Kachikwu:The Improve of Oil Revenues would end Recession

Under the new scheme the government would no longer contribute directly to the JV projects from budgetary provisions. Rather its contribution is structured to be funded by banks under an arrangement that will allow them to recover their monies while the federal government will only collect dividends from the profits.

To ensure a fresh start, Kachikwu facilitated a settlement of the $6.8billion cash call arrears with international oil companies in a landmark deal that will save the country about $1.7 billion.

HIGHER OIL PRICES + RISING PRODUCTION VOLUMES = MORE REVENUE

Along with other measures in the economic reform strategy of the Buhari administration, the efforts of the Petroleum Ministry under Kachikwu are producing positive economic and financial outcomes for the country. The country’s depleted purse has been experiencing a significant boost from higher oil earnings as a result of stable global oil prices (which now hover over $50) and a huge increase in local production capacity which has now hit a high of 2.5 million barrels per day. This has led to a steady rise in the country’s foreign exchange reserves which recently peaked at $31.22 billion, the highest in two years.

Though still significantly below pre-crisis levels, this gradual turnaround in the finances and revenue profile of the country is impacting the economy in two major ways.

First, the robust foreign exchange reserves are giving the Central Bank the firepower that it requires to provide liquidity in the foreign exchange market, a move critical to stabilising the value of the naira. Between February and April this year, the CBN leveraged the reserves and injected a cumulative sum of $3.61 billion into the foreign exchange market. As a result of such interventions the naira has remained relatively stable for about seven months, hovering at about N363 to dollar in the parallel market.

At a more fundamental level, the improved financial position of the country driven by a surge in oil earnings is boosting government’s efforts to get the country out of recession through increased funding of capital projects and other strategic initiatives in the 2017 budget.

Recent data from the National Bureau of Statistics show a steady pattern of recovery in key macro-economic indicators traceable to the improvement in revenues and other factors. In June, inflation rate stood at 16.10 percent, the lowest seen in 13 months. Analysts estimate that it would fall further to 15.96% in July.

The Production Managers Index (PMI) which indicates the level of manufacturing activity and the health of the economy is also growing at its fastest pace in two years, signaling significant expansions in the economy. According to NBS the index jumped to 54.8 in July, from 52.9 in June because of the fast pace of expansion in both output and new orders despite some decrease in for-export orders.

In addition, the deceleration in the gross domestic product has also slowed down significantly from 1.6% in fourth quarter 2016 to 0.6% in 1st quarter 2017. The state of uncertainty is gradually changing to that of stability and predictability.

While this is yet to translate in practical terms to lower food prices in the markets, more money in people’s pockets to spend, there is a reasonable basis for optimism that if sustained and complemented by other efforts of government, the picture would soon change in visible ways.

Under the leadership of President Buhari and Acting President Osinbajo, Kachikwu’s leadership of the oil and gas industry in the wake of the drastic fall in oil prices in late 2014 have contributed to the rally in global oil prices, increased oil production and significant improvement in the overall health of the economy. As a result, the country is in a much better place than it was when the Game Changer was appointed two years ago.