First-Ever Negative oil price: Why

By Ahmed Adamu, PhD

(20th April 2020, 23:00)

As I write this article, the famous American crude oil called West Texas Intermediate (WTI) is sold at -$13 per barrel, which means, suppliers of oil have to give $13 to whoever is willing to take one of their barrels of oil produced. This means, the oil is free today, and you will get an incentive for taking the oil.  The suppliers are desperate to let go of the oil they produce to avoid storage costs.

The reason behind this unprecedented decline in the price of that oil is just simply a storage crisis. The buyers of WTI oil are required to take physical delivery of their oil at a location called Cushing in Oklahoma, unfortunately, this location has saturated its storage capacity, and buyers don’t want to take delivery of oil without a place to store it before getting a final buyer. And tomorrow, Tuesday is the expiration of the May Futures contracts.

A futures contract is an agreement where buyers and sellers agree to deliver oil at a futuristic price. Buyers and sellers establish a price that oil will trade at not today, but on some coming date at a particular speculated price.  So, the futures market for the oil that’s supposed to be delivered in May is closing tomorrow.  So buyers don’t want to take delivery of May supplies because there is no space to store them. That’s why they are ditching their contracts, and no one is willing to keep their contract, hence the negative price. 

However, this is only affecting American oil, not Nigerian oil, Nigerian oil as we speak now is sold at $22 per barrel, it is even high by 4% today. Other oils like that of global benchmark oil, the Brent, are not facing that pressure too. It is sold at $26 per barrel. 

Most people would have expected an increase in oil price, but the oil price is still not above the Nigerian adjusted benchmark of $30 per barrel. This is because the world is already having a lot of oil supplied, more than it needs and the demand is nowhere to be found due to the coronavirus lockdown. 

Despite the recent OPEC’s commitment to reduce world oil production by 10%, the oil price is dwindling, this is because we already have excess inventory, and we have to allow time for the market to clear before this reduction takes effects. In the normal demand period, this takes one to two months, but in this abnormal period, the market response may take up to four months, things being the same. So, the only immediate hope is for demand to surge when countries agree to open their economies in the presence of the deadly virus.

Dr. Ahmed Adamu

Petroleum Economist, Nile University, Abuja.

ahmadadamu1@gmail.com

How to Open Nigerian Economy in the Presence of Coronavirus

Ahmed Adamu, PhD

We do not have to wait until the end of coronavirus before we open our economy, if there is one thing coronavirus is leading us to is a new way of life, not the end of life. Now, it is time to design a new lifestyle and open the economy despite the presence of the virus, here is why and how.

Closing a weak economy can lead to its ultimate death. The lockdown due to the coronavirus is tantamount to the absolute death of African economies that are largely comprised of small and informal enterprises. The economic repercussion of the lockdowns could be costlier than the virus itself. Locking down the economy will mean loss of income, jobs, and productivity, leading to extreme poverty, unemployment, and inflation. These economic issues can cause anarchy that might cost more lives and resources. The challenge is, how do we save these lives and resources in the presence of the deadly coronavirus.

We have started experiencing increasing desperation, hunger, insecurity, and poverty in just a few weeks of the lockdown, now ask yourself, what will happen if you lock down a hungry and idle person for a longer time? First, as they say, a hungry man is an angry and desperate man, and an Idle mind is a devil workshop. So, when these negativities come together, we should expect the worst. The good news is that the social and economic costs of the lockdowns are avoidable.

If we are to wait until the virus is gone before we open our economy, then we will not even have the economy to open. In fact, even if we have the remains of the economy, we will need to spend so much money to revive it, do we have the money for that? I guess no. The daily losses of these lockdowns, both human and financial are far more than that of the virus. That is why I recommend that these lockdowns should not last a month.

It is okay at the beginning of a pandemic like this one to lock down countries and states to buy time to study, prepare, plan, and adapt to the virus. So, one month should be enough for that. Any lockdown beyond one month will harm the economy beyond our ability to repair. That is why I recommend opening the Nigerian economy as soon as possible based on the following conditions and recommendations.

Similarly, it is not advisable to lock down cities with some weekly opening days, the threat is that even a one-hour window can cause widespread of the virus if the following measures are not taken. If the right measures are taken, then we can open the economy not only on those window days but completely. So, the following codes of living can guarantee the opening of the economy despite the presence of the virus.

1. Testing: we should provide adequate testing booths across the country, just the same way we have election polling units, we should have testing units, and people should be scheduled for testing so that everyone in a ward can rapidly get tested within 30 days. People must observe the required distance and wear face masks while in the queue. Everyone that gets tested, must collect the certificate of clearance, with which they can report back to work or open their businesses. Organizations or companies that are eager to bring back their workers to work can set up their testing booths for their staff. The idea is not to risk allowing carriers of the virus to report back to work and infect others. Housing Estates can also organize their testing booths. Anyone that tested positive should not be allowed to go back to work or business. The clearance certificate must contain an authentication barcode so that law enforcement officers can ascertain the validity of the certificate at any time.

2. Contacts Tracing: As we open the economy, everyone must minimize the number of people they meet every day, whoever you are meeting must be very urgent and important, otherwise, do most of your conversations and transactions online or over the phone. Minimize contacts to the lowest possible level. Everyone must have a book or diary in which they document names of all the people they meet daily, including their contacts, meeting location, date, and time. This will make the contact tracing easier. In case, a person tested positive, it is easier to trace his previous contacts, so that they can also be informed and forced to immediately isolate.

3. Social Distancing: As I mentioned above, after opening the economy, we must minimize contacts, and create the required physical distance when meeting someone, this does not matter if it is our friend or a family member. The social distance must be observed while undergoing normal activities. What about in a taxi or bus? In this scenario, everyone going into public transport must sanitize their hands, minimize talking and contact if possible, wear face masks, and do not touch their faces until they wash their hands. Recreational centers must enforce similar measures and social distancing, and crosscheck clearance certificates as well. Mosques and churches can also be opened, but members must have clearance certificates, observe the distancing, wear masks, wash their hands and bring their prayer mats in the case of the mosque. The prayers can be observed in many batches. Those that may not have space in the first batch can wait for the second batch or pray at home. Weddings can take place using similar measures.

