In a bid to reel in spending and cushion the negative effects of falling prices, Finance Minister Ngozi Okonjo-Iweala announced that the government would be commencing austerity measures. Oil prices across the globe have tumbled significantly, putting pressure on Nigeria’s economy where 70 percent of government revenue is generated from oil resources. The benchmark oil price of $77.5 per barrel in the 2015 budget has now been revised downwards to $73 per barrel.
The proposed austerity measures intend to create a 6 percent reduction in expenditure by focusing on charging luxury items including private jets, alcoholic beverages such as champagne, yachts, and exotic cars. However, the government intends to continue to drive growth efforts in sectors like agriculture and housing. This means that key housing initiatives like the NMRC still have the green light for the foreseeable future. The Finance minister stressed that infrastructure projects would not be affected since they are key to economic growth and job creation, explaining that the austerity measures should not be felt by the common Nigerian.
While it is argued that property prices remain vulnerable, we won’t be seeing any immediate effects. Given the tangible nature of the asset and its appraisal based pricing mechanism, it will take much longer for real estate prices to experience oil price related volatility.
This pressure on the economy provides additional drive for efforts towards a diversified economy and growth in non oil sectors.