As long as oil prices remain at current levels, Nigeria and friends will struggle

When Nigeria’s President Muhammadu Buhari told the world, while in India for the India-Africa Summit last month, that Nigeria was broke and was finding it hard to pay salaries, he was only stating the obvious.

Asked if he was going to reduce the number of government Ministries, Mr Buhari said “Of course, the country is broke.”

Although the retired Army General was heavily criticized for not telling the truth wisely, it is public knowledge that Nigeria is struggling to fund its oil-based economy. Already, the president has asked the country’s Senate to approve his request to borrow N2.103 trillion for the financial year, 2015.

Oil accounts for 40 percent of Nigeria’s GDP and 80 percent of Government earnings. Sadly, prices have fallen by more than 30 percent since the summer of 2014. The price of OPEC basket of twelve crudes, which includes Nigeria’s Bonny Light, stood at $38.18 dollars a barrel on Monday, November 23, 2015. According to data published by knoema.com, offshore production of a barrel of oil in Nigeria costs $30. But Nigeria’s 2015 budget is running on the hope that oil sells at $53 per barrel.

The country had assumed the lower oil price benchmark for 2015 budget  compared with last year’s $77.5, amidst weaker global crude prices. As things stand, it is apparent Nigeria is not making enough to fund its budget. Several states in the country, usually reliant on allocation from the federal government, could not pay workers’ salaries for months as money disbursed by the central government reduced as revenues dropped.

However, Nigeria is not the only country facing economic troubles as a result of the slump in oil prices. Algeria, Libya and Angola also have their break-even oil prices higher than the current prices of oil.

Nigeria’s government has said it would diversify its economy to get out of its current troubles and minimize future shocks. Angola, Algeria and Libya have made moves to manage the current crisis. The Angolan government has cut spending in half. Algeria’s Energy Minister Youcef Yousfi, had earlier in the year met his Angolan counterpart José Maria Botelho de Vasconcelos, and Nigeria’s ambassador to Algeria Haruna Ginsau to consider the possibilities to consolidate cohesion between the exporting countries in order to find a joint solution to the situation. The country, backed by Libya had also called for an OPEC emergency meeting because of the continued decline in oil prices. With Saudi Arabia insisting on OPEC maintaining output,  smaller oil producers in the cartel where Saudi wields so much influence as the leading oil producer, are speaking out but their outcry may not change anything.

According to CNN, a Saudi ministerial source told Marketplace Middle East host, John Defterios that the kingdom will do nothing to change the status quo if Russia continues to produce nearly 11 million barrels per day and Iraq refuses to live by an OPEC quota.

The infographics below paint a picture of why oil-based economies in Africa are struggling.

Breakeven prices of oil
data from knoema.com

Brent crude, a price benchmark for more than half of the world’s traded oil sold at $45.14 a barrel in London at 12:44 p.m. local time on Monday.

Production of crude oil including condensate
source: OPEC

How much does it cost to produce a barrel of oil in Africa?

Marginal oil production cost