4. Enforcement: There should be a law that will incriminate any negligence or failure to observe the safety measures by business owners, employers, religious leaders, and even individuals. If anyone is found not observing the codes should be taken to court for fines or imprisonment. The new job for Police and Civil Defence will now be to ensure compliance with these measures. Security agents must patrol every location to enforce compliance. There must be checking points everywhere to ascertain everyone’s clearance certificates and observance of the guidelines.

5. Distance Business and Learning: Businesses should be incentivized to take their operations online. The majority of transactions and education must be online unless it is economically and technologically impossible. The government through NITDA and SMEDAN must budget some money to help small and medium enterprises go digital. Restaurants must serve only takeaway or home delivery. There must be additional guidelines for the physical decongestion of businesses and education. Schools that can operate online must continue online, and their examinations should be online too. Teachers must learn to ask analytical or practical questions for fair assessments of true understanding, which is a rewarding skill for this century. Radio stations are good mediums for learning for those that cannot afford the internet. Primary and Nursery schools may be opened but with strict measures and observing all other codes as well.

6. Protections and Cure: there must be sensitizations on the need for everyone to protect themselves and all the protection facilities should be provided for free by the government, this should include hand sanitizers, temperature tester, and face masks. Local manufacturers should be asked to supply these things in order to create jobs for them. Generally, people should avoid contacts, crowd and touching their faces before washing their hands. For the cure, we must not give up, we should not wait for others to give us the cure, we should set up a special task force responsible for exploring all possible cure and procedure for the treatment of the virus. This should include unconventional medicine like traditional and herbal medicine. There should be a national conference where all conventional and unconventional medical practitioners would be welcomed to present their procedures or medicines for the cure of this virus. So, we should do our very best to find the cure ourselves.

7. Organizational Response: Each organization or institution or business must establish their own special unit responsible for responding to the COVID19 and setting their own preventive and protective measures for their staff and customers.

8. Investment: The money that is being shared to keep people at home should then be used to support businesses implement these measures and to revive the dead businesses. This can serve as an opportunity for a big positive shift in our economy.

So, every state should constitute a committee responsible for designing the roadmap for reopening their economies and set up guidelines suitable for their own realities and set a target date for the reopening. The above guidelines provide the starting points and ideas on how to go about it. This is urgent, because, every day we spend under these lockdowns, we incur irreplaceable costs. Let us stop these avoidable costs.

Dr. Ahmed Adamu
Petroleum Economist, Nile University, Abuja.
ahmadadamu1@gmail.com

The Coronavirus Lockdowns: We must think twice

I remember the Labourers, Shoe Shiners, Bus and Taxi Drivers, Okada people, Keke drivers, car-washers, Mechanics, Laundry people, Wheelbarrow Pushers, Printers, Shop owners, Tailors, Airliners and many more micro, small, medium and big enterprises whose businesses and sources of income are shut down because of the Coronavirus lockdown. Some of them can never go back to their businesses, because some of the businesses are dead by now, they must have consumed all their profit and capital. The questions are, how can they survive this lockdown any longer, and in the aftermath of the pandemic, how can they start over?

We have seen an acute rise in desperation, poverty, insecurity, and unrest in just a few weeks of this lockdown.  Hunger can make people do desperate things. Hunger is threatening people's lives more than the coronavirus does. We have reached a stage where people are willing to face the virus just to feed themselves, or engage in stealing or robbery to get food. There is this wise saying that, "whatever removes rat from its hole into a fire is more dangerous than the fire." Hunger is more dangerous than the coronavirus. With the imminent lockdowns in some states, one must be cautioned about the social and economic consequences of that. 

The differences in our economic classes have never been this wide and evident as it is during this lockdown, and the vicious cycle is coming down on the common man. Poverty is affecting the common man, and at the same time, he is the victim of the resultant insecurity, because the bourgeoisies are well protected. There is no way we can afford to lock down our economy much longer, we recently withdrew N5 billion from our sovereign wealth fund and another N3 trillion loan is on the horizon, and nothing has significantly changed so far, this is not viable and promising for our future. We have to think outside the box. 

The question is, can Nigeria fit in and survive a lockdown like this one? The larger portion of our population is made up of people whose income is dependent on daily outing and hustle. If the advanced countries can do it, can we? People that have saved enough money can afford the lockdown comfortably, but what about those that didn't save money?

Help me mention more businesses that are affected by this lockdown, let us recognize their plight and the extent of this crisis. 

I would suggest opening up the economy, but with serious measures of prevention, sanitization, distancing, and testing. 

 Dr. Ahmed Adamu, 

 ahmadadamu1@gmail.com

The Economic Trap of Coronavirus

Ahmed Adamu, PhD

 

It is a difficult call for any government to shut down its economy, but that’s what’s happening today due to the coronavirus. Here is the trap, the public quarantine due to the virus has led to the loss of jobs and incomes, inflation, and recession, yet governments have to finance the quarantine in form of social palliatives, yet again, governments have to fund the containment, stoppage, and cure of the virus, and again governments have to finance the revival of the hibernated economy. All of these in the presence of the worst oil revenue slumps in two decades, and a period when every country is struggling to survive, and external aids are not imminent. 

The longer the pandemic stays, the more expensive the recovery will be.  So, the government would need to spend more now to cut the waiting period, because every minute comes with a steeper recovery cost. This crisis is unique and by far different from the 2008 economic crisis. Now let’s analyze these questions, can the Nigerian government bear these costs and what’s the Nigerian best bet? How to manage the coronavirus economic crisis and how different the current economic crisis is from the 2008 global recession?

