In the presentation of the 2014 budget estimates before the National Assembly on December 19, 2013, the Minister of Finance and the Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, explained that the proposed budget was lower than that of the preceding year (2013). She stated inter alia, “You can understand that we have some revenue challenges, which we had been very clear on all along because of the losses we suffered in terms of oil revenue. And, also, the losses from non-oil revenue due to lower customs duties”. This statement sets the tone for reflecting on the activities in the economy in the immediate past year.
The minister had stated in the 2014 budget estimates that the projected revenue for the year would be N3.58tn, which is 13 per cent lower than that of 2013, just as the proposed expenditure was put at N4.5tn or 9.9 per cent below the 2013 estimates. The proposed budget reflects the precarious economic trends over the past 12 months of 2013. The economic managers deserve some credit for presenting a more realistic budget proposal, as this is a departure from the incremental budgeting that had characterised the Nigerian budgeting system over the years. In such a budgeting system, estimates of the successive budget must be greater than the preceding one rather than reducing the estimate to reflect present challenges.
At the beginning of 2013, the budget noted that the economy’s gross domestic product was growing at about six per cent; the average output of crude oil was 2.8 barrels per day such that export value had increased over and above 2012 figures; the non-oil exports also increased, the inflationary rate was declining; the country’s foreign exchange reserves was growing and was moving toward the $50bn mark while the value of naira was stable against other key currencies.
On the negative side, the economy remained driven by incomes from the oil sector; it was characterised with high level of youth unemployment, infrastructural deficits, particularly power generation and distribution as well as transport networks, and low capacity utilisation in industries. The non-strictly economic factors that equally impacted negatively on the economy were corruption, which stamp of authority was found on every economic activity, lack of enforcement of rule of law, civil disorder and labour unrest.
At the end of 2013, however, economic reports from various sources indicated that the economy grew around five per cent, the average output of crude oil was 2.4 barrels per day, the volume and value non-oil exports fell drastically but the economy remained driven by oil exports and incomes while the value of naira relative to other currencies had depreciated. The foreign exchange reserve had in the last five months of 2013 been going down to reach $44bn in November, partly to keep the naira at a reasonable level and partly because of losses in oil revenue.
As it were, the positive signals at the beginning of 2013 had turned negative by the end of the year while the negative variables remained unresolved. Youth unemployment remained high and virtually all employment involving youths were on casual basis and the youths themselves devastated either by loss of job or real joblessness. Capacity utilisation in industries never reached 50 per cent and power generation remained intractable.
The Nigerian economy no doubt witnessed a decline in growth as measured in terms of value of output. The under-reporting of oil output due not only to increased oil theft but also through by-passing the Central Bank of Nigeria in receipt and documentation of revenue accruing to Nigeria by such an agencies as the Nigeria National Petroleum Corporation. So, the country’s financial authorities may never know how much money was actually realised from exports of the major commodity – oil or even non-oil exports. It was a year of increased leakage in the economy.
It is difficult to get the full picture of the gains and losses in the economy as data for the year will take time to compile. However, tentative data emerging from both the Nigerian Bureau of Statistics, the CBN and other statistics generating agencies of government and the private sector point to the fact that the economy did not fare better in 2013 than preceding years. That is, the economy under-performed in many respects in 2013.
A section of the Manufacturers Association of Nigeria was concerned about the dwindling fortune of the sector in non-oil exports growth. It was reported that of the $1.23bn worth of commodity exports between January and June 2013, only $285m or about one-quarter was contributed by the manufacturing sector. The Minister of Finance, in her interaction with the private sector, posited that 1.6 million jobs were created in 2013 and that the economic growth was 6.81 per cent at the end of the third quarter of the year. The number of jobs created, it must be stressed, was a drop of water in an ocean of unemployment which was put at over 30 million.
The growth figure of 6.81 per cent contradicts the decline in proposed budget estimates for 2014 and the minister’s confirmation that the recurring structural bottlenecks that have bedevilled the real sector growth of the economy remained. These bottlenecks are power, ports, rail, road, communication technology and aviation. In addition, Okonjo-Iweala showed concern for the drastic fall in revenue from customs and inadequate revenue from other taxes for which the government engaged the services of McKinsey & Co to firstly provide findings on the tax system in Nigeria and secondly to work with the Finance Ministry to plug the loopholes.
