12:24 GMT 25th January 2012
The 2012 N4.749 trillion expenditure profile is based on the following assumptions - oil production of2.48 million barrel per day (MBPD) up from 2.3MBPD for 2011 ; benchmark oil price ofUS$70 per barrel, a revision from US$75 per barrel for the 20 ll amendment budget; exchange rate of NGN155 per US dollar; projected GDP growth rate and inflation rate stands of7.2 per cent and 9.5 per cent respectively. The aggregate expenditure comprises N398bn for statutory transfers; N560bn for debt service, N2.472 trillion for recurrent (non-debt) expenditure; while capital expenditure will gulp N1.32 trillion, representing a 15 per cent increase.
Jonathan described it as a 'stepping stone to the transformation of our economy and country, in our walk to economic freedom'. But the private sector, whose overall success in business is dependent on a public sector-led enabling environment, has punched holes in this assertion. Bismack Rewane, MD Financial Directives, maintained that the budget fell short of confronting some of the inherent problems in the economy.
Noting that upgrading the country's poor infrastructure had not been prioritised in the budget, Rewane urged greater investment in public works and utilities in order to help reduce the cost of doing business in the country. Manufacturers and providers of goods and services were unanimous in their agreement with this.
Razia Khan, regional head of research, Africa, Standard Chartered Bank, London, believes that, given Nigeria's significant infrastructure hurdles, the budget needs to make room for more capital expenditure.
Other concerns raised by market watchers is the seemingly modest 6 per cent increase in spending from 2011 N4.48trillion to 2012 N4. 75trillion. Khan believes that this is more than 50 per cent greater than the total budgeted amount of spending seen as recently as 2009, when measured in US dollars. She feared that, given the global downside risks, this would leave Nigeria vulnerable to any unanticipated shocks.
She said that while the oil price assumption of$70 per barrel was largely expected and remains well below the average oil price forecast for 2012, the output assumption of 2.48 million barrels per day was higher than the 2.45 million previously anticipated, and higher than the assumption of2.35 million barrels that had already posed problems for the Federation Account Allocation Committee in the recent past.
Experts also noted that it will require further fiscal consolidation and structural reforms for the much needed macroeconomic stability and growth projection of 7.2 per cent and 9.5 per cent inflation to be achieved. They reckon that the overreliance on financing for the budget on oil revenues as against domestically generated revenue makes the forecast of domestic growth redundant. Furthermore, they argued that, given the size of the proposed spending profile, it would require the monetary authorities to do more to offset the liquidity impact of increased spending.
As in all oil producing countries, Nigeria'seconomy is determined by the extent of volatility that can afflict the international oil market, as was the case in 2008 when oil prices nosedived from $147 per barrel to $38 per barrel. Khan and many other market analysts are not comfortable with Nigeria's total dependency on oil revenue and say the bar should be raised on internally generated revenue, estimated at present to be as low as 5 per cent of GDP.
'Nigeria is still hugely dependent on oil revenue and not domestically generated revenue for its budget,' Khan said. 'Until this changes - and we would like to see details of revenue raising measures - forecasts of domestic growth is almost redundant with little impact with the actual budget outcomes.'
She added, ' In all, spending has been raised during uncertain time globally. The monetary authorities will need to do even more to offset the liquidity impact of increased spending and preserve some measure of price stability.'
Samir Gadio of Standard Bank in London, however. observed that what was important for an oil-producing country like Nigeria was the amount of fiscal savings, for example, excess crude accounts ( ECA) or sovereign wealth account (SWF). This could help smooth unexpected external shocks, but regrettably, he said, the ratio of fiscal savings-to-GDP was about 2 per cent at best ifthe entire balance of the ECA was saved. This is well below the ratio displayed by Nigeria's oil exporting peers, he said, citing the example of the UAE, which stands at 197 per cent.
'This means the implementation of the oil fiscal rule has not fully resumed and/ or fiscal policy at the federal consolidated level remains extremely very loose, as the ECA proceeds are continuously monetised. This also makes critical the effective launch of the SWF,' he emphasised.
However, the government has received praise from other quarters. Opeyemi Agbaje, MD Resources and Trust, told a Nigerian daily that the government attempts at reducing recurrent expenditure was positive, though the magnitude of change to him is minimal. 'A significant drop in the recurrent expenditure will require large scale restructuring of government and a lot of political will,' he maintained.
The reduction of the benchmark oil price from $75 a barrel to $70 has also been welcomed, though with 90 per cent of export earnings resting on oil it also means that the country is exposed if production does not meet the target of 2.48 million barrels per day (up from 2.3 million in 2011 ). The slightly raised capital expenditure and a drop in the recurrent expenditure, analysts say, are a step in the right direction.
Another significant step taken by the government is its determination to create a springboard for agricultural development. Tax measures introduced to support this include the removal of import duties on machinery and specialist equipment for the agricultural sector.
In other measures, bakeries that substitute locally produced, high quality cassava flour for wheat flour will receive a tax incentive of a 12 per cent rebate if they attain a 40 per cent blend. Cassava flour imports will be banned from the end of the first quarter, so bakeries will be compelled to use locally produced cassava flour.
Equipment used to process or blend high quality cassava flour has also been exempted from import duties, while the duty on wheat flour and wheat grain will increase by 100 per cent and 20 per cent respectively by the beginning of the third quarter. Rice is to attract 30 per cent duty on brown and 50 per cent on imported polished to promote grain production.
Encouraged by the move to boost agricultural production, Agbaje said the budget had begun the process of diversifying away from oil by focusing on agriculture.
Given some of the belt tightening measures put in place by the budget, particularly the fuel subsidy withdrawal, Nigerians fear 2012 will be highly inflationary, affecting transportation and food production.
The Nigerian Labour Congress (NLC) has rejected the estimated expenditure and revenue in no uncertain terms, describing it as a 'disaster waiting to happen' and 'an attempt by the government to impoverish workers and the Nigerian poor'. It argued that the removal of subsidy is anti-people and that the budget as a whole had been made in the interests of the World Bank and IMF and local lackeys who dictate to the Nigerian government.
In a press statement, the union body noted that devoting a lion's share of the budget to security would make the removal of petroleum subsidy ineffective as the major cause of insecurity in Nigeria is lack of education and mass unemployment, these being direct consequences of the general collapse of public infrastructure like roads, electricity, education and health.
'No one should underestimate the general mass poverty, unemployment and discontentment that have increased the bottled up anger in our polity,' the NLC warned. 'The removal of fuel subsidy will provide the spark for the mass protests such that even the increased security vote cannot buy enough arms to contain.'
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