NIGERIA'S REVENUE TO SHRINK OVER US FISCAL CLIFF FALLOUT
http://www.nigerianbestforum.com/blog/?attachment_id=122083 When the United States of America's congress signed the fiscal cliff deal, many people had concluded that the trouble has been averted. But the lull in America's economy still pervades, with business chiefs in U.S awaiting the outcome of the February/March resolution on debt ceiling.
Bismarck Rewane, chief executive officer (CEO) Financial Derivatives Company (FDC) Limited shares part of that fear as he believes it may affect the Nigerian economy. He is afraid that demand for crude oil may fall, and as a result, oil prices in the international market would also dip considerably.
The fears are becoming imminent by the day with crude oil prices falling for a second time consecutively last Friday. According to Bloomberg, crude oil prices fell by as much as 1.6 per cent in one day.
Rewane said it would do the Nigerian economy some good if it started to realise early that the country was not rich at all because it has some crude oil and begin to make preparation to face the daunting task ahead.
Fears expressed by business chiefs in U.S is enough to convince doubting Thomases in Nigeria that the country needs to look inward to survive the expected sneeze of the giant, America.
'This package averts a crisis, but it doesn't solve the underlying problems in the medium and longer term,' says Tim Pawlenty, a former Minnesota governor who is CEO of the Financial Services Roundtable, an organisation representing the finance industry. 'Markets appreciate stable policies and environments, because if you're going to deploy capital, you want to know the rules of the road for more than 30 days at a time.'
A U.S news bulletin said Pawlenty's worries include an upcoming squabble over raising the debt ceiling and the credit downgrade it might bring. Automatic spending cuts that were a key part of the fiscal cliff have also been delayed until March. In addition, he pointed to the need for reforms to entitlement programmes like Social Security to deal with unsustainable deficits. The nation's financiers aren't alone in their concerns.
Clearly with spending cuts, the U.S will reduce imports, and that include crude oil, of which a good chunk comes from Nigeria.
Republicans, angry the fiscal cliff deal did little to curb the federal deficit, promised to use the debt-ceiling debate to win deep spending cuts next time.
Republicans believe they will have greater leverage over Democrat Obama when they must consider raising the borrowing limit in February because failure to close a deal could mean a default on U.S. debt or another downgrade in the U.S. credit rating. A similar showdown in 2011 led to a credit downgrade.
'Our opportunity here is on the debt ceiling,' Republican Senator Pat Toomey of Pennsylvania said on MSNBC. 'We Republicans need to be willing to tolerate a temporary, partial government shutdown, which is what that could mean.'
But Obama and congressional Democrats may be emboldened by winning the first round of fiscal fights when dozens of House Republicans buckled and voted for major tax hikes for the first time in two decades.
'We believe that passing this legislation greatly strengthens the president's hand in negotiations that come next,' House Minority Leader Nancy Pelosi told NBC in an interview to air on Thursday.
Deteriorating relations between leaders in the two parties do not bode well for the more difficult fights ahead. Vice President Joe Biden and Republican Senate leader Mitch McConnell had to step in to work out the final deal as the relationship between House Speaker John Boehner and Obama unraveled.
But Wale Abe, chief executive of Financial Market Dealers Association of Nigeria (FMDA) believes that no matter the rift between leaders of political parties in U.S, they will eventually have one voice.
He however expressed concern that there will surely be some element of uncertainty concerning what the outcome of the big decision in February/March would be. To that end, Abe said business will be cautious till the cloud becomes clearer.
He also agreed that with cut in spending, U.S crude oil imports will decline and that will leave a sore gap in Nigeria's crude oil exports. He said though the Chinese and the Indians are looking to Nigeria for their crude oil supply, the gap left by America will still be felt.
Abe added that with the situation in America, the inflow of Foreign Direct Investments (FDIs) and aids will slow considerably in the next short to medium term.
Managing Director and Chief executive of Lambert Securities Limited David Adonri stated that the 'resolution of the fiscal cliff crisis in the US has come as a great relief to the global economy, irrespective of its temporary nature. If the matter had lingered, the global economy would have been plunged into recession.