The 2017 budget: Urgent matters arising

Nnaemeka Obiaraeri

President Muhammadu Buhari, on December 14, 2016, submitted a copy of the 2017 budget proposals for consideration and approval by the National Assembly. The N7.298tn/$23bn appropriation bill is intended to take Nigeria out of recession. The major highlights and assumptions of the budget include:

Capital expenditure proposal of N2.24tn; recurrent expenditure of N2.98tn; debt servicing provision of N1.6tn; crude oil output estimate of 2.2 million barrels per day; crude oil pricing benchmark of $42.50 per barrel; foreign exchange benchmark of N305/$1; and deficit financing/borrowing of N2.3tn. The Federal Government also projected a GDP growth of 2.5 per cent.

The budget is expected to be financed with estimated N1.98tn from crude oil earnings; collections/receivables of N1.315tn from the Federal Inland Revenue Service and Customs and Excise Department; N560bn from recovered loot; N2.3tn borrowings and other internally generated collections and revenues.

A cursory review of the draft budget proposals raises some posers that the members of the National Assembly must press for clarifications before this budget is passed into law. There are also issues that can derail its successful implementations. The issues include:

• The size of the budget: A N7.3tn /$23bn budget with capital expenditure estimate of N2.24tn/$7.3bn does not strike me as ambitious and robust enough to take us out of the woods. Nigeria is an N107tn-sized economy with a labour force of over 73 million Nigerians. From every indication, the 2017 budget just like the previous ones before it, is just a budget for oil revenue sharing/looting by the political class and not for national economic development. Most of the assumptions are quite unrealistic and point in the same direction as the 2016 budget and the ones before it. A budget that has seven per cent of the borrowing intended to finance overheads and wages payment is a continuation of what we had in the past. There are no clear indications from the draft budget proposals that the Federal Government is serious about its much trumpeted desire to diversify the Nigerian economy away from the crude oil hangover. The government can actually sweat out between N15tn and N20tn internally generated revenue outside the crude earnings if the government sincerely, altruistically and creatively diversifies the economy and restructures the fiscal architecture of this country appropriately and unselfishly.
• Projected crude oil production of 2.2million barrels of crude oil per day: If the Federal Government is seriously desirous of truly deepening our production capacity of the sweet crude in a very sustainable manner, without incessant disruption of output by the Niger Delta militants, especially the Niger Delta Avengers, then it must urgently spearhead a robust constitutional and structural reform of our fiscal and socio-economic framework to allow committed and direct participation of the immediate communities that host our oil and gas natural resources and infrastructure. These communities must benefit directly from the proceeds of the sweet crude away from the current practice of pacifying and bribing the few roguish elite in their midst. Resource control and fiscal federalism are the way to go. The Federal Government must work with the National Assembly to speedily amend the constitution and other body of laws like the Petroleum Industry Bill to ensure that this fiscal framework as we had in Pre-1966 is put in place. The National Assembly has started the process of amending the constitution and the relevant body of laws to accommodate these features. The Presidency must put all its executive and political will to support and push these urgently needed amendments through. The direct participation and benefits by the host communities as against bribing few persons from the Niger Delta region will sustainably eliminate destruction of our oil and gas assets. This is the only way we can sustain and ramp up our crude oil output beyond the 2.2 million per day level sustainably. This framework will also incentivise the other constituent units to look inward to develop their latent economic potential/strengths to help develop Nigeria competitively. This framework will also provide us with the foundation for the total diversification of the Nigerian economy holistically away from the crude oil fixation.
• The sources of financing of the budget: The Federal Government anticipates to part-finance the budget with N565bn recovered loot. The Minister for Budget and Economic Planning, Udoma Udo-Udoma, made us to understand that part of this recovered loot, which is almost cash at hand, is the $300m/N90bn Abacha loot. The balance will come from recovered local loot. This assumption is rather sensational and seemingly unrealistic. The Minister for Information, Lai Mohammed, told us some weeks back that the only amount so far recovered was N78bn and some fractions in foreign currencies. Even at that, most of the money are still subject of litigation and will require court pronouncements for it to be netted in. So, it is outrageous for the Federal Government to include about N560bn recovered loot as part of the sources of funding for the budget. Please, who are the looters that returned N465bn between June 2016 and November 2016? Faulty and unrealistic assumptions were the key factors that caused the 2016 budget to fail calamitously and we are heading the same way again with the 2017 budget.
• Foreign exchange rate benchmark of N305/$1. This benchmark at a time our foreign reserve has gone down to about $23bn and the forex market operation and activities are still being manipulated by the Central Bank of Nigeria without any defined plan to shore up the FX supply side from other realistic /realisable sources is quite ambitious and unrealistic. This ugly situation is compounded by the existence of almost five different FX market rates in Nigeria today.
• Capital expenditure of N2.24tn: One of the highlights of the budget proposal is the provision of N529bn/$1.7bn for the key ministries of Power, Housing and Works. What this translates to is about N176bn/$578m for the power ministry. For a sector that requires almost about $100bn/N30tn to reposition it, this is quite ridiculous. However, if we are seriously desirous of repositioning this key infrastructure sector, then the Federal Ministry of Power and the Nigerian Electricity Regulatory Commission must evolve and rework the existing/ impeding power policies that have mitigated the development and incremental year on year growth in that sector. The Federal Government must revisit the Sales Purchase Agreement it entered into with the power assets purchasers to compel them to fulfil their own side of the agreements. The Federal Government must also raise two to five-year bonds to pay off its outstanding debt obligations to the Gencos and Discos. There must be a decentralisation of the operations of transmission infrastructure in Nigeria into six zones. The existing policy that requires power generation of over 5MW to be loaded into the national grid must be discarded to encourage more robust and larger-sized captive power projects with diverse feed-stock across the country.
• The proposed discontinuation of the Joint Venture Cash calls in the upstream oil and gas industry: This is a big catch for me in the 2017 budget. However, the government should take this a step further by divesting further her holdings in the existing JVs with the IOCs to 40 per cent. The IOCs should be allowed to own 51 per cent and pay for it (This will net in tens of billions of dollars). The remaining nine per cent should be sold to qualifying Nigerian-owned upstream oil and gas operators. The new JV with its own balance sheet should be incorporated and listed both on the Nigerian Stock Exchange and London Stock Exchange. The Federal Government should also privatise and divest its holdings in the oil and gas assets and infrastructure in Nigeria from the refineries to the storage and pipeline distribution infrastructure. The Nigerian National Petroleum Corporation should be totally unbundled and allowed to run like the Petrobras and BPs of this world without clannish and crony driven political interference.
• Dr Obiaraeri, an investment banker and financial analyst based in Ikoyi, Lagos wrote in via nnaemeka.obiaraeri@taurusoil.com

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