There is anxiety about the falling price of crude oil as dwindling revenue threatens economic and social development, raising concerns over the overall health of the Nigerian economy
Nigeria is groaning under falling oil price and Ngozi Okonjo-Iweala, finance minister and coordinating minister for the economy, will have a herculean task managing the country’s economy in the months to come. Within political circles, the stakes are getting higher by the day as the falling price of crude oil in the international market poses a challenge for the economy.
The price of crude oil has slumped from $107.89 per barrel in June this year to $105.61 in July, $100.75 in August, $95.98 in September, and about $86.86 per barrel as at the time of this report. Analysts predict that it could slide further in the coming months due to low demand from the industrialised nations and major consumers like China and India as well as the increased production of shale oil in the United States, another major consumer. This has further heightening fears of dwindling revenue for the country and far less than expected allocation to the states and local governments. But in the Medium Term Expenditure Framework, MTEF, and the Fiscal Strategy Paper, FSP, submitted to the National Assembly by President Goodluck Jonathan, the executive has proposed a budget of N4.817 trillion for the 2015 fiscal year, to be predicated on oil benchmark of $78 per barrel and exchange rate of N160 to the dollar.
With the election year only about two months away, politicians are jittery. Some are even livid with anger, pointing accusing fingers at the government at the centre. Apart from the fact that the dwindling revenue will limit their spending during the electioneering period, some of the projects they have embarked upon that could make the electorate buy into their ideologies, where they exist, have been stalled. They are also accusing the federal government of not rendering a transparent account of the nation’s oil revenue.
The Nigerian National Petroleum Corporation, NNPC, is said to be a major culprit in this regard. The argument raised by Lamido Sanusi, the former governor of the Central Bank of Nigeria, CBN, over unremitted funds to the federation account by the NNPC, which culminated in his being removed from office remains unresolved. Yet, the allegation, which the federal government dismissed as Sanusi’s un-researched opinion due to conflicting figures, leaves a question mark on how oil revenues are accounted for in the country.
Long before Sanusi’s allegation, the Nigeria Extractive Industry Transparency Initiative, NEITI, desirous of ensuring accountability in the oil industry, had recommended modern metering technology that determines accurate quantity of crude oil that is being produced right from the wellheads as it is done in other oil producing countries. But the NNPC discarded the recommendation. Consequently, oil theft from the pipelines and oil wellheads has continued even with government’s efforts to tame the bandits. With oil production level of about 2.16 million barrels per day, the NNPC says about 327, 480 tonnes of petroleum products remains unaccounted for while a total of 2.312 million barrels of crude oil was stolen from the pipelines in 2013 alone.
For the declining revenue, states are beginning to seek alternative means of survival. Chibuike Amaechi, governor of Rivers State, last week, got the approval of the state House of Assembly to access N19 billion from the state’s savings to enable his government to complete its ongoing projects. The state could consider itself lucky in the sense that it has a pull of funds where it saves N1 billion every month. It is this reserve that the government is falling back on as federal allocation shrinks by each passing month. Amaechi had earlier raised the alarm over the sharp decline in the federal allocation to the states. Allocation to Rivers State for instance, declined from N25 billion at the beginning of the year to about N12 billion in recent times. The result was that the state could no longer meet its obligation to contractors hence some ongoing projects were abandoned. The state, according to the governor, was also sliding into inability to pay the salaries of civil servants.
But many other states are not as lucky as Rivers State that has a fallback position. In Ekiti for instance, civil servants downed tools until Kayode Fayemi, former governor left office, due to the inability of the government to pay their salaries for two months. Fayemi had long before then, doubted federal government’s sincerity in declaring that the country was broke, and cited irregularities in what goes into the federation account. That was in 2013, when he observed that for more than ten months, oil sold above $100 per barrel.
In the height of the anxiety created by the declining oil price, what seems to be a ray of hope came last week when Okonjo-Iweala, declared the country was not broke. The minister explained that the fact that oil prices are falling does not translate to the country being broke. To strengthen her position, Okonjo-Iweala disclosed that the government had mobilised over N2.4 trillion from global multilateral agencies and financial institutions from across the world. The additional financing, which is outside the budgetary provisions, was to enable ministries, departments and agencies, MDAs, to execute projects across the country.
