Coronavirus pandemic, Saudi-Russia price war, high cost of debt- servicing and failing revenue, seem to be conspiring to make capital component of the 2020 budget un-implementable; BENJAMIN UMUTEME reports.
Presenting the 2020 budget proposal before the National Assembly on October 24, 2019, President Muhammadu Buhari had emphasised his administration’s resolve to tackle Nigeria’s infrastructural deficit through increased allocation and funding of capital expenditure. According to the president, his administration will also be carrying out a number of reforms that will help galvanise the economy.
The president stated that, “Investing in critical infrastructure, human capital development and enabling institutions, especially in key job creating sectors. We have adopted a conservative oil price benchmark of $$57 per barrel, daily oil production estimate of 2.18mbpd and an exchange rate of N305 per dollar for 2020.
“We expect enhanced real GDP growth of 2.93 per cent in 2020, driven largely by non-oil output, as economic diversification accelerates, and the enabling business environment improves. However, inflation is expected to remain slightly above single digits in 2020.
“Accompanying the 2020 Budget proposal is a Finance Bill for your kind consideration and passage into law. This Finance Bill has five strategic objectives, in terms of achieving incremental, but necessary, changes to our fiscal laws.”
However, the planners of the budget did not reckon with the coronavirus that is presently ravaging the global economy.
Coronavirus, Saudi-Russia price war
On December 31, 2019, the World Health Organisation (WHO’s) China office heard the first report of a previously-unknown virus behind a number of pneumonia cases in Wuhan, a city in Eastern China with a population of over 11 million.
What started as an epidemic mainly limited to China has now become a truly global pandemic.
There have now been over 200,000 confirmed cases and 7,505 deaths, according the John Hopkins University Covid-19 dashboard, which collates information from national and international health authorities. The disease has been detected in at least 150 countries and territories, with Italy, Iran and Spain experiencing the most widespread outbreaks outside of China.
This has led to almost a global shutdown in business activities as whole towns and cities have are on lockdown with most residents in self-isolation, especially in Asia, Europe and America. However, in Africa, the effect has not been as devastating as in other continents.
Nigeria is feeling the heat because it is more of an importing economy with the Asia being it’s major import partner, followed by Europe and America in that order.
Added to that is the price war between two of the major oil producers which has impacted negatively on Nigerian economy it has led to oil price falling to as low as $30 per barrel.
The executive director, International Energy Agency (IEA), Fatih Birol, and the secretary- general, Organisation of Petroleum Exporting Countries (OPEC), Mohammed Barkindo, on Monday expressed “deep concerns” about the coronavirus pandemic warning it could have “potentially far-reaching economic and social consequences.”
With oil price on a free fall following the ravishing effect of coronavirus coupled with the Saudi-Russia price wars, the two bodies in a rare joint statement said they expect developing countries to see their oil and gas income fall by 50 per cent to 85 per cent in 2020.
They singled out public sector spending in vital areas such as health care and education as being especially vulnerable.
International benchmark Brent crude traded at $29.91 Tuesday morning, down around 0.7 per cent, while U.S. West Texas Intermediate (WTI) stood at $28.98, more than 1 per cent higher.
Crude futures have more than halved since climbing to a peak in January.
On Monday, Saudi Arabia’s state-owned oil giant, Saudi Aramco, said it would likely continue with a planned oil production hike from April into May, reportedly suggesting it was “very comfortable” with an oil price of $30 a barrel.
Russia, which refused to sign up to OPEC’s proposal of deeper production cuts earlier this month, has claimed it can withstand lower oil prices for as long as a decade.
The implication of this twin challenge is that revenue is dwindling and there are fears that if the price of oil drops to the mid-2014 levels, the economy might just slid into another recession.
According to budget details, capital expenditure is expected to gulp N2.46 trillion which includes: capital supplementation (N234.2 billion); statutory transfers for capital expenditure (N289.1 billion); capital allocation for special intervention programme (N150 billion); MDAs capital expenditure (N827.3 billion).
However, three months down the line, only N285 billion has so far been released to some agencies for capital projects captured in the 2020 budget and another $220 million as counterpart fund for railway projects in the country.
Fielding questions from State House Correspondents on Friday, the Minister of Finance, Zainab Ahmed, said the releases were based on government’s commitment to prioritise agencies handling critical infrastructure projects as beneficiaries of the first tranche of releases.
She said, “As at Tuesday this week, we have released N285 billion to a number of agencies. We prioritised the releases to the critical infrastructure agencies. We also made releases to education as well as health so the ministries of transport, works and housing, Niger-Delta; a number of ministries and agencies that have important infrastructure projects have got their funds.”
The minister further disclosed that $220 million had so far been released as counterpart funding for railway projects in the country.
“Also, this week, we have been able to release to the Ministry of Transport the counterpart funding provided for in our budget that is required for the important railway projects that are currently ongoing, with financing form the China-Exim Bank so there are funds that have been released this week.
“In addition to the N285 billion there is up to about 220 million dollars that has been released for railway projects.”
‘Capex difficult to implement’
In a chat with Blueprint Weekend in Abuja, a development consultant, Joe Afolayan, said the budget would be difficult to implement the capital component of the 2020 budget considering the present situation of things globally.
“It will be difficult to implement capital expenditure in 2020 budget with expected and substantial drop in oil revenue.
“However, the Minister of Finance and National Budget announced that the budget will be reviewed in line with the realities of coronavirus pandemic and low oil price following the Saudi-Russian oil war. It is expected that capital expenditure in the 2020 budget will be reviewed downwards as well.
“There is no hope of fully implementing CAPEX in the 2020 budget. Where do we get the cash backing,” he asked rhetorically.
Matching words with action
For economist Friday Efih, the federal government should match words with action as it relates to the issue of economic diversification. He said, “It is about time the government should take decision action to diversify the economy. It should not be the talk about diversification in 2016 and after oil price rose the country went back to its old ways.”
In his view, a financial expert, Michael Oluwagbemi, said Nigeria should begin to look at the future.
He said Nigeria must position itself to for the digital economy as technology “is the future,” adding that the ministry of digital economy should immediately put in place plans to train the country’s youth population.
“Every product is coming from China and today everybody is discovering that they can’t get their products from China anymore.
“What Nigeria needs to do is to begin to engage in light manufacturing. With our cotton and petrochemical companies we can begin light manufacturing of plastics, textiles, we can do light manufacturing of pharmaceuticals. All these export processing zones should be put into use. We need to leverage on what we have,” he said further.
Afolayan insisted that Nigeria should “now seriously focus on economic diversification.”
According to him, “For too long we have paid lip service to this serious issue. There are other commodities and sectors that we can develop and scale to earn the country the needed foreign exchange. Another time for Economic Diversification in Nigeria is now!”
Former Vice President Atiku Ababukar, speaking on his tweeter handle, urged the government to do everything to ease the cost of doing business and reduce the cost of living, while promoting consumer confidence must be implemented.
“All hands must be on deck in a multi-partisan manner to ensure that Nigeria does not return to an economic recession. This is possible with decisive leadership and disciplined management.
“As such, I recommend that policies like the Stamp Duty on all types of accounts be temporarily suspended, until such a time as the nation’s economy has turned the tide in the fight against this virulent scourge. Furthermore, as the landing cost of Premium Motor Spirit, also known as petrol, has reduced significantly, it is strongly recommended that the government should not absorb the savings,” he said.
