How lower oil prices may impact Nigeria’s economy

Brent crude has been on a rollercoaster ride recently, with concerns mounting over the impact of Hurricane Francine on U.S. output, tensions in the Middle East, and a gloomy demand outlook. The question on everyone's mind is: How will Nigeria's economy fare if oil prices continue to fall, potentially dipping below the crucial $70 mark? To shed light on this pressing issue, CNBC Africa sat down with Bongo Adi, Professor of Economics at Lagos Business School. Professor Adi highlighted the importance of monitoring oil futures as an indicator of where prices might head in the future. Despite the temporary dip below $70, he remains optimistic, pointing to the performance of the global economy and the resilience of oil prices. However, the looming threat of prolonged low prices poses a significant risk to Nigeria, a country heavily reliant on oil revenue. The Nigerian economy's performance has been closely tied to oil price movements, with Adi noting a concerning drop in production volumes and the subsequent impact on fiscal stability. The conversation shifted to Nigeria's upcoming challenges, including the eagerly anticipated commencement of petrol production at Dangote Refinery. Initially seen as a game-changer for the country's energy landscape, uncertainties surrounding the project have cast a shadow over its potential benefits. Adi emphasized the strategic importance of the refinery for not only Nigeria but the broader African market, urging continued government support for its success. With the subsidy removal in May 2023 yielding significant savings for the government, estimated at one trillion Naira monthly, Adi underscored the need for a reassessment of the subsidy regime. While supporting local production is vital, the delicate balance between market liberalization and shielding consumers from price shocks must be carefully managed. Addressing issues such as smuggling and ensuring border security are crucial steps in creating an enabling environment for domestic refining capacity to thrive. As Nigeria navigates the complex terrain of fluctuating oil prices, production challenges, and market dynamics, proactive policy measures and strategic investments will be key to safeguarding the economy and promoting sustainable growth. The road ahead may be uncertain, but with informed decision-making and prudent economic management, Nigeria can weather the storm and build a more resilient, diversified economy for the future.