Timely warning on dwindling oil revenues SEPTEMBER 8, 2014 BY PUNCH EDITORIAL BOARD NIGERIA’s leaders have remained remarkably upbeat despite lower-than- expected revenues, low foreign investment and a weak infrastructure base. While President Goodluck Jonathan has rolled out a slew of robust, but seemingly disjointed plans, in several sectors of the economy, his government has failed to articulate a stimulus package to deal with the current public revenue crisis and record unemployment or to weld the plans into a coherent whole. The president and his economic team need to roll up their sleeves and come up with a realistic reflationary package. The reality demands urgency to pierce the hardening culture of denial that has gripped Nigerian officials. Oil and gas exports that bring in 90 per cent of foreign earnings have been falling due to theft and vandalism. A new report by the World Economic Forum warns that the country must upgrade its infrastructure, improve social services and enhance productivity to escape continued recession. Deficient electricity supplies have long been a drag on the economy. In its Global Competitiveness Report 2014-2015, Nigeria dropped from 120th out of 144 countries ranked on a Global Competitive Index to 127th. The index uses a number of factors to measure a country’s investment environment. Nigeria fell further by seven places on the back of weakened public finances, arising from lower export earnings and rising public debt, among others. The country’s woes arise largely from lower earnings from oil and gas exports, corruption and reckless public spending. Daily oil production reportedly fell further recently to about 1.86 million barrels per day, well short of the 2.38 million bpd on which the 2014 national budget is predicated and below the country’s 2.5 million bpd quota approved by the Organisation of Petroleum Exporting Countries. The upshot is that, like the 2012 and 2013 budgets, the N4.69 trillion 2014 budget has been derailed where it matters most – the N1.11 trillion capital vote. Nigeria finds herself in this predicament because of wrong choices and poor governance at every level. The lack of functional institutions, long highlighted by the International Monetary Fund, was re-echoed in the WEF report, which deplored the weakness of Nigerian institutions, poor property rights and contract enforcement, impunity and a high level of corruption. Our budgeting is unprofessional and inevitably unrealistic, relying on an “envelope” system where officials of ministries, departments and agencies simply “edit” provisions for every budget heading and sub-heading of the preceding year. This is primitive and hopelessly outdated. Modern budgeting matches expenditure to revenue to the minutest detail. This requires rigorous planning, not the staccato roll-outs of sectoral and sub-sectoral “master plans” that our government is so fond of, but which are usually disarticulated from each other and therefore fall short of its authors’ optimistic promises. Economic growth requires high-quality, targeted spending, not mere inflation-fuelling draw-downs. What is needed is a realistic stimulus programme that will boost the productive sectors – agriculture, mining and industry – enhance consumer purchasing power and create millions of jobs for the 80 per cent of Nigerian youths reported by the Central Bank of Nigeria to be either unemployed or underemployed. Jonathan has serially repeated the error of his predecessor, the late Umaru Yar’ Adua, in misguidedly drawing down from the Excess Crude Account to share among the three tiers of government for stimulus. The $4.8 billion the federal, state and local governments shared in March this year merely reinforces the awful culture of dependency and sharing, instead of entrenching a national culture of self- sustenance and baking. With external debt rising by 40 per cent to $9.38 billion in the year to March 2014 and domestic debt to N8.9 trillion, projected revenues falling by as much as 30 per cent and expected investments tepid after a mismanaged power sector privatisation, Jonathan will need to weld all the recent sectoral programmes together through a stimulus plan that will divert spending to infrastructure, cut waste and create jobs. He should quickly and transparently privatise all state-owned commercial enterprises such as the Ajaokuta Steel where government spends N3.4 billion monthly for producing nothing; cut down on allowances and perks, beginning with the 10-aircraft Presidential Fleet he stubbornly insists on running; sell the petroleum refineries and depots; reduce his army of ministers, advisers and assistants, and stop raiding special funds. Pwc, the global consultancy, noted in January that Nigeria continues to spend more on recurrent items “which have little or no long term positive impact on the economy”, while the government bows to pressure for higher emoluments, allowances and pensions. But, similarly confronted with revenue shortfalls or recession, South Korea designed a stimulus of $16 billion in 2008/9, targeting infrastructure, job-creation and factory investment. Australia’s AUS$52 billion stimulus boosted investment, home ownership, pensions, infrastructure and training that enabled it to tame unemployment and achieve a high growth rate. Indonesia, in 2010, used a $6.31 billion stimulus plan of tax breaks, energy subsidies, rural development and infrastructure enhancement to create hundreds of thousands of jobs. The road to success is well laid out. The best way to stimulate the economy would be to drastically shrink government, trim down recurrent expenditure and stop incurring domestic and foreign debt to fund what is better left to private capital. For the grand schemes on infrastructure, agriculture, industry and power to succeed as planned, the government needs to urgently contain the current fiscal challenge with a short- term package. Only productive private investment will spark economic recovery.
Posted on: Mon, 08 Sep 2014 04:42:51 +0000
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