Nigeria, Africa’s biggest oil producer, won’t cut spending while crude prices remain above the benchmark used for this year’s budget, Trade and Investment Minister Olusegun Aganga said.
“Through a coordinated approach between the monetary and the fiscal side of things, I think we can wade through this,” Aganga said in a Nov. 7 interview in Abuja, the capital. “I don’t see any immediate cuts in spending because everything is still above the benchmark.”
Nigeria based its 2014 budget on an oil price of $77.50 a barrel and a daily output of 2.39 million barrels. Africa’s biggest economy and most populous nation of about 170 million people relies on oil for 70 percent of government revenue and 95 percent of export earnings. Prices have dropped below $80 a barrel for the first time in four years. Brent crude, which compares with Nigeria’s light crude, traded at $83.62 a barrel as of 15:03 p.m. in London. It fell as $82.82 on Nov. 3.
Nigeria’s naira fell to an all-time low of 170.25 against the dollar on Nov. 6 as foreign investors exited the market amid tumbling crude prices, prompting the central bank to intervene by selling dollars. Slumping oil prices may curb the West African nation’s ability to keep defending the naira, according to Samir Gadio, head of African strategy at Standard Chartered Plc.
The immediate impact of lower oil prices is to cut the amount of money that accrues above the price used for the budget, which goes to the Excess Crude Account, Aganga said. The fund currently has a balance of $4.11 billion, according to the Finance Ministry.
“The medium-to-long-term strategy here is more about how we diversify the economy of the country away from oil,” Aganga said. “And that journey started a few years ago.”
Under an industrialization plan being implemented by the government, automakers including Nissan Motor Corp., Volkswagen AG, Seoul-based Hyundai Motor Corp., India’s Tata Motors Ltd. (TTMT) and Toyota Motor Corp. (7203), have either set up assembly plants or shown interest in investing in Nigeria.
Such investments will help Nigeria cut an import bill of of $6.5 billion a year for cars and their spare parts, reducing some of the pressure on the country’s currency, according to Aganga.
“If we keep on importing cars, that is one direction,” he said. “We must invest in assembly and increase our local content, and be part of the global value chain for the auto industry.”
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