A Foolish Consistency…

…is the hobgoblin of small minds.

It costs something like $30 to extract a barrel of crude oil in Nigeria. So when oil was trading at $110 Nigeria had a margin of around $80 to play with. But when oil drops to $45 as it has now, that $80 margin turns to $15 as the cost of getting the oil out of the ground still has to be incurred.

To put the above numbers another way — while oil prices have dropped by 60%, the revenues available to Nigeria have dropped by 81%. That is, revenues have dropped much more than oil prices have dropped. Nigeria is earning almost nothing these days and you can imagine how disastrous it will be if oil prices drop further to $40 or even less

That’s a small slice of a piece I’ve written on the history of how Nigeria’s foreign exchange rate became such a political matter.

You can read it here. It even has pictures



8 thoughts on “A Foolish Consistency…

  1. You have made the field of Economics interesting to someone like me. I studied microbiology but i am strongly considering studying Economoics for my masters program. Please what book can you recommend for a beginner like me? I wanna start studying it on my own before I apply. That way I will be able to have basic understanding of it before I start the program. Thank you

    1. Thanks a lot. I always recommend Basic Economics by Thomas Sowell.
      It’s big but dont let the size put you off – it’s written in very plain english with real world examples and there are no graphs in it.

      That’s the book that made me love economics.

  2. May I add that beyond diversification, we need to use resources judiciously. We do not spend wisely and spend recklessly. We also need to liberalize and create a level playing field access to the protected sectors of the economy especially mining.

  3. Hi Feyi, I share same sentiments with Fatai. I follow you from a distance and would have asked a similar question or commented on a number of your insightful pieces before now, save for a small matter of shyness. Well done. you make economics interesting. I really do hope to meet you in person sometime n Blighty 🙂 *end of wash*

  4. The kind of thinking that generates such ineffective policies, is why NNPC Refineries haven’t been privatised and why talks of a “National Airline” still reverberate. Unlike many other economic parameters that the common man might not necessarily grasp, the exchange rate is tangible and affects directly. Inflation can be “understood” as things getting more expensive, but a naira devaluation will be seen as a failure of the Government in managing the economy. It will be political suicide for devaluation to occur before other tangible economic benefits of the new administration can be seen (which in itself is the issue, can the economy grow with such restrictive exchange controls?) Improved power supply? Cheaper food? Arrests of more corrupt politicians? You can’t take something away from the common man and not give something in return, nothing goes for nothing. Politics vs the Economics, Politics always wins.

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