The content of and ministerial briefings at different fora on the 2014 budget had reflected, in no small measure, the general decline in the economy in 2013. The cost of running business in Nigeria not only in terms of inefficient and costly power but also multiple taxes and corruption was heightened in 2013. The transport sector continues to pose challenges to production and distribution of goods produced. On rail system, Nigeria has become the dumping ground for obselete coaches of 20th century. In a jet age where trains travel at half the speed of airplanes such that goods by rail can get to their destinations at less than half the time they would take a vehicle, Nigerian rail transport will take two days or more to cover the same kilometres. The federal roads infrastructure is in a state of degeneration and all that was heard of in 2013 were awards of road repair/reconstruction, not commissioning. The volume of haulage that ought to have been moved to destination and at a cheaper rate by rail are transported through “highways” with further pressure and degeneration of the roads.
The power situation became more precarious in 2013, even after the partial sale of the Power Holding Company of Nigeria to private sector towards the end of the year. It is only in a country like Nigeria that public property can be sold at a loss. Reports indicated that the amount paid by the buyers was less than the amount the government paid on some repairs/maintenance and settlement of labour in the industry within the year in question. The industry was reportedly sold at subsidised rate and without any programme of transformation for the turnaround of the fortune of the power situation in the country.
Although I am an optimist, I have no doubt that the present arrangement with the sale of the PHCN will not work. There are no work plans, and, local and international training schedules for staff, approved by both sides upon which the companies, can be held by government and public if things go awry. There have been some statements to the effect that it will take some four to five years before the country can witness significant and remarkable improvement in power supply. Many of the companies recently claimed that what they expected was not what they met on the ground. Whatever was meant by such statement!
I have argued at a forum recently that in reality, those companies involved in the “new” PHCN arrangements are foreign companies with Nigerian billionaires as financiers. These foreigners are the producers of generators and all sorts of lamps that Nigeria remains the largest customer of in the world. If our electricity works today, one can be sure there will be unemployment in those foreign countries. Can they cope with it? No. That is why they will need some four to five-year plan to solve their own problems before solving ours.
China, at the outset of its industrial revolution, sent her young ones abroad on scholarship to study science, engineering and technology. It was not on crash programmes but degrees up to doctorate level for the brilliant ones. Initially, some refused to return but have now returned to the country promoting science and technology. The Nigerian Electricity Regulatory Commission will have to be involved beyond regulation of prices but also other guiding activities of the new companies, including setting a timetable for the turnaround and manpower development.
There have been improvements in both the money and capital financial markets, though the financial depth is still shallow. The promotion of a cashless economy and other related policies have improved financial inclusion which is necessary for inclusive growth that the Federal Government is advocating. The capital market is also growing, though the market operators and regulators need to be cautious with inflow of funds from external sources, as sudden withdrawal can be injurious to the economy. However, the issue of capital flight which reached an epidemic level in 2013 and partly resulted in drawing down of the external reserves to support the value of naira against foreign currencies must be checked to avoid collapse of the foreign exchange market in 2014. Such checks depend largely on how the government deals with the issue of corruption in both the public and private sectors. The approval for the public officers to own foreign account will result in ease of transfer of funds abroad and create a crisis for naira value and foreign reserves.
Within the year 2013, a number of statistics or reports on socio-economic and political situations in all countries of the world were released from time to time. For Nigeria, most of such reports were damning and the government had to fight back. The truth is that most of those reports were true and we must find solutions to them rather than continually live in self-denial.
The table below on Failed States Index is a summary of happenings between part of 2012 and 2013 and the index is not limited to economic variables but cuts across other spheres of living. The worst country, Somalia, is number 1 on the list with the highest index while Nigeria is among the first 20 and specifically number 16, above countries like Niger, Ethiopia and Burundi. Nigeria has been within the first 20 in the last five years.
It is imperative that we must now exit from the group of 20 worst countries but the 2014 budget, which is loaded with corruption-enhancing activities such as huge amount for maintaining presidential lodge, legislators’ residents, refurbishing zoo and other economically irrelevant items, cannot take us out of the doldrums.
The earlier the economic managers realised that reduction in oil revenue is not limited to oil theft but also emerging new competitors due to discovery and prospecting of new oil fields around the world the better for economic management of the oil resources. The new competitors include such countries as Ghana, Tanzania and even the United States of America. The need for economic diversification towards industrialisation has therefore become more compelling now than ever before.
•Tella is a Professor of Economics at the Olabisi Onabanjo University, Ago Iwoye, Ogun State satellang@yahoo.com 08033190791
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