FOLLOWING months of a continuous fall in global oil prices, the Federal Government unveiled a budget of N4.357.96 trillion predicated on a new oil benchmark of $65 per barrel. The fiscal estimates come with more austerity measures aimed at cushioning the impact of the drop in oil prices on the economy and increasing the revenue available to fund   the budget.
The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, who laid the budget before the Senate and the House of Representatives on behalf of President Goodluck Jonathan, said it provides for recurrent expenditure of N2.622 trillion and N627 billion for capital expenditure. The budget is based on an oil production figure of 2.27 million barrels per day and a downward projection of 5.5 percentage growth, down from an earlier 6.4 percent on account of the fall in revenue. Government says it is focused on diversifying the economy by raising non-oil revenue through various types of taxes and policies.
Key among the measures the government wants to use to achieve this are the strengthening of tax administration, with a luxury tax targeted at the affluent in the society. As a short term measure, a 10 percent import surcharge would be imposed on new private jets. The government expects to raise N3.7 billion   through this luxury tax next year, while a 39 percent import surcharge on luxury yatches is estimated to yield about N1.6 billion. Besides, a five percent import surcharge on luxury cars is projected to net in N2.6 billion in 2015. There will also be higher taxes on first class tickets, champagnes, wines and spirits.  Altogether, the Finance Minister said that government has projected to raise a total of N10.5 billion from sundry levies to shore up revenues in 2015.
Undoubtedly, the 2015 budget is a response to the challenging times occasioned by Nigeria’s overdependence on a mono product, oil.
The current volatility in oil prices is a problem long foretold, yet unaddressed. Sadly, Nigeria is now paying the price for its lack of serious attention to the development of the non-oil sector of the economy. The crash in the price of oil will have unpleasant consequences for the Nigerian economy and people.
It will be recalled that the Federal Government had on November 16 announced a series of austerity measures as part of government’s fiscal policy adjustments to mitigate the far-reaching implications of lower global oil prices on the fiscal and external balance of the economy. The belt tightening policy represents the first tranche in a package of impending fiscal policy measures that government said it would implement if the falling oil prices persist. And, the freefall has persisted for six months, since June. Brent Crude has dropped to $59 per barrel, while Nigeria’s Bonny light crude hovers between $57.8 and 56.75 at the close of market over the weekend. Lower prices are projected for the weeks ahead. This could put the budget on a cliff-hanger. The new benchmark price is based on the 2015-2017 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper which was published in September this year.
The bad news for Nigeria is that successive administrations have not been prudent enough to save for the “rainy day”. Neither were they able to build up external buffers for times of dwindling revenue such as this. The worries over the 2015 Budget would not have been if we had adequately prepared for a future without oil, and used oil revenue over the years to build a strong economy. It is gratifying, however, that the new austerity measures did not affect salaries of public sector workers as well as key initiatives in education, health and other critical areas vital to the development of the country.
A clear message to Nigeria in all these is that the time has come to develop the non-oil sector. Since oil proceeds account for over 70 percent of Nigeria’s revenue, a lower benchmark inevitably affects revenue projections and expenditure. For instance, figures for the Second Quarter (Q2) of this year show that government’s revenue decreased to N864 billion from N912 billion in first quarter (Q1), while September federal allocations declined by four percent. The concern here is that this decline occurred when oil prices were above the $100 per barrel mark.
To improve the nation’s finances, agriculture and solid minerals remain two important sectors that need to be better developed. The present situation should be seen as a wake-up call to eliminate wastage in government and drastically cut down the cost of governance at all levels in the country.
There is no doubt that the outlook of the budget signposts tougher times ahead. However, we advise the Federal Government not to press the panic button that could erode confidence in the economy or introduce measures that could negatively affect the vulnerable segments of the population. We must also avoid measures that could end up as exercises in futility. The government has a lot to do on the plan to increase corporate taxes through the Federal Inland Revenue Service (FIRS) as one of the means to fund the budget deficit. This is because of the problem of low tax compliance by many companies in the country.
Prudent management of resources and a bold focus on the non-oil sector remain Nigeria’s best bet as we plan for a future with less dependence on oil.
THE Federal Ministry of Industry, Trade and Investment has reiterated Nigeria’s need to diversify its economy to achieve economic development, noting that the nation will remain poor forever if pays little or no attention to diversification exercise.
