How Nigeria can balance its budget and diversify from oil without borrowing heavily

Oil has made Saudi Arabia a global economic power, but the government has just announced an ambitious plan to move away from oil. As part of the plan, ARAMCO, the NNPC of the Saudi government will stop being a state-owned company, and instead, become a publicly traded company whose shares (5% at IPO) can be bought and sold by anyone on the stock market.

The money gotten from this sale would then be used to set up a sovereign investment fund that would invest in other sectors within and outside Saudi Arabia, and the Kingdom would then rely more on profits from the sale.

When the international price of crude oil began its infamous slide from $115 down to below $50 in a space of months, Saudi Prince, Alwaleed Bin Talal stated in January 2015 that oil will never rise to $100 again. It now appears Prince Alwaleed was foreshadowing what has now become official Saudi policy, inspired by Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman.

This is very important information and a sign as to where Nigeria should be looking towards. To raise money, the government should privatize the NNPC, and use the money gotten from the sale to invest in top companies internationally, companies like Apple Computers, Samsung. And the profit  gotten from these sales could then be used to fund Nigeria’s budget.

For one thing; for the leading oil exporting country in the world to suddenly be moving away quickly from oil, there is something they are seeing sitting down that we are not seeing standing up.

And for those who are asking whether the Nigerian government should privatize such a sensitive sector, I say the government doesn’t need to sell all the shares to raise huge amounts of money. The government can retain control by holding on to a majority of the shares. The Saudi for instance ar selling just 5% of their shares in ARAMCO, and just five percent of that would result in them getting over $100 billion.

I am sure that if we are to value NNPC, we will get a valuation in the hundreds of billions of dollars, and if we were to sell just 10 %of the shares of a privatized NNPC, we would be able to balance our budget.

The money to be gotten from the sale, if partially invested (I say partially because we don’t have much savings unlike the Saudis) would also yield us profits.

This is no time for us to be waiting to see if the oil price will bounce back to $100 (it is now $43). If it will bounce back let it bounce back – that should not stop us from diversification. But, we do not even know if it will bounce back. So a wait and see strategy is nothing more than a shot in the dark, and the fate of 170 million people is too crucial for it to depend on a shot in the dark.

In summary, the proposal we are making is 3-fold. The government should:

1. Commission a competent nd trusted consultancy to get a proper valuation of NNPC
2. Take NNPC public by selling about 10 percent of NNPC’shares in an IPO
3. The money raised from the IPO should be partly used to balance the 2016 budget and partly  invested in global multi-nationals like Apple Computers with the aim of getting huge dividends for the country through a sovereign wealth fund.