It is on record that crude oil accounted for over 70% of federally collected revenue in the last three decades and we may therefore assume that visible progress in our national development should derive in large measure from the proceeds from this bounteous natural endowment!

However, cynics with long memories may observe that our development was retarded during this period and list our decrepit infrastructure and our current low ranking amongst the world’s poorest as evidence that our otherwise handsome dividends from crude export may well have been a curse than a blessing!

In plain language, this means that we were better off with our paltry income base before the advent of crude export revenue!  Some analysts may qualify this observation by noting that increasing revenue was not the villain and instead point a finger at the incongruent and corrupt process of infusion of oil dollars into our economy!  The stark reality, however, is that we have become poorer with rising dollar revenue, and this paradoxical relationship has been more graphically amplified in the last decade when daily oil output averaged 1.5 million barrels and prices increased from a lowly $35/barrel to an all-time high of $150/barrel this year, and the naked face of mass poverty became most glaring in our nation!

This inverse correlation between rising crude revenue and deepening poverty may have tempted some faith adherents to pray that crude oil prices and/or domestic output should fall drastically in the misplaced hope that the consequent depleted export revenue may actually lead to enhanced economic development!  I recall media reports of the expressed desire of the immediate past Chief Executive of our ‘National Oil Company’ that crude oil prices should fall in spite of its collateral of grossly reduced federal revenue, so that domestic fuel prices will come down and NNPC would not become bankrupt from the increasing value of subsidy it absorbed from fuel consumption!

Well, even though belatedly, this wish has become realized with prices dipping below $50/barrel, and domestic diesel price hovering around the N100/litre mark, down from over N170/litre, and also vague murmurings that petrol (pms) prices may be reviewed downwards in 2009 instead of upwards as per earlier warnings by the Minister of State for Energy.  Lower fuel costs should deflate mass transportation costs and reduce energy costs for local industries.  This, hopefully, should in turn further translate to cheaper prices for food and other consumer goods and save the Nation over N750bn, down from the N15,000bn reportedly incurred as subsidies this year!  In reality, it may be wishful thinking to expect infrastructural capacity building will be enhanced by the N750bn savings from ‘withheld’ subsidies, as depleted revenue resulting from drastic reduction in output and prices of crude will erase any prospect of revenue accumulation for development!  In like fashion, a constricted federal purse will reduce government budgets and spending at all levels and the size of capital votes for development may be jeopardized, as political expediency would restrain any major cut in each administration’s traditionally lopsided recurrent bill!

So, the general price level may indeed fall, but this will not necessarily lead to increased consumer demand which could stimulate industrial activity.  We need to remember, that government allocations remain the main source of funding consumer spending in this country, and so, reduced government revenue will also mean less income and less spending power in the system!  The net results of deindustrialization and increasing unemployment may, therefore, leave us poorer than before!  Certainly, this could not be the expectation of the NNPC boss who wished for much lower crude prices!

On another front, we recall the unending lamentations by our monetary and economic policy makers that too much money in the system (so-called excess liquidity) is the albatross of our stunted growth!  Even the poor man on the street is confounded by this assertion; meanwhile, these policy makers continue to flood the banking system with increasing loads of cash every month when it unconstitutionally substitutes naira allocations for distributable export dollar revenue.  The CBN and the Debt Management (read as Debt Creation) office would subsequently embark on constraining the impact of these huge naira allocations to prevent inflationary credit expansion by the banks!

In effect, these government agencies embark on borrowing back these funds at a cost which may exceed N500bn this year!  Notwithstanding this huge cost to the taxpayer, our policy experts readily admit that funds so borrowed are simply sanitized, i.e. stored idly in CBN vaults, to prevent consumer or entrepreneurial access for spending that could fuel inflation!

Once again, the prayers of our policy makers for reduced cash in the system have been answered with the depletion of federal revenue as a result of the current lower output and prices for crude oil!  Ultimately, this may save us the huge interest burden for storing idle money even when infrastructural challenges cry for attention, to enhance the welfare of our people!  But again, as in the case of the prayers of our erstwhile NNPC boss, the downside is that reduced export revenue means less available money for sharing to the three tiers of government, and consequently less expenditure for infrastructure and welfare enhancement!

A resultant reduction in government’s recurrent expenditure will have a negative impact on employment and suffocate the volume of disposable income in the economy with adverse consequences for consumer demand and industrial growth!

Yes, the inevitable reduction of liquidity in the system may remove the CBN’s need to compete with consumers and industrialists for the cash in the system and should lead to significant reduction in the Monetary Policy Rate (CBN’s control tool for interest rate)!  However, even if rates fall to single digit, the resulting lower commercial lending rates may not excite industrialists when fewer people have less money to spend!  So,  even if CBN’s prayer for reduction in liquidity is manifested, we may still end up worse off than before!

The level of crude oil prices and output and resultant impact on our economy appears to be a case of head or tail we lose!  This is a clear indicate on that our monetary policy framework is inherently faulty!  We have boxed ourselves into a framework that ensures we become poorer with increasing wealth and become poorer still with depleting revenue!  Woe is me! We may all cry!

The possibility of industrial and economic rejuvenation will also become dimmer if our monetary experts contrive a fall in the value of the naira as a result of depleting export revenue on the current account!  In reality, our $60bn reserves should ensure that we can meet out current level of imports and payments for almost three years, but I suspect this will not be recognized as our policy makers have always appeared uncomfortable with a stronger or appropriately priced naira!  Indeed, they may even see a huge devaluation of the naira as a means of maintaining increasing naira allocations from dwindling distributable export revenue!  Not only will naira devaluation increase local cost of industrial production, it will further reduce the purchasing power of all income earners!  We will then have the paradox of inflation in a depressed economy.  Zimbabwe here we come!

Save the Naira, Save Nigerians!