Economist Warns of Economic Risks if Crude Oil Drops to $40, Urges FG To Focus On Manufacturing
A prominent Nigerian economist has warned that the country faces severe economic challenges if global oil prices experience a significant decline, highlighting the nation’s continued vulnerability to commodity price shocks despite recent economic reforms.
“If crude prices drop to $40, Nigeria will not survive it,” stated Mr. Paul Alaje, an economist, during an interview with Arise TV on Wednesday. The stark assessment comes as Nigeria’s economy shows signs of recovery following recent policy reforms.
Alaje emphasized that the country’s current economic plans may require significant adjustments to accommodate potential changes in the global oil market. “To mitigate this, the inflation target of 15% needs to be reassessed in line with global realities,” he noted.
The economist expressed particular concern about the government’s revenue projections, which, despite diversification efforts, are heavily dependent on oil earnings.
“Revenue targets should also be adjusted, considering the shift in oil price assumptions,” Alaje cautioned, suggesting that the government’s financial planning may be overly optimistic if oil prices trend downward.
His comments come as Nigeria recently reported a balance of payments surplus for 2024, a significant improvement over previous years. However, this positive financial position could quickly deteriorate if oil prices fall substantially below current levels.
Alaje presented a clear path forward to reduce the country’s economic vulnerability to oil price fluctuations.
“To overcome this economic downturn, Nigeria must prioritise manufacturing,” he stated, highlighting the importance of industrial development as a cornerstone of economic resilience.
This recommendation aligns with calls from various economic analysts who have long advocated for Nigeria to reduce its dependence on crude oil exports by developing its manufacturing base and creating value-added products.
Financial analysts note that while Nigeria’s recent economic reforms have yielded positive results, including improved foreign exchange management and increased investor confidence, the country remains exposed to external shocks due to its reliance on oil revenue.
The government’s commitment to economic diversification has progressed, with non-oil exports increasing in recent years. However, experts suggest that the pace of diversification may need to accelerate if Nigeria is to withstand potential oil market volatility.
As global energy markets continue to evolve with the transition to renewable energy sources, Nigeria faces additional pressure to transform its economy and develop new revenue streams beyond fossil fuels.
