"Worry as govt officials shift focus from economy"

John Omachonu

The Nigerian state today seems to be grinding to a halt, with political gladiators taking over the stage at the expense of the economy. Accordingly, the fortunes of the country are gradually nose-diving, a cross section of economy watchers told BusinessDay.

Continued oil theft, incessant budget delays, rising insecurity, continued university teachers’ strike and political diatribe amongst the leadership are, according to them, forcing the nation on its knees.

The analysts specifically say that the 2.38 million barrels daily oil production estimate, as contained in the Federal Government’s Medium Term Economic Framework (MTEF) for the 2014 budget, may be unrealistic due to oil theft and pipeline vandalism, just as the current crisis in the ruling People’s Democratic Party (PDP) may delay the budget presentation as well as implementation.

“At a time of heightened political stress and shortfalls in oil revenue, finding a compromise that works for all will not be easy,” said Razia Khan, analyst with Standard Bank, London.

Commenting further on the implications of the crisis in the ruling PDP, Khan said there is now less certainty associated with election outcomes, and the months ahead are likely to see politics move to centre stage, potentially at a cost to other reforms, adding that if PDP eventually loses majority membership at the National Assembly, there could be complications on the passage of any legislation.

According to her, “Given current circumstances, it is highly unlikely that Nigeria’s long-deliberated Petroleum Industry Bill (PIB) will be passed soon. An end to regulatory uncertainty is thought necessary to unlock new investment in the upstream oil sector. Even passage of the 2014 Budget, expected to be read at the end of October, may become more difficult, further complicating the economic outlook.”

She said that although the MTEF planned moderation in total spending in 2014 to N4.5tn, from N5tn in 2013, there are some worrying concerns.

“From a growth perspective, the share of recurrent spending would rise to 73.8 percent of total spending, up from 64 percent in the current FY (increasing c.4 percent in nominal terms, to N3.32tn in 2014 from N3.2tn in 2013, but squeezing capital expenditure. Given the current political backdrop, budget assumptions for 2014 appear overly ambitious,” she added.

Bismarck Rewane, foremost economist and chief executive, Financial Derivatives Company, in his recent publication, said the Nigerian oil and gas sector remains a challenging environment to operate in. “In order to improve the outlook for this sector, the government has to ensure consistency in policies, address security issues and double down on initiatives to improve innovation for increased efficiency in the sector,” he said, adding that Nigeria remains a net importer of innovation and so must make the necessary investments in training institutions to provide capable human capital and innovation to meet the needs of the sector.

Samir Gadio, emerging markets strategist at Standard Bank, London, expressed similar pessimism, saying that spending by politicians would affect the fiscal consolidation of the Central Bank of Nigeria (CBN). He warned, however, that savings made in the past had not improved the lot of the Nigerian citizens.

“In reality, one should be a bit cautious about the assumptions of the MTEF and their implication for effective fiscal policy. What really matters in Nigeria is the federally-consolidated fiscal position rather than the budget of the Federal Government,” he said.

“Besides, the proposed spending terms of the FG budget are consistently adjusted upwards by the National Assembly, a situation that we see persisting in coming years,” he added.

FBN Capital Researchers, in their October 28, 2013 note on ‘Some fallout from the election build-up’, said the momentum of the FGN’s transformation agenda has slowed, adding that its execution depends on the strength of the vested interests in opposition. “Progress tends to be greater where those interests are weaker (such as agriculture and power), and slower where they are stronger (such as the PIB and the sovereign wealth fund),” they said.

Vested interests and unnecessary politicking which have visited the passage of the PIB have slowed down exploration activities in an industry that government earns almost 90 percent of its revenue. As if this situation is not grim enough, the leadership of the nation has enmeshed itself in political acrimony ahead of the 2015 general elections.

With governance practically being abandoned for political jobbery, Nigerians have been left at the mercy of armed robbers, militants and kidnappers, as growing insecurity now pervades the land.

The acrimony within the ruling party and between the opposition parties is deep. Already, governors of the All Progressives Congress (APC), the major opposition party, are threatening to take the Federal Government (FG) to court over what they term illegal deductions of 40 percent from their monthly allocations, a development that analysts say will further slow down the economy.

The opposition governors are also faulting the FG over the creation of the sovereign wealth fund (SWF), saying next generation would fare better by the level of investments made rather than by the amount of money saved.

In the midst of all this, there is spending spree at the centre occasioned by corruption and incessant trips of government officials overseas, threatening the CBN’s fiscal consolidation.
BusinessDay