THIS DAY

Akpabio Warns: Economy Could Collapse in 6 Months

•Oil price ‘to average $56 next year’
From Constance Ikokwu in Washington, DC and Chinedu Eze in Lagos, 12.09.2008

As the price of oil continues to decline, the Institute of International Finance (IIF) 2009 commodity forecast says oil will average $56 per barrel in the first quarter of next year, rising to about $65 towards the end of the year.
This is some good news for the Nigerian government which had predicated its earnings next year on $45 per barrel of crude oil – and with the commodity now selling below the budget benchmark, Governor Godswill Akpabio of Akwa Ibom has warned that Nigeria’s economy could collapse in six months if the downward trend continued.
Akpabio said the country’s economy might collapse in six months “if the price of crude in the international markets continues to tumble”.
The governor expressed worries over the instability of the nation’s economy while speaking with newsmen yesterday at the Murtala Muhammed International Airport (MMIA), Lagos, expressing regrets that Nigeria is dependent on the market forces that are not in its control.
He said: “The falling crude oil price is a worrisome development. I think the falling oil price will affect everybody, every state and will even affect the Federal Government. So, we are watching this and praying it will not go far below $40 per barrel as it is going now but that shows the volatility of Nigeria economy. We are dependent on forces that are not within our control.
“If the oil price can fall from $147 to less than $50 per barrel under three months, that shows that Nigeria can actually collapse economically under six months. So, it’s a source of worry that we must make the best prudent use of the available resources on a daily basis, that we must try to create additional revenue generating means and resources if Nigeria must survive.”
The governor said that it is important that the state governments device ways to effectively manage their revenue and re-evaluate their developmental programmes, adding that in Akwa Ibom, his administration had decided to finish all ongoing projects before initiating new ones.
But Washington, DC-based IIF released its forecast at a press briefing in Washington, DC, United States, yesterday with some promising news for Nigeria.
First Deputy Managing Director and Chief Economist of IIF, Mr Yusuke Horiguchi, said the forecast was based on events in the market which indicate a dramatic fall in oil demand due to a slow-down in world economy and a possible recovery next year.
The planned reduction of oil supply by the Organisation of Petroleum Exporting Countries (OPEC) will also affect the market, he added.
Horiguchi stated that the collapse in the global economy is here to stay for sometime. A slow recovery is expected by the middle of next year, which will spur growth, commodity demand and lead to a spike in prices, said Horiguchi.
There is “tremendous weakening in oil demand relating to collapse of world economy… This will continue for sometime and we are not seeing any recovery in world growth until the middle of next year… Once economic activity starts growing faster than now, in the second quarter of next year, demand will increase,” said the economist.
Asked to assess the risks of the volatile price of oil to the Nigerian economy, IIF Special Advisor and Director of the Africa-Middle East Department, Mr George Abed, told THISDAY the deficit in the 2009 budget might be more than three per cent, given huge spending.
“Budget that has been put before the legislature assumes $45 per barrel. At that price, given the spending, deficit will widen beyond three per cent, perhaps three per cent plus,” he stated.
He added that there might be a strong demand to fund deficit projects with money from the foreign reserves.
The IIF in a report also stated that the recovery process for the world could be more painful than expected. The baseline scenario projects a rapid deceleration in global growth from 3.4 per cent in 2007 to 2.2 per cent in 2008 and 1.4 per cent in 2009.
Economic activity is expected to stagnate through mid-2009 in most advanced economies, as asset price and consumption boom deflate and financial institutions curtail credit to reduce leverage, said IIF.
Emerging and developing economies will be adversely affected by the crisis through reduced investment, trade and external funding, adds the institute. As a result, growth in emerging markets and developing countries is projected to moderate from the rapid pace of growth over the past several years, as spillovers from the global financial crisis intensify, the IIF stated.
The global financial crisis has led to a decline in oil prices from record highs mid this year to record lows this month. The commodity peaked in July costing well over $147 per barrel, falling to a four-year low $40 yesterday.