As reassuring as the minister sounded, the states are still cash trapped. Babangida Aliyu, Niger State governor, has alerted the country that there are only five viable states while 31 others have come under the burden of declining federal allocation. While pointing out the fact that Federal Account Allocation Committee, FAAC, meeting of the previous week was aborted, due to the fact that there was no money to be shared on the scheduled date, the governor also alerted civil servants in the state that subsequent salaries may be late in coming. That is why Obi Iwuagwu, lecturer, department of Economic History, University of Lagos, says if the states are pushed to the wall, they will either seek alternative sources of funding, downsize their workforce or pay what they can afford. “If any state cannot survive, they can on their own seek to merge with others. It will also help to curtail the current senseless agitations for the creation of new states even when we know that the existing ones are not viable. Nigeria will be better for it in the long run,” said the don.
One of the steps so far taken by the government to insulate the economy from the volatility of the oil price is the raising of targets for the Federal Inland Revenue Service, FIRS, and the Nigeria Customs Service. This is aimed at boosting revenue accruable to the federation account from the non-oil sector. Since the 1970s when Nigeria abandoned agriculture as a major foreign exchange earner, the economy has depended heavily on oil, which now accounts for over 90 per cent of its revenue. The occasional shortfall in revenue from this source has over time, sent a warning signal to the federating units.
It is for the uncertainty that hovers around oil revenue that Emmanuel Uduaghan, governor of the oil rich Delta State, came up with the Delta Beyond Oil initiative. The long-term survival strategy of the state is to use oil revenue that accrues to the state in the days of regular flow of revenue to develop the state for the future, and expand its stream of income. For instance, Ken Okpara, commissioner for finance and economic planning of the state, told the magazine that the governor came up with this idea of Delta Beyond Oil because of dwindling revenue that comes from the federal government. “If there is a fall in oil price like last year from May till December we were paid only 75 per cent of the allocation that was supposed to come to our state. The other parts did not come because they said the revenue that was realised was far short of what they were expecting,” Okpara said, emphasising that “if we continue to build our expectations on what we are getting from federal allocations, then we will not achieve our objectives.”
In Ogun State where several ongoing projects have been suspended, Lekan Adegbite, the commissioner for works, explained that apart from other factors, projects have been affected by reduction in federal allocations over the months, in addition to the fact that it was not released in September. “You know very well that some states could not pay September salaries despite Salah celebration. But we used our IGR to pay the civil servants. That is affecting us. If the federal allocation had been constant, of course, we would have also put more money in the road projects and fast tracked work on them,” Adegbite told the magazine.
Last week, governors of states under the control of the All Progressives Congress, APC, met in Ilorin, Kwara State, where they expressed concern over the dwindling revenue. They also resolved to meet with President Goodluck Jonathan over what they described as cash crunch in their respective states.
The states are not the only casualties of the tumbling oil price and revenue. As pointed out by Obi, it will have implications for the national budget and the Sovereign Wealth Fund, which now stands at $2.5 billion. All of these will no doubt put pressure on the government. The search for palliatives has reopened calls for the withdrawal of oil subsidy. But like many other Nigerians, who believe that subsidy only fuels corruption, Obi rather expects government to make petroleum products available by getting the refineries to work and even building new ones; ensure that the relevant infrastructure are in place to guarantee efficient distribution of the products; and increasingly professionalize the NNPC to ensure that it delivers on its role as a regulator of the oil industry.
Similarly, Gbenga Aina, a financial analyst is of the view that the decline in the price of crude oil should be used by the federal government to phase out fuel subsidies to petroleum marketers because it is not sustainable. He also believes that the country would suffer a great economic crisis if there are no concrete plans to deal with the situation. According to him, the country would witness recession if certain steps are not taken, one of which is that government must cut down on its skyrocketing expenses.
For Peter Adebayo, a chartered accountant, except Nigeria faces the reality of diversifying its economy from reliance on oil as a major revenue earner and develop capacity in other areas like agriculture, mining and solid minerals the future may remain bleak. “If we have four refineries that are not operating at full capacities and we take delight in exporting our crude and again import back as refined products at high costs, I wonder the kind of future our leaders desire for this country,” Adebayo lamented.
Francis Kudaya, a management consultant takes a slightly different position, suggesting that the government can consider a total withdrawal or further reduction of oil subsidy so that the it will have more revenue to stand the shock arising from oil price. He also believes that for states that depend largely on federal allocation, this is a time to be creative in terms of improving on their IGR as they will require money for capital and recurrent expenditure. For as long as the slide in oil price continues, the states and the local governments will continue to be at the receiving end.