More than half of the total jobs in Nigeria is being lost, people lose their jobs without social protection and are being asked to stay at home. Income losses are estimated to amount to at least N3 Trillion in Nigeria alone in just a matter of a few months. Investment is rapidly going down. Factories have shut down, even factories that insist on production in this period could not operate as their workers decided to stay at home for their safety despite the bonus offered to them, and this led to scarcity and hence Inflation. 

The economic paralyses are spreading even faster than the pandemic. The effects of these and many other economic paralyses caused by the novel coronavirus will leave a scar and reverberate around economies even in the aftermath of the pandemic. 

The gap is getting wider, it requires refill by the day. The financial contributions made so far in Nigeria by public and private individuals and organizations to fight the coronavirus, which amounted to over N30 billion, is an opportunity to start somewhere, at least, to contain the disease, fund development of the testing kits and maybe fund researches for the development of its cure. This is a period where external intervention may be limited because every country is concerned about their health and economic uncertainties.

How to manage the economic crisis caused by the coronavirus is by far different by how we managed the world economic recession back in 2008. The 2008 global recession was a normal economic cycle that happens at least once in a generation and it was seen coming. It was more of the effect of human errors and decisions, and it was caused by variables within the economy. During the 2008 recession, the economy was not shut down, it was active. So, the aftermath bailout and other injections were smooth, and the time lag was not that long.

In contrast, the recession caused by the coronavirus is external to the economy, unexpected, very fast and more severe. It also put the economies on hold, and at the same time spending a lot to keep it on hold. The money that could be used to revive the economy has to be spent to fund the management of the pandemic and for social protections during the economic hold on. The loss of jobs in the current crisis is 10 times more than the 2008 economic crisis. Similarly, in the 2008 crisis, the oil price did not plummet to as far low as below $20 per barrel as it is now, the lowest it reached then was $32 per barrel, so, there were some reasonable revenues to fund that recovery. The current crisis came with two punches, a sharp increase in demand for government spending and a deep decline in government revenue. So, when we eventually come out of this pandemic, are we going to have the energy to go for another war, the economic war?

The effects of these shutdowns and lockdowns will echo after the pandemic and might cause some social and economic unrest, which require redress too. So, the government needs to spend more money this time around to recover the economy as an economic stimulus. Other countries would be focused on reviving their economy too, every country will be on their own. According to the United Nations, developing countries would need a $2.5 trillion COVID-19 rescue package to revive their economies. For Nigeria, at least a $100 billion rescue is required. 

Our best bet in Nigeria is to do our best to stop the spread because the more it spreads, the longer it lasts, and the more we expose ourselves to graver dangers ahead. So, it is cheaper for us to do everything possible to end the pandemic in just a month, let us target the end of April. However, with the increasing rate of new cases, it is not encouraging. 

Everyone has to take this pandemic as a personal economic threat because it is a trap, we all fall in. Think about Taxi and bus drivers, restaurants, hotels, barbers, airlines, social and sporting centers, and other informal and semi-formal businesses in this period, it is a catastrophe. Our individual and collective economies are severely affected by the day, and if it continues there will be chaos, a bigger catastrophe. Closing down the economy longer might lead to even bigger problems. The Swedish relaxed approach can be considered in Nigeria as soon as possible.

I would like to commend the efforts of health authorities for their efforts so far, and I want to implore them to make judicious use of the resources contributed. In this case, it must not be the Nigerian way, because it is a matter of life and death. The President needs to be more proactive and work closely with the task force to supervise the operation and receive minute by minute updates. The visibility is not necessary, but in the period of crisis and uncertainty, people need to be seeing and hearing from their leaders for more partnerships, hopes, and psychological stability. We are in a war, a health and economic war, our commanders-in-chief need to be more proactive in the period of war. 

 

Dr. Ahmed Adamu

Petroleum Economist, Nile University, Abuja.

ahmadadamu1@gmail.com

Convert National Assembly Building into a World-class National Hospital

Convert National Assembly building into a Worldclass National Hospital. It will be more timely and economical, and can be used in the aftermath of the Covid19 pandemic. With the broken economy, Nigeria cannot afford to fund building a world-class Hospital from scratch. The N37bn can be used to facilitate the conversion and procurement of equipment.

This can be the swiftest strategy to respond to the health crisis in the country and to reduce the importation of healthcare services. Now that healthcare exports are restricted by foreign countries. In case, National Assembly members want a new space, they can then take over the current National Hospital building or at least share the Villa with the President.

Nigeria would have to spend more in the aftermath of the #Covid19 to bail out businesses and protect jobs, there will not be enough money to adequately upgrade the health sector. Radical changes like this can be smooth in tough situations like this one.

Ahmed Adamu, PhD
Petroleum Economist, Nile University, Abuja
ahmadadamu1@gmail.com

  

How the Oil Price War amidst Corona-Virus Pandemic hits the Nigerian Economy

Ahmed Adamu, PhD

Nigeria’s major source of export revenue is oil, and now over 50 Nigerian oil cargos were reported to have been stranded in oceans without buyers, the question then is where is the revenue going to come from? On Estimate, Nigeria loses at least N25 billion on a daily basis, if continuous up to a year, it will lose almost N1 trillion in a year, courtesy of the current oil price shocks. I explained the dual causes of the current oil price shock in my previous article. Therefore, the Nigerian government cannot fund its expenditure as planned in its ambitious budget. It means that some contracts will not be awarded, people will lose jobs, income and spending will reduce, and the economy may slide back into a recession.

Due to low economic activities, the government is losing some internally generated revenues and must have started suspending some major capital projects. Some private companies have already started sacking their staff, which increases the rate of unemployment. Though the government said, it will not sack any of its workers, but will not employ anyone, it has placed an embargo on all government recruitments, which means more people will remain unemployed. Now with people being lockdown and schools, businesses, transport services, and factories close down, the GDP will plunge drastically. The aggregate demand and supply will converge at a farther distance away from the potential GDP, which increases the recessionary gap.