The Minister, Industry, Trade and Investment, Dr. Olusegun Aganga explained that the fall in oil price is a warning to Nigeria to as a matter of urgency, look for new avenues to generate revenue for the country, advising that the time is now to take full advantage of areas where the country has competitive advantages to diversify its economy.
Aganga during a facility tour to Sparkwest Steel Industries Limited in Ogun State, added that  industrial companies such as Sparkwest are vital to achieve economic diversification.
According to him, “It is industries like this that will help us diversify our economy. This is why the president launched the Nigeria Industrial Revolution Plan NIRP to focus on areas where we have competitive advantage. We have to also commend the Ogun State government because without them, none of the new 57 industries would have come up in the state. There is also the need for State and the Federal government to partner to achieve industrial revolution in the country.
“People are saying industries are dying, but they are not, but growing every day. In the last 4 years, about 57 new industries have come out of Ogun State. The president has visited Ogun State more than seven times to commission new factories. The same thing is happening in Abia State where Nigerian Breweries over the last five years have spent $1 billion having new plants in the country. The brewery is the biggest and the best in Africa. The governor of the State was telling us that most of the industries that left Aba five years ago, are coming back to Aba,” he added.
Aganga said the NIRP was working but needs consistency and continuity for another five to seven years to achieve its mandate, saying that if Nigeria continues with the initiative, it would diversify the economy, create millions of jobs and earn more foreign exchange from export of steel products from industries such as this.
“The days of relying only on crude oil are over. This is an opportunity for us to fully diversify our economy. I am very delighted that this government under President Goodluck Jonathan already has a plan to harness this opportunity to diversify the economy.”
Also speaking at the event, the Managing Director, Sparkwest Steel Industries Limited, Niyi Oyedele, said the company had grown out of an import business into a world-class manufacturer locally producing fabricated and galvanized steel structures, electrical transmission towers, power stations/substations, and telecoms towers and accessories for the Nigerian market.
He added that the journey so far had been turbulent; pointing out that import duties on raw materials have continued to plague the growth of industrial activity.
While commending the minister for reversing the duty to five per cent, thereby helping increased growth in their industrial operations, Oyedele went further to say “The Ogun State Government has given tremendous support to our Factory and other Industries within the state. Indeed, Governor Ibikunle Amosun’s support and cooperation constitute one of the reasons for our success”.
“Today, we are among leading suppliers to the telecoms, oil and gas and power industries. It is a fact that we have done lots of exports to countries like Ivory Coast, Cameroun, Ghana, Gabon and the like,” he said.
According to Oyedele, the power industry is still a major challenge to industrial development, calling on the minister to get the industry to patronize local production.
“We are expanding our factory by building a rolling mill, we currently have staff strength of 600, but we will increase it to 2,500 by the time we complete the mill,” he said.
IN the wake of public concerns on the impact of the tumbling prices of oil on government revenue and expenditure in the 2015 budget, the Minister of Finance and Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, recently informed a joint committee of the National Assembly on Finance and National Planning that, “We have calculated that in order to help us regain stability, we need a minimum of about $5bn”.
Okonjo-Iweala also confirmed that with $4.1bn balance in the Excess Crude Account, we would simply require the addition of just about $1bn to maintain the revenue and expenditure projections in the 2015-17 Medium Term Expenditure Framework.
Evidently, the current 25 per cent drop in oil prices will surely reduce crude oil revenue and make it difficult for us to top up the ECA. Consequently, we could simply transfer the $1bn revenue shortfall from the Central Bank of Nigeria’s relatively buoyant $40bn self-styled “own reserves”. Alternatively, we could borrow $1bn from external source(s). However, it certainly does not make sense to incur such an external debt, at any cost, from possibly the same foreign banks in which the CBN’s reserves are currently domicilled with minimal yield!
Nonetheless, the finance minister assured the legislative committee that her Economic Management Team was “on top of the situation to   proffer measures that would help to ensure that the ‘common man’ did not feel the impact of the oil price decline”. Some of the measures proposed by the minister to fund the revenue shortfall include the trimming of staff trainings and overseas travels and the restriction of expenditure to only critical and essential items.
In addition, the Federal Inland Revenue Service’s oversight by international financial consultants, Mckinsey, should according to the minister, also boost tax receipts. However, one wonders why the finance ministry disapproves of the use of private tax consultants to increase revenue in the states, while the Federal Government freely indulges with the Mckinsey engagement to drive tax collection at the centre.
