Acombination of falling prices and reduced oil exports due to Niger Deltaviolence have prompted Nigeria to reduce its federal budget for next year. World prices plunged below $70 a barrel lastweek before rebounding slightly, but have tumbled from July's $147 high. OPEC ministers plan to meet this week to cutworld output. Because of the Delta violence,petroleum now brings in only 20 percent of Nigeria's gross domestic product (GDP).However, it draws 99 percent of export earnings and raises 85 percent ofgovernment's revenues. On Friday,finance minister Shamsuddeen Usman acknowledged Nigeria's bid to reduceexpenditures next year. Analyst andsoon to be Managing Director (CEO) of the First Bank of Nigeria, Sanusi LamidoSanusi says he expects Nigeriansto weather the storm as long as they can shield their economy from a shakyinternational stock and investment climate.
"For us, the major exportremains oil and gas, and of course, oil prices have taken some beating, and thepast couple of weeks of domestic woes in the Niger Delta mean that we are goingto see a reduction in government revenues.However, in Nigeria, the budget was always benchmarked at the price, Ithink, of $55 a barrel. And we have $60billion in foreign reserves, enough for 40 years imports, so the immediateimpact, I think, will not be risky there on that front," he said.
Bank executive Sanusicautions that African investments tied to the international troubles of westernbanks, financial institutions, and stocks could compound the low returns onenergy goods, minerals, and other high-value commodities. But he is optimistic about the intensivebailout and encouraged that African economies can sidestep the brunt of thecrisis.
"Thestock market has taken a big battering.Hopefully, investors have taken their money out. And there is fear that some of the banks mayhave been exposed to the capital markets substantially with most margin loans,and this may throw them into liquidity problems," he said.
The extent of theinternational rescue effort means banks may regain enough confidence to resumelending and other commerce. However,for energy and other resource values to bounce back, Sanusi says, depends on aseries of recoveries tied to the US domestic markets and a resurgence ofproduction by leading manufacturing giants China and India, who he says driveworld demand for fuel and raw materials.
"The price of oil has beendriven largely by strong demand from China and from India, and a lot dependsnow on whether demand from America causes an increase for Chinese goods. I think we're going to see some greater participationby the United States. I think that inthe attempt to focus on domestic issues, there might be a reduction in thetrade deficit with the price, and that might affect demand for thesecommodities, so our expectations of moderation in the price of energy and inthe price of commodities, but they will not crash to the bottom," he said.
But Sanusi cautions thatAfrican countries that are less endowed with the resources Nigeria possessesmay face significant belt-tightening.
"Ithink it's critical for us because Africa has been on a growth trajectory inthe last three or four years, and if anything happens to the world economytoday, and we are back into recession that takes time to track back to Africa,the steps that have been taken by Europe and by America have been drastic andextreme. I think those efforts havetaken them by surprise, but I suppose they've been consistent with the enormityof the problem. The most importantthing is for no one to be under any illusion that these measures have beenneeded because the only solution to the problem is it may take a long time. We believe that it would take six months totwelve months before we will begin to see capital come back to the same levelthat has come into Africa just a few weeks ago," he said.