All the compositions of GDP are going down, including consumer spending, investment, government expenditure, and net exports. This indicates a looming recession. History has shown that there is a positive relationship between Nigeria’s GDP and Oil Price. I studied this relationship way back from 1974 and I observed that any reduction in oil price is associated with a very low or even negative GDP growth. So, the current situation will not be exceptional.

With limited or restricted importations, some goods and services will be scarce, because the countries that export them have shut down too. This can lead to a price surge or inflation. At a time when the oil price is low, import bills are supposed to be cheaper and lead to low inflation, but in Nigeria is not the case. Despite the cheapness of the goods and services in our import basket, the price of the foreign currency is becoming high, leading to inflation.

For example, the dollar is appreciating due to its limited supply or scarcity, courtesy of the low oil revenue, which is the major source of dollar for Nigeria. We have already started seeing a situation where banks cannot meet foreign currency requests by their own customers. Amidst this, there were some panic demand for the foreign currency for speculative and precautionary purposes, and that has contributed to the increase in the value of the dollar in Nigeria. So, we now have dollar-push inflation in Nigeria. As of February 2020, Nigeria’s inflation stood at 12.20%, the highest in more than a year.

Now, it is obvious that the Nigerian economy is severely hit by the current oil price war between Saudi Arabia and Russia. This is quite avoidable. Corona Virus would have hit the Nigerian economy, but not this much. Saudi Arabia’s decision to go into the price war is what makes the case even worst. Corona Virus would have kept the oil price around $40-$45 per barrel. It would not have been this worst, $26 per barrel. One of my students asked me, can we beg Saudi Arabia to stop this war? we are being hit by their fight. As the saying goes, when two elephants fight, it is the grass that suffers. Nigeria is the grass here.

Russia refused to back off and still willing to fight the war as far low as $11 per barrel, and Saudi Arabia is still not willing to show mercy too. Russia will make sure that America’s high-cost shale petroleum production is no longer profitable at low oil prices, and Saudi Arabia will fight against that so that even if America is to be displaced, it must come with a cost for all. It has already cost Russia over $40 Billion so far. Saudi Arabia is directly hitting Russia, by supplying more oil at a discounted value, and not minding the OPEC+ production quota, and by so doing hitting other people’s economies.

This price war came at a very wrong time, and it has added salt to the injury. However, I am optimistic that the price will bounce back. Soon, one of the parties will give up or agree to come back to a table for new negotiations. Another possibility is that some high-cost oil producers will be squeezed out of the market, Nigeria could be one of them, but imagine what cost will that come with.

The Nigerian Oil Company is also considering flooding the market to raise its revenue, but that will be unwise because it is like shooting yourself on the leg. The second option the Nigerian oil company is considering is to reduce the cost of oil production in Nigeria, but this takes time and it is difficult because NNPC may not be in a position to significantly dictate the cost of production, since up to 90% of the oil produced in the country is produced by international oil companies.

So, this is a tough time, and this is exactly what we have been afraid of. I cannot think of a short-term initiative for now, but of course, everyone knows that we have learned that we must have sufficient refineries and other industrial production capacities to reduce our import dependency, and hence our vulnerability. This can be achieved through strategic product import elimination, where we target the elimination of certain products out of the import basket through the provision of sufficient local production capacities for such products or services.

Our exports earnings must come at least from Agriculture, Service, and Industrial Sectors, at least each contributing 20% to our export earnings. It is surprising how oil is contributing 90% of Nigeria’s export revenue and at the same time contributing only 10% to its GDP, this shows the gap in Nigeria’s refining and industrial capacities.

Dr. Ahmed Adamu
Petroleum Economist, Nile University, Abuja.
ahmadadamu1@gmail.com

Corona-Oil Crisis: The Nigerian Fate

Ahmed Adamu, PhD

The outbreak of the Coronavirus caused a reduction in the global demand for oil, resulting from a slowdown in the production and shutdown of factories and airports for safety and preventive purposes. The resultant reduction in demand for fuel and energy inputs led the oil price to plunge to as at today’s Brent Value of $35 per barrel of crude oil. This is a $22 deficit per barrel compared to Nigerian anticipated oil price in the 2020 fiscal plan. This means a reduction in the fiscal performance of the country amidst the social and economic crisis.

The situation exposes Nigeria’s economic vulnerability to oil shocks, and now that Nigeria’s savior, OPEC, is losing its market influence. In the past, even individual OPEC countries could easily influence the market. OPEC played an influential role in dictating the global economy through its production quota system in the past. Now, the era of OPEC's influence is shrinking, and Nigeria may not be protected by OPEC.

The continuous domination of Non-OPEC countries in the global oil supply and the emergence of new unconventional reserves has left OPEC stranded and powerless. As of last week, OPEC could not cut supply enough to influence the price without contribution from Russia and the USA. For OPEC to raise oil prices up, it needs cuts from other non-OPEC countries. Otherwise, they (OPEC) will lose market share and lose revenue if they are to go for the solo cut. To achieve the OPEC’s market target, other non-OPEC countries must cut production by minimal 500,000 barrels per day for a period of 3 months.

The unanticipated coronavirus outbreak led to the flooding of the oil market with excess supply, no one planned for any fall in demand and oil was already produced enough to meet the normal demand, but now due to this emergency, the fall in demand has caused excess supply. As a result of these excesses, even if there are production cuts, it will take up to two months for the market to respond. This adds to the odds for countries like Nigeria.

Russia refused to agree to any cut, and this undermines the OPEC effort to raise the price. And if Saudi Arabia is to punish the Non-OPEC countries through a price cut and increased production, the situation will get worst for some OPEC countries like Nigeria. Saudi Arabia can produce more and sell its oil at a cheaper value in order to displace Russia and the USA in the supply schedule, making them (the Non-OPEC countries) lose market share, and without buyers, they have to cut production. This is exactly what Saudi Arabia is doing at the moment, because lowering the oil price below the USA and Russian marginal cost of oil will make their production unprofitable, and therefore have to shut down production.