Nonetheless, government would, according to the minister, also introduce taxes on luxury items such as private jets, yachts, alcoholic beverages and expensive cars. Curiously, there is no attempt to eliminate or trim the wasteful average annual expenditure of over $6b (N1trn) for subsidising fuel prices. Sadly, the austerity measures may not also eliminate the bonanza payments of hundreds of billions of naira to banks whenever the CBN borrows back “government deposits” in order to remove excess naira from the market!
Interestingly, however, in a recent press report, Mr. Larry Etta, the president of Nigerian Employers’ Consultative Association observed that the new government policy is a cosmetic approach to the current financial crisis. The NECA president maintained that the “only lasting solution should be a major reduction on the overhead expenditure of the three tiers of government as well as other agencies and departments of state.”
Similarly, a former president of the Association of National Accountants, Dr. Samuel Nzekwe, noted in another media report that increasing or taxing more utilities is not the major solution and therefore suggested that “apart from tax on luxuries, government should also look at how to diversify the economy by creating an enabling environment so that industries can thrive”; Nigerians would surely be concerned that it took the fall in crude oil prices to jolt government to recognise the skewed oppressive nature of Nigeria’s current tax regime on the poor.
Indeed, in spite of Okonjo-Iweala’s assurances of best practice management of our public finance, we must wonder why the minister is still unable to redress the heavily lopsided current expenditure budget in favour of capital and infrastructural enhancement, which, unexpectedly, barely accounted for 30 per cent of all federal revenue in the last three years. Curiously, the bloated salaries and allowances attached to political office holders may not also be affected by the proposed austerity measures, and it is worrisome that no serious step has so far been taken to implement the Stephen Orosanye’s report which recommended the pruning and merger of some government agencies which were found to have duplicated functions as a cost saving measure.
Nevertheless, the minister rejected the recommendation of some stakeholders that we should refrain from tying annual revenue projections strictly to potential crude oil receipts. Indeed, some stakeholders had suggested that government should respond to the decline in revenues by liberally printing more naira to fund projects.
The finance minister, however, insists that such prescriptions ignored the elementary principles of economics, as liberal money creation would spur inflation and victimise the poor and the middle class.
According to Okonjo-Iweala, the “best way to protect the interest of the people is to control inflation, expand the economic base, strengthen sectors that drive growth and boost critical infrastructure and create more jobs.”
Regrettably, inspite of this recognition, the effort of the minister to put a shine on inclusive economic growth with more jobs have been largely unrewarded so far, and increasingly, more Nigerians are now jobless and live below the poverty line of less than $2/day.
However, despite the recognition that unrestrained printing of naira will spur inflation, the finance minister, obviously, does not seem to appreciate that the liberal issues of hundreds of billions of naira every month as substitutes for allocations of dollar derived revenue also instigate excess naira supply, which equally pose serious inflationary threats to the “common man” and the economy.
Although our heavy dependence on crude oil revenue is often fingered as the major cause of our economic challenges, notwithstanding, the economies of several countries thrive successfully on dependence on just one or two sectors wherever the revenue accruals are wisely infused into the economy.
Indeed, Nigeria’s abject economic and social welfare may still not be different if our relatively bountiful revenue from crude oil is alternatively derived from commercial and industrial activities of several sectors, because the dollar export revenues, if any, from several sectors would command the equivalent basket of goods that our current crude oil dollars can buy!
This is not to say that there is no gain in seeking to diversify the economy, but the truth is that economic diversification does not evolve from wishful thinking or the mere mouthing of platitudes.
Successful economic diversification will continue to remain a mirage unless our strategy is underpinned by international best practice monetary standards, which translates to minimal inflation rates of 1-3 per cent while cost of funds must not exceed seven per cent across the board to the real sector. Additionally, special sectors such as agriculture and power should also attract cost of funds within a range of 0-3 per cent!
It is not as if successive Nigerian governments do not recognise the need to augment government revenue and energise our industrial subsectors with increasing job opportunities, but clearly, such attempts in various sectors such as steel, agriculture (wheat farms), aviation (Nigeria Airways), shipping (National Shipping Lines), and power, among others, have so far failed because they were not predicated on the requisite enabling foundation of enduring price stability that would sustain personal income values which fuel consumer demand and drive further production and inclusive economic growth with more job opportunities.