07 Oct

The week ahead – To fix this economy we need to get real

The Senate has rejected a bill seeking to compel the federal government to recognise Lagos as the country’s commercial capital. This recognition was more than symbolic as it would have entitled Lagos to one percent of the nation’s revenue. The bill, which was sponsored by Senator Oluremi Tinubu, was rejected in a rowdy session on 6 September. During the second reading of the bill, the Chief Whip, Senator Olusola Adeyeye, one of those who supported the bill, had asked why the Federal Capital Territory was being subsidised by the Federal Government, whereas taxes were being paid for same government services in Lagos. He also asked why some northern states which banned alcohol consumption were benefiting from the revenue from the VAT paid on alcohol consumed in Lagos.

Plans by the Nigerian government to borrow billions of dollars from the World Bank and other international lenders to plug its budget deficit have run into delays amid a stalemate over reforms, jeopardising the country’s ability to finance its budget. In another development, the EU’s top official in the country called for Nigeria to further devalue the naira in order to stabilise the economy.

President Muhammadu Buhari has proposed ₦6.866 trillion for the 2017 fiscal year, pegging the exchange rate at ₦290 to $1, a 13.3 percent increase on the 2016 spending plan. In its bid to sustain its development projects, the federal government also announced plans to set up a $25 billion Infrastructural Development Fund as a means of attracting non-budgetary resources. This is coming even as the country’s debt stock hits ₦16.3 trillion ($61.45 billion) as of June 30. In adherence to the 3 percent threshold set out in the Fiscal Responsibility Act 2007, the 2017 fiscal deficit is projected at ₦2.7 trillion in nominal terms. The President’s plans were contained in the 2017 to 2019 Medium Term Expenditure Framework and Fiscal Strategy Paper, which he sent to the National Assembly for approval. The government has projected $42.5 per barrel and 2.2 million barrel per day as crude production baselines, despite the volatility in global oil prices, as well as $45bpb and $50bpb respectively for 2018 and 2019 with oil production benchmark of 2.3 million and 2.4 million barrels per day for the same period. During the same week, the Debt Management Office revealed that as at June 2016, Nigeria’s external debt accounted for just 18.33 percent of the country’s total debt stock of about ₦16 trillion. According to the DMO DG, Abraham Nwankwo, within the small external debt, concessional debt (average interest rate of about 1.25 percent per annum and average tenor of about 40 years), accounted for about 80 percent of the total. He also said that the external debt service accounted for an insignificant proportion of the total public debt service expenditure. The annual external debt service expenditure for the last five years was always less than 6.5 percent of the total public debt service outlay.

A former Vice-Chancellor of the University of Ibadan, Prof. Olufemi Bamiro, was shot on Tuesday evening by gunmen in a failed kidnap attempt in the Oluyole district of Ibadan. Also this week, the Police in Kaduna confirmed the release of the immediate past Minister of Environment, Mrs Laurentia Malam, and her husband, Pius, who were kidnapped on 3 September. Earlier, Margaret Emefiele, wife of the CBN governor, Godwin Emefiele was freed after being abducted on the Benin-Agbor Expressway on 29 September. The abductors demanded a ransom of ₦1.5 billion, according to some online reports, but were forced to release their victims following pressure from the police, army and Department of State Services.

The Nigerian mission official in Ankara, Turkey has been scheduled to meet with Turkish foreign ministry officials over the arrest of Nigerian students in the country. The students were arrested and their passports confiscated by the Turkish security agents upon arrival at the Ataturk International Airport in Istanbul. Reports say Turkey’s immigration officers collected the passports and resident permits of returning students at the airport, and reportedly detained them.

Suggestions:

  • The debate within the Senate this week was less about the bickering over the designation of a city which is clearly recognised globally as Nigeria’s commercial capital than it was about the growing groans for more responsible fiscal federalism. Whether it is the increasing calls for state policing, dealing with the proceeds of taxation or greater resource control by the states, it is clear that Nigeria as presently constituted is unwieldy, inefficient and grossly under-representative of the interests of its constituent parts. This represents the perfect opportunity for a national conversation on what kind of nation we ought to be. We believe that more states will begin to make similar demands, and this chorus will increase until the discussion, and decisive decisions, on the devolution of powers, and proper implementation of fiscal federalism is forced. We, however, caution that this is not a silver bullet, and urge citizens to demand more accountability from their various sub-national governments for resources they already receive, even as demands for increased resources continue.
  • The call by the World Bank and the IMF clearly crystallises the need for the federal government to embark on reforms and eliminate the waste in governance that Nigeria has become notorious for. The lack of clearly thought out action is seen by external observers as weakness, which would further shrink the options available in terms seeking foreign assistance should the economic situation escalate out of control. A key government actor these agencies look at to gain insight to policy direction is the finance minister, and her utterances in the last week have not engendered confidence. A second thing; these bodies are keenly studying is the MTEF and the proposed 2017 budget. Again, these documents do not reassure that the government is facing the situation with the requisite realistic pragmatism, as against a hope that some miraculous turnaround will happen in the oil and gas industry.
  • It seems that this administration draws the data that drives their planning from a different reality. The current interbank exchange rate, already accused of being heavily manipulated, stands at ₦317 to a dollar, while the parallel market rate which represents a fairer assessment of the naira’s value is at an all-time high of ₦472. The oil benchmarks of 2.2 million and the growing benchmarks of 2.3 million and 2.4 million for 2018 and 2019 respectively not only assume we will reach peak productivity by the end of 2016 but that we will add more production in those years. Again, this does not represent the current reality. While the planners can point out our low debt to GDP ratio, a better measure to look at is how much of our revenue goes to debt servicing, and how much of our dangerously low foreign reserves are encumbered by various obligations. We had our most ambitious budget ever in 2016 (the 2017 proposal is even more ambitious), but critically, have we evaluated the performance of Budget 2016 thus far? The execution radically departs from the lofty goals espoused by the budget. Policy planners need to do away with the alternate reality basis for budgeting and fiscal policy. In case they have not realised, sound and grounded fiscal policy is needed in tandem with well thought out monetary policy to turn the economy around. The current posturing is simply not encouraging.
  • The kidnapping of high profile persons such as the CBN governor’s spouse has raised the stakes on the menace of kidnapping gangs across the country. We believe that the current ad hoc response to the crisis must give way to a permanent, and pragmatic strategy that would help the security services tackle this problem and bring it to an end. It must not take the arrest of a VIP for the state to deploy all resources in tracking down criminals.
  • Nigerian news reports have suggested that this incident may not be unconnected with July’s coup d’etat in Turkey. In the wake of the coup, the widest ranging purge of any nation’s society in this millennium has been undertaken and no sphere of Turkish society has been spared. Nigeria and Turkey enjoy excellent relations and the Middle Eastern nation has made vital investments in power, agriculture and education in this country. We urge the Nigerian government to use all diplomatic means to engage the Turkish government and ensure the rights of Nigerians are protected within that country.