Though this is a reactive measure and it is already plunging the oil price further down in the short term, evident by the sharp price drops since from last week, and anytime Saudi Arabia decides to sell at a higher price, the Non-OPECs will take over again, and this cycle continues and thereby sticking the price at a low level. This means Nigeria would have to device other means to sustain its foreign earnings, as oil revenue is no longer reliable.

The idea of borrowing to fund Nigeria's increasing fiscal deficit should not be welcomed, Nigeria should not be sinking into the debt trap, otherwise, any possible future oil gains will go down the drain and the Nigerian prospect will go dim. With the future of oil becoming more uncertain, there is a possibility that Nigeria will not be able to service its debt and may fall into sovereign default. Now is the time to look into the future and save it. 

There should be an alignment in Nigeria's fiscal measures, borrowing to fund ambitious and unnecessary government liabilities is not wise. Increasing the minimum wage and increasing VAT reduces the value of the additional income while adding more weight to the government. Limiting land border importation will not stimulate the economy without the prerequisite conditions for such natural stimulation. Costing the economy without its attendant benefits is a huge leakage. The economy can grow without being constrained. The Nigerian economy needs allowance and incentives to boost activities so as to prepare for the next global economic and energy shift. 

The increasing volatility of oil price and its sharp sensitivity to socio-economic issues is already speeding up the evolution and development of oil alternatives. This makes the world preparing for a new energy era, moving away from oil. The question is who is the next king after oil? Who is going to be the leading country in terms of this transition? Is Nigeria going to be a leader of this new transition or a follower? Without oil, would Nigeria have any comparative advantage on future fuels? To lead, these questions must be answered, otherwise, the fate of Nigeria is uncertain.

Potentially, if China, India, Japan, Russia, and the USA would together shift in one direction, the rest of the world will follow. But the unity and reliability of the transition are still in question. There is still room for Nigeria to make it right. Despite the current decline of oil prices, there is hope for demand and supply convergence at higher oil prices. With prices going down further, some countries cannot profitably produce, and cutting out the higher marginal cost producers in the schedule will raise the price up. However, no high oil price will prolong nowadays, so, this decline will be temporary. So, the time to take drastic shift is now, this is the last call for Nigeria. The best thing is to lead in the new energy transition.

Because of the global appeal and convenience of oil, the new transition could be delayed, but it will definitely come, and it is possible one of the fossil fuels will take the lead, especially the Gas. So, Nigeria should build enough gas infrastructure to save itself from a catastrophic shock that awaits it if oil prices continue slumping.

Dr. Ahmed Adamu

Petroleum Economist, Nile University, Abuja.

ahmadadamu1@gmail.com 

Global Inequalities: Who is Developing Who?

By Dr. Ahmed Adamu

Do you know that the total world’s wealth is approximately $223 Trillion, and 43% of this wealth ($95.89 Trillion) is accumulated by only 1% of the total world population (70 million people out of the 7 billion people in the world)? About 80% of the world population (5.6 billion people) share only 6% of the total world wealth ( $13.38 trillion) who struggle to pay for child medical and education bills. We can also say that 300 richest people on earth have the same wealth as a poorest population of 3 billion (which is the same as the combined population of China, India, USA and Brazil). 

That was looking at the individual inequalities, now looking at the geographical inequalities where we have the rich countries (mainly Europe and America) and the poor countries (Africa and most parts of Asian countries). Two hundred years ago, the rich countries were only three times richer than the poor countries, but in 1960 (after the so called colonialism) the rich countries became thirty five times richer, and in fact today they are eighty times richer. 

This was the justification why these rich countries give assistance and loans to the poor countries as a compensation, which is about $130 billion a year, but the fundamental question to ask is why is the gap keeps expanding despite these injections. 

Here are some possible reasons: There are companies that operate in poor countries, who take close to $900 billion out of these poor nations inform of Tax Avoidance-Trade Mispricing, this is a leakage from the poor countries. Another leakage is the $600 billion debt services that these poor nations pay annually to the rich nations on loans that have already been paid off many times ago. Another leakage is the money that the poor countries loose from trade rules imposed by the rich countries to enable them get access their resources and cheap labour, this lost is estimated to be around $500 billion. 

So, the total leakage from the poor countries to the rich countries is $2 trillion annually, now compare it with the annual injection of $130 billion and ask yourself this question: WHO IS DEVELOPING WHO? You can now start to question the basic rules of the global economy as the wealth is continuously concentrating in the hands of tiny number of people, and turning the world to a quasi slavery. Do you think the rules of the economy shall change?

Dr. Ahmed Adamu
Petroleum Economist, Leadership and Personal Development Expert,

Brain Coach,

Lecturer at Economics Department of Nile University of Nigeria, Abuja,

First Global President of the Commonwealth Youth Council.
ahmadadamu1@gmail.com

@AhmedAdamu

08188949144.

Degree Grade: The Cause for Unemployment and Backwardness in Africa

By Dr. Ahmed Adamu

Each century has its unique challenges and requirements, and educational qualification and requirement must evolve as well. The 20^th century educational system was designed to prepare people to work in offices and farms, and unfortunately, we still run this type of educational system in 21^st century, when we have spaceships that go to the moon and electric cars. Each century supposed to have its own befitting educational system. Most of the work that human beings must do in 20^th century are now being done by machines and computers. The human intelligence has now turned to artificial intelligence, so the priority and the style of education must change.

In this era, education is not exclusive to school, for you to be knowledgeable, you don’t have to go to school necessarily, in fact, even those that go to school, what they learn from school become outdated. We now have access to smart phones, which gives us access to a more computing power and information more than the president of United State of America 20 years ago. So, access to education has never being so level as it is today. In a job market, “we no longer need workers who can retain and reproduce large amount of information, what we need are people who can sort through information and organize it effectively. We need new form of intelligence”. One of my mentors said. Learning must be reformed to enable us change the way we see and approach the world.

In 21^st century, we have google and internet, where we can store, consult and learn information and skills better than what we would do within classrooms sometimes. So, the requirement is not only how much knowledge you can keep in your head, but what you can do with it. Your ability to finish with a high grade in school is not a sole indication of your intelligence and abilities.

