Despite the uncertainties generated by the volatility in oil prices and the significant drop in government revenue, the Nigerian economy will continue to grow, even if oil prices fall to $35/bbl and average just $45/bbl in 2015, provided there is no deterioration of the political and security landscape, PricewaterhouseCoopers (PwC) says in a report.
According to PwC, one of the leading global networks of ‘big four’ audit and assurance firms, which recently conducted the forensic audit on the state-owned oil company, Nigerian National Petroleum Corporation (NNPC), which indicated that the oil giant may refund in excess of $1.4 billion, in the long term, however, Nigeria’s policymakers must encourage a more resilient economic model fit to harness the country’s strong growth fundamentals.
These observations are contained in the latest Nigeria Economy Watch report released in Lagos by PwC titled ‘What next for Nigeria’s economy: Navigating the rocky road ahead’.
The report presents PwC’s economic scenarios for the country for 2015 and 2016 and draws on three possible economic scenarios developed by the firm’s economic team to help public and private sector organisations prepare for an uncertain environment in 2015 and 2016.
According to the report, a large services and agriculture sector has developed independently of the oil sector, and this should help to insulate the real economy from a downturn in oil prices. However, any deterioration of the political and security landscape could unnerve investors and tip the country into recession, it said.
If a ‘medium’ political shock occurs against the backdrop of a severe oil price scenario, the report predicts that Nigeria’s economy could see zero growth or even contract in 2015 and again in 2016.
Andrew S. Nevin, partner and chief economist at PwC Nigeria, said, “We explored two types of shocks in the report: an oil price shock and a political shock.
The first scenario looks at oil price averaging $55/bbl over 2015 and stabilising at $70/bbl in 2016 with a smooth transition and maintenance of political stability in the country. Scenario 2, envisages the re-emergence of Iran oil production in Q2 of 2015 which could drive oil prices to as low as $35/ bbl and reaching a new equilibrium level of $60/bbl in 2016 consistent with the most bearish forecasts from analysis.
The third scenario folenlows a similar pattern as scenario 2 with oil prices averaging $45/bbl in 2016 in addition to severe political or security shock, arising from escalation of Boko Haram insurgency and/or resurgence of restiveness in the Niger Delta.
According to Nevin, “Our modelling and forecasts show that while the economy will continue to struggle, even under the most benign scenario, it will be able to realise growth averaging 4.0 percent for the period.
“These scenarios present important issues to consider for all organisations exposed to Nigeria.
We are already supporting several public and private clients across a range of sectors to help them understand what these scenarios could mean for them and how they can build preparedness through their business planning processes.
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