Recent developments in Nigeria has shown the level of dependence on the hydrocarbon industry and sales of crude oil despite government’s acclaimed efforts to diversify the economy. FESTUS OKOROMADU in this report highlights some key issues arising from the continued dependence on the black gold in the first half of the year.
The monetary policy committee (MPC) of Central Bank Of Nigeria (CBN) is a think-tank arm of the apex bank saddled with the responsibility reviewing the nation’s economic performance periodically with a view to making recommendations that help government to better manage its fiscal and monetary policies.
The Committee in communique issued after its most recent meeting on May 22, 2018 acknowledged improvements in the nation’s domestic economy, attributing such to the steady decline in inflation, rebound in oil prices and increase in production level, as well as the continued stability in the foreign exchange market.
Using data from the National Bureau of Statistics (NBS), the Committee said real Gross Domestic Product (GDP) for Q4 2017 was revised upwards from 1.92 per cent to 2.11 per cent, while a growth of 1.95 per cent was recorded in the first quarter of 2018, up from a contraction of 0.91 per cent in the corresponding period of 2017. The development was due to growth in the oil and non-oil sectors by 14.77 and 0.76 per cent, respectively.
The fact that the committee attributed the said improvement in the economy to rebounds in oil prices and increased production as well as the NBS data which shows that the oil and gas sector grew by 14.77 per cent leading to the 1.95 per cent growth in GDP in the first quarter of 2018 simply implies that the economy continues to depend solely on the sector.
The 2018 Appropriations Bill
But contrary to the NBS figures the federal government in the 2018 appropriations bill projected higher contribution and growth from the non-oil sector. In clear terms the 2018 budget proposal says government expects generate a mere N820 billion revenue from the oil and gas sector while a huge N1.45 trillion is expected from the non-oil sector and another N1.51 trillion from independent revenues.
However, the appropriation bill recently signed by President Mohammadu Buhari shows the contribution from the oil and gas sector is now N2.988 trillion, translating to 33 percent of the 2018 budget implying that Nigeria is resuming its dependence on oil to fund governance.
Backing Down On The Promise?
In 2016, the present government in first budget, christened the budget of change, President Buhari said the government was moving away from oil dependence. The sector then was tasked with generating N820 billion in 2016, but the figure rose to N2.12 trillion in 2017 and now N2.988 trillion in 2018, leading to speculations in some quarters that the government is backing down on its promise and the nation is clearly returned to its dependence on oil.
Despite the rising dependence on revenues from oil the nation’s production capacity has not recorded serious improvements. This is due to many factors including internal and external. For instance in 2017, despite setting out to produce 2.2 million barrels per day as benchmark in the budget, available records showed the actual performance came to 1.86 million barrels per day.
Some experts attributed the performance to the 1.8mbpd limit allowed by the organization of petroleum exporting countries (OPEC). Though, internal crisis leading to cuts by companies engaged in crude exploration are not considered here.
Unfortunately, while there are expectations that the country’s oil output for 2018 may be reduced after 2016/2017 exemptions due to recession, the government has raised expected production to 2.3 million barrels per day, which is over 400,000 barrels short of the actual production levels.
MPC’s Support For Oil Dependence
The new trend towards dependence on revenue from sales of crude oil may have been initiated by the economic experts in the corridors of power. This is evidence in the MPC report for the month where members expressed hope that given the current level of oil prices and developments in the global economy, the committee expect rates to remain stable in the foreign exchange market in the near-term.
The committee however noted that there is significant high level of uncertainties that could arise from the fiscal operations of government in the near term. Amongst these are: when the implementation of the 2017 budget will end; dwindling revenue projections; which includes those from sales of crude oil as well as the possibilities of full implementation of the 2018 Federal budget.
Consequently, we expect a likely bunching of government spending in view of the late passage of the budget and government’s commitment to honour prior obligations.
Current Brouhaha Over NNPC Remittance to FAAC
What appears to be the fulfillment of the fears expressed by the MPC as it relates government’s commitment to honour prior obligations, the recent dispute between the NNPC and state governments over remittance to the Federation Accounts Allocation Committee (FAAC) readily comes to mind.
As confirmed by the minister of finance, Kemi Adeosun, last Thursday, monthly meeting of the Federation Account Allocation Committee was stalemated on Wednesday due to disputes over remittances from NNPC.
As the finance minister rightly noted, “A lot of public capital had been invested in the NNPC for which returns were expected, but that the figures remitted to the federation account by the NNPC were unacceptable, which led to the stalemated meeting.”
The concern here is the economic implications of the dispute. Her words, “As a consequence of the deadlock, salaries for this month would be delayed.”
Its important to point out that the minister was only making reference to federal government employees here. The situation in states where salary arrears are over ten months can only be imagined.
Need For Savings
Meanwhile, there are indications that government may be taking some steps towards adhering to calls from civil society groups on the need to save and invest wisely to secure the future.
For instance, the MPC while applauding the continued rise in the price of crude, it called on the Federal Government to seize the opportunity to build fiscal buffers against future oil price.
Confirming adherence to such advice, the minister of finance, recently said, “ Now that the oil price is $76 per barrel in the spot market which means that Bonny Light is about $78, we want to be aggressively putting money away into the excess crude account.
“So we are very, very conscious that this period, this window of relatively high oil price, might not last and we would like to be able to save. If we cannot get into the federation account the sort of revenues we are expecting, then we will not be able to save.”
Overall Outlook and Risks
Speaking of general expectations of the economy and actions that can thwart the nation’s progress despite prospect of stable oil prices, the MPC recommended thus: “The macroeconomic environment that propelled the economy’s exit from recession has remained positive and is likely to continue in the near-term. The expectation was premised on speedy implementation of the 2018 budget, improved security, continued stability in the foreign exchange market as well as increase in crude oil production and prices.”
The Committee noted the downside risks to the outlook to include: the late approval and implementation of the 2018 budget; farmers-herdsmen conflict; weak demand and consumer spending associated with outstanding salaries and contractor debt; and the growing level of sovereign debt.
While it must be stated clearly that there is no offense in dependence on crude oil design and adherence to a roadmap that will ensure that the proceeds are used for development is key.
This is where the government must create the enabling environment by passing and assenting to the petroleum industry bill (PIB) that has sent over 20 years in the National Assembly.
Although, one of the segment of the bills, the petroleum industry governance bill (PIGB) is said have been passed over 3 months again, recent developments shows that the bill is yet to reach Mr. President’s table for assent. This raises the moral question of our preparedness to transform the industry for it to deliver maximum value for the Nigerian citizens.
Secondly, the place of saving and investment of part of the revenues accruing from the rising price of oil in the global market cannot be overemphasized. Nations like the United Arab Emirates, Saudi Arabia, Norway have shown that a country and its people can b transformed when earnings from the oil and gas industry is well utilised.
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