Once we peg employment qualification or competence to a mere school grade, then we are training people to be unfit in 21^st century. In this era, you don’t actually need the grade or the certificate to thrive. In fact, most of the billionaires don’t have a degree, and they are more successful than those with the highest grades from schools.

In fact, one might argue that school is the worst distraction to personal growth. Why would you stick your growth of knowledge and skill to a certain restricted or outdated curriculum only, while you have unlimited scope and boundless skills that you can learn in half the time. Schooling psychology tricks us into delaying every personal and skill development until we graduate, and eventually we have to start afresh, because 70% of what we learn in school are not applicable where we may find ourselves. In fact, most graduates forget more than 90% of the things they study in school.

What students eventually learned in school within 16 years, they can learn it in half of that time in this century, so the current school system waste students’ time more than we realize. Learning some of the subjects, professions or skills do not take more than five years, some even less, and with a levelled space for learning, one can go at his/her pace and learn more within far less the time, and keep updating his/herself timely.

Once you judge people by their grade alone, you are bound to hire people-like-robot, who only think and behave within the box, and they would not be able to adapt once you put them out of it. In fact, school system is not grading students fairly, because it subjected numerous learning style preferences to a single teaching style. It is like pairing fish and lizard in a climbing contest. You won’t be fair to the fish. Likewise, if you ask the fish and lizard to compete in a swimming contest, you won’t be fair to the lizard. So, even if one has the lowest school grade, it is not a case to condemn his intelligence and abilities, because he might have related to that fish in a climbing contest. He has not been tested in his best abilities.

Schools fail to teach students how to learn, it only teaches students what to learn, and by doing that students failed to effectively learn, and that’s why most of them forget what they were taught.

If we can subject our educational system to individual’s passion, style of learning and their chosen timeframe, we would be surprised by what we can learn within short time. If we can judge people by their skills, application, comprehension and motivations, we would have unemployment rate reduced drastically. People might have failed to score good grade, but they can be so creative and motivated to apply the skill.

Once we subject employment to grade, then everyone will compete for the grade instead of skills and comprehension, and without skills, people will have to keep waiting for the diminishing white-collar jobs, and more graduates are being produced daily, flooding the labour market, unemployment rate will constantly be on the rise.

The competition should be on skill acquisition and knowledge application, and to do this, you would need shorter period of time, and you don’t actually have to go to school all the time. In this century, certificates should not be recognized, but skills, creativity and ability to apply the knowledge should be the measure of competence and qualification. 

Technology has replaced human requirement for growth, so human beings must do what machines cannot do, and this cannot be achieved by just competing for who can remember facts better. Life skills have changed due to technological advancement, new economies and opportunities. So, schools curriculum must prepare students for these, otherwise, the students will remained unemployed. Most of the skills you would need on a job are not being taught in classrooms, and that’s why most job seekers are not fit for job. That’s why we have high structural unemployment. On the other side, we have people who didn’t go to school or do not rely on their certificates creating jobs, and even employing the graduates.

School grade is delusional, it deceives students into believing that they have it all, while they don’t have it. Those with higher grades tend to rely so much of their grades, and those with lower grades lose hopes on their grades, and as a result pursue real life skills and opportunities. That’s why I advise students to burn their certificates, I don’t expect them to do that, but the aim is to give them the impression that certificate is not everything and that they should not over rely on it.

In fact, when you know you don’t have a good grade that’s when you become creative and innovative. I know Farida Kabir who said that, she graduated with a third class degree, but she is now employing first class graduates. The first class graduates have this impression that they can get a job because they have high grade, and of course they will get it, but they will be working under the creative minds, who may not have gone to school at all. In this century, grades are not indicative of how successful you may become, it might be good for you to have a grade, but don’t expect anything from it, and that alone is a motivation for creativity.

Conclusively, schooling is an outdated system, education is the new system, and for education to take place, you don’t need conventional schools. So, to address illiteracy, we have to create education beyond school. Schools do not have space capacity to accommodate educational needs. In fact, most of the valuable education are not acquired in school. School learning system is not always fair, because it teaches us what we don’t need, and it only teaches us what to learn, but not how to learn. School grades makes us redirect our energy towards grade competition instead of skill competition, and as a result graduates become unemployable. There are no enough opportunities to absorb the graduating students, they have to be trained to create the opportunities for themselves, otherwise, we will forever have unemployment on the rise. So, we have to reform our school system and our perception about school. Anyway, some schools are adapting nowadays, and we should have more of these reforms.

Dr. Ahmed Adamu
Petroleum Economist, Leadership and Personal Development Expert,

Brain Coach,

Lecturer at Economics Department of Nile University of Nigeria, Abuja,

First Global President of the Commonwealth Youth Council.
ahmadadamu1@gmail.com

08188949144.

SPEECH DELIVERED BY DR. AHMED ADAMU DURING THE CONFERENCE ORGANISED BY THE NIGERIAN YOUNG PROFESSIONALS FORUM ON INTERNATIONAL ACTION ON ILLEGAL MIGRATION AND TRAFFICKING IN PERSONS, AT FRASER HOTEL, ON 10TH JUNE 2019.

Africa has to move with time to be truly independent and lead in civilization. We no longer live in a century of labour intensity, where how much you grow is dependent on how much labour you employ. We live in a century of intelligence intensity, where how much you grow is dependent on how much intelligence you apply.

We no longer live in a century where people are trained to work in offices and farms, we live in a century where people should be trained on creativity and innovation, so that you cannot succeed even in office or farm without creativity and innovation.

Labour was a great determinant of growth in 20th century, and that’s why some Western countries illegally invaded Africa and took Africans to their countries as labourers/slaves. Now, they realized that human labour is no longer desirable, because we have machines that can do human work, they closed their borders and created visas.

