The Implication of High Oil Price on Nigerian Economy

Since the discovery of oil in commercial quantity in Nigeria in 1956 by the British, the economy has evolved into a monolithic crude oil dependent one, with all its attendant disadvantages. The fact that over the years, Nigeria cannot boast of refining enough oil for her domestic consumption compounded the woe of the economy. The impact of high oil price on the nation’s economy can be viewed from a dual perspective, the direct effect and the indirect effect. The direct effect of high oil price on the Nigerian economy results to domestic inflation, which occurs as a result of excess government expenditure on non capital projects. This leads to excess liquidity and exacts inflationary pressure on the economy. The Nigerian economy rely heavily on importation of manufactured goods, tools and industrial equipments, which makes it almost impossible to match the sudden increase in money supply caused by the revenue from high oil price with domestic production of goods. The indirect effect spines from the fact that the price of petroleum derivatives such as PMS (petrol), AGO (diesel) and DKP (kerosene) used in Nigeria is determined by the price of crude oil in the international market. This is so, simply because we import refined fuel for domestic consumption. In situations where more than 80% of domestic production is done using generating sets, since power supply from the national grid is very erratic, the high price of petroleum product will translate to high price of domestic goods and services. This high price of locally manufactured goods will lead to fall in their demand in the domestic market since they will be more expensive relative to imported ones, which are of higher quality in most cases. Furthermore, the high price of Nigerian made goods in the international market means low patronage denying the nation of the much needed foreign exchange. The transport system also relies on petroleum for energy; this will also affect the price of goods and services true high haulage and individual transport fare. In a situation where the government decides to subsidize the prices of petroleum products, it ends up gulping more than a quarter of the total annual budget as a result of high population and corruption on the part of government officials and the companies involved. The government as a matter of urgency should diversify means of refining enough oil for our domestic need and if possible export. In addition to this, the government, (especially Federal and State) should channel their expenditure on capital project that are cost effective, such as road construction, improved power supply, research and product improvement e.t.c. This will go a long way in reducing the effect of high oil price on the economy and also create employment for our teaming population.