seen. Nigerians Economic Manager will ask; how do we weather this huge storm that befall us. They will ask also have we wasted this huge opportunity of third oil boom to boost our economy. They will ask; will it swing our way back favorably? These and many more questions are left unanswered. 

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