Now, they don’t need Africans, because with intelligence, creativity and innovation, they can achieve higher results. We live in an era where putting so much physical energy without mental energy cannot guarantee you success. People with mental strength and intelligence tend to succeed more than those with just the physical energy.

So, as long as Africa does not grow its mental intelligence and creativity, Africans will continue to be willing to be trafficked to the western world. Africa has to reform its outdated educational system that does not prepare students for modern skills, creativity, and innovations.

In the fast pace 21st century, you don’t have to spend 16 years to find purpose and to specialize in your chosen skill. In fact, competence and excellence is not strictly based on what you study in school. In the presence a huge database like google, and with amazing technological devises, how much facts you can retain in your head is becoming less required.

Sticking to the 20th century curriculums that teach students repeated and mostly irrelevant subjects is tantamount to producing unfitting graduates that will be competing with machines, leading to permanent and increasing unemployment, because no one will pay continues wages while they can acquire a machine that will do the same job without paying continues wages.

So, building minds is the way to go, no country can make people great, it is the people that make countries great, and that can only happen with great minds. As much as we spend money growing our bodies and making our faces, we should spend more to build our minds.

Africans should now realize that in a fixed technology and intelligence, adding population cannot guarantee their success. Even China realized they need to cut down population and invest more in creativity, innovation and intelligence. A job that 10 people can do in the past, now a single machine can do that, so, instead of competing with machines, we should be ahead of the machine. Even less populous nations succeeded more than the most populous nations, but only with the higher intelligence and creativity. To curb illegal migration and trafficking in persons, everyone must take responsibility of their personal growth beyond school, especially in mental, physical, emotional, spiritual and financial capacities.

The Northern Nigeria: Population and Insecurity

The Northern Nigeria: Population and Insecurity

By Dr Ahmed Adamu

If the world had begun in year 2000, Nigeria, would have been the most populous country in the world, meaning that there are more people born in Nigerian more than anywhere else in the world post 2000. But, is this an added advantage or a liability? When you add more of valuable assets, your productivity will increase, but when you add more liabilities, the reverse is the case.

It is not surprising the continuous killings and kidnappings in the country, especially in the north. North contributes higher proportion of the Nigerian population, and yet it faces lack of development, lack of education and insecurity. The region that produces the president and most of the security chiefs could not have peace.

At the moment, no one is safe in the north. This week the UBEC chairman was kidnapped, and according the audio of the telephone conversation I listened to, which was alleged to be a conversation between a relative of the chairman and the chairman himself, a ransom of N60 million was supposed to be paid for his release. Imagine this money was paid? Who are we empowering? Kidnappers?. They would have use the money to buy more arms and kill more people.

The bitter truth is that if northerners keep giving birth to children that they cannot cater for, leaving them on the street to scavenge for food, without educating and clothing them, and without giving them proper upbringing, discipline and religious knowledge, then in the next five years, north will not be habitable.

The inequality in the north is the widest you can obtain anywhere in the world; the desperation and frustration is too much, to the extent that people can do anything just to survive. People live a life that they wish they are dead. If people don’t value their own lives, how would they value other people’s lives.

Money has become the only means of survival, get it or you die, so the competition for money is so extreme. If a person who is uneducated, poor, desperate, and frustrated sees some kidnappers collecting N60 million per night, why won’t they join them, because they either get the money or they die, and they don’t care if they die.

The persistence of these kidnappings is worrisome, and now the elites are becoming the victims. One thing I observe is that once these elites are being kidnapped, they are being released quickly, and the kidnappers would be captured almost immediately. Maybe, the ransom is being paid immediately, unlike a poor man whose family would have to sell assets and contribute money to raise the ransom money.

There is a way we can trace these kidnappers, we can use technological and traceable chips, which can be pinned into the money, so that, the police can keep enough money with them and stick these chips on them. Whenever a case of kidnap is reported, the police will supply these kind of currency notes, and once the victims are released, the criminals would then easily be tracked and arrested. There also has to be capital punishment and to be executed within short time and in the public eyes to serve as deterrent.

Therefore, it is apparent that the northern population is a liability not a value at the moment. The north is the poorest with higher illiteracy and insecurity. There has to be a regional development plan and goal, where policy makers, investors, private individuals, schools and politicians will all center and commit to achieving the unified goals, among which is population for value policy. Every person added to the population must be prepared to add a value, not to become a liability.

Dr. Ahmed Adamu
Petroleum Economist, Leadership and Development Expert, and Lecturer at Economics Department of Nile University, Abuja.
ahmadadamu1@gmail.com

Fuel Subsidy: Where we found ourselves

Fuel Subsidy: Where we found ourselves

By Dr Ahmed Adamu

In 2016, Nigerians experienced one of the most difficult economic situations in more than a decade following the removal of subsidy by President Buhari. Surprisingly, there was no uprising or protests, unlike during the President Buhari’s predecessor, who was criticized and protested against for attempting to remove petroleum subsidy. Immediately after Buhari’s subsidy removal, inflation kept rising from 9% till it reached 19% within a year. Unemployment also increased from 10% to 23% in two years, and soon after that Nigeria was ranked world poverty headquarters, and recently the 6^th most miserable country to live in. The subsidy removal has seriously created untold hardships, and limited economic growth, and it was not surprising many businesses became unviable, leading to economic recession in the country. These hardships still linger, and no equivalent replacement was provided to offset the sufferings yet.

Now, from the news coming out this week, the Nigerian Finance Minister proclaimed that, the Buhari administration will remove petroleum subsidy gradually. This revealed to Nigerians that, the initial removal was not a total removal, and that they should prepare for more hardships once the subsidy is further removed. This time around, the hardship is likely to be the worst. Following the previous subsidy removal, we thought there would not be further hardships, but more hardships awaits us if subsidy is to be further removed.

The initial subsidy removal was not done properly, as long as fuel price is controlled, there will never be deregulation. So, prices have to be let free to float according market forces for us to have true fuel subsidy removal. And if that is to happen, then at the moment the market pump price in Nigerian is likely to be almost N200 per liter. Are we ready for that?

Since the initial subsidy removal, Nigerian government has not secured legal backing to continue subsidizing petroleum consumption, but reports showed that Nigerian Government spends N1.5 billion per day to subsidize petroleum consumption, this figure is very high especially when computing for a year or two. And now crude oil price is at its highest since 2013, which makes the subsidy payment higher. The higher the crude oil price, the higher the subsidy payment.

The recent discussion on subsidy removal is in reaction to the IMF call for countries to totally remove petroleum subsidies. Though IMF may not consider peculiar Nigerian context, they applied general approach. The IMF Motive is to make fossil fuels prices volatile and high, and compel rapid growth of renewables and alternative energies to the advantage of western petroleum resource poor countries.

Removing petroleum subsidy is good, but Nigeria is presently not prepared and not qualified for that. The failure of government to provide basic infrastructures and reduce inequalities make it dangerous for Nigerian government to further remove subsidy.

Unless there is a sufficient Public Transport System across the country, sufficient Electricity supply, single digit inflation and adequate Local Refineries, it will not be safe for Nigeria to further remove subsidy.  There has to be adequate cushions to protect the poor man from the resultant difficulties.

However, the government is now trapped, because subsidy is no longer sustainable (N1billion per day at least), and there is no money to protect the poor man from the effects of its removal. The Excess Crude Account (ECA) would have save he country by now, but it has been eroded, as at last December, the ECA was eroded to less than a billion dollar. The purpose of the ECA is for rainy days like these ones, this is the time we should have used the savings to build alternative energies and the conditional infrastructures, and implement demand conservations measures. But, it is not there, so, Nigeria is trapped. And, I would like to caution against further loans, the more we borrow the more we burry ourselves. The government might also resort to taxing people, this will not augur well too. At this stage, we should go for more injections, not withdrawal from the circular flow of income.

Oil’s reign has started to decline, because it is a largely a monopoly fuel in the transport sector, and now due to structural changes and innovations, the demand for oil even in the transport sector will be more elastic in a near future, which might bring the crude oil price down. And if that happened, it means low revenue for Nigerian government, and which means it will not be able to fund subsidy. So, even if subsidy is not removed today, time will come when it will be impossible for government to pay it.

Though, it is important to note that if the above forecast of low crude oil price comes to be, the landing cost will also be reduced, which might make the pump price low. However, if prices are low and with emergence of alternative energies, there will be less incentive for oil supply, going by the law of supply and going by the fact that even average marginal cost producers will not profit at certain lower oil prices. This will then reduce the supply of oil, and later push the price up. 

Whatever the situation, we should not be investing on consumption, we should be subsidizing economic activities that add value to the economy. The money spent in subsidizing petroleum consumption in the last 6 years is sufficient to build refinery like that of Dangote’s capacity. If individual person can do it, then government can do it.

No foreign oil company will invest in refinery in Nigeria willingly, their interests are not Nigerians. That’s why they rather invest in LNG than in domestic gas pipeline or processing plants. So, we have to do it ourselves, and the best option is to construct new refineries by ourselves.

Before total removal of subsidy, there should be a transparent auditing and tracking of fuel consumption in Nigeria. We should not rely on what officials tell us, they might collude to extort Nigerians. What if our consumption is just 30 million liters a day? and now we are told we consume 66 million liters a day. This will mean the extra 36 million liters subsidy will go to the pocket of some officials, which is N1 billion per day going to the private pockets in the name of subsidy. So, there is need for forensic auditing and tracking of fuel consumption to ascertain the true consumption, so as to reduce the subsidy payment before we become qualified for its final removal.

In terms of pricing template, PPPRA has failed to demonstrate the pricing template on their website, which gives room for manipulation. Nigerians deserve to know the responsiveness of petroleum landing cost to crude oil price, as well as the complete pricing template for transparency. Without this, there will be tendency for huge corruption and collusion.

Because 92% of our fuel consumption is imported, and refined petroleum products are the largest items in our import basket, the value of Naira reduces. In addition, crude oil export is not creating demand for Naira. So, we always lose currency value for petroleum importation. Therefore, we are trapped, naira kept depreciating and import bills becoming more expensive.

NNPC lacks the capacity to save the country, because, as at 2018, the Nigerian Petroleum Import Bill was N2.28 trillion (half of capital investment for a refinery like that of Dangote’s), and NNPC’s expected revenue contribution in the same year was N2.44 billion. So, no profit, what we anticipated to generate was equivalent to what we paid for importation. So, we are just consumers.

There are too much burdens on NNPC, being largely the sole importer of petroleum, and struggling to maintain N145 per liter price, NNPC will have no option but to allow marketers to sell for profit, which at the moment may shoot price up to N200 per litter, courtesy of higher crude oil price.

 It is all evident clear that, subsidy that we thought was totally removed, it is still being paid in an unsustainable way. We kept leaning on a weak and collapsing pillar and we don’t the money to construct new pillar at a dying hour.

We are lucky, Dangote might rescue us, because he can by 2020 refine up to 60 million liters per day, and until then no subsidy should be removed. We might also have to be careful about Dangote’s monopoly tendency, and based on his business model, he will work with expatriates and might adopt an international refinery pricing model, which the effect of exchange rate might affect its price.

Therefore, if this crisis has taught us anything is that, we have to explore unconventional sources of revenue to build infrastructure, refineries, and alternative energies. One way of doing that is by privatizing the NNPC, so that we can generate revenue and attract investment and competitiveness in the petroleum sector, and use the proceeds to develop infrastructure and new economies. At the moment, the country needs more injections into the flow of income, and this can be stimulated through government spending and benefits, investments and exports, and there should be less imports and more tax cuts. All these cannot be possible without unconventional sources of revenue. So, the final verdict is fuel subsidy is not sustainable, but don’t remove it further until all the set conditions are fulfilled.

Dr. Ahmed Adamu

Petroleum Economist and Lecturer at Economics Department of Nile University, Abuja.

Ahmadadamu1@gmail.com