The President presented the 2012 Budget to the NASS sometime ago, so TurningPoint has had a look and treated certain aspects with the scorn they very much deserve, while cautiously embracing others. This post is unusually long, but it is in order to do justice to the most important piece of literature to come out of Aso Rock in recent times. For reasons of clarity, each section has been tackled in the sequence they were presented. Let’s go.
Global Economic Developments:
While it is patently obvious that global economic performance in 2011 has been at its most miserable for decades (with the turmoil in the Eurozone area and its attendant effects on world growth; the Japanese Fukushima Daiichi nuclear disaster and Tohoku earthquake in March; New Zealand earthquake in February; Australia flooding in January; the Arab Spring; etc.), it is a little bit disingenuous to attribute all of our economic woes in the past year to these crises. The fundamental problem facing our economy is its largely one-dimensional, single-lane nature; when there’s a ripple of concern in far-flung nations, we experience a flood of worries in Nigeria. A near-total reliance on crude oil exports is our economy’s Achilles heel. One doesn’t need a PhD in Economics to realise that. In addition, it is very clear that the flow of FDI into our economy will suffer as a result of spikes in risk aversion (though, as the dissipation of risk aversion begins to manifest, FDI is expected to respond positively). In fact, the IMF’s estimate is that Nigeria’s current growth (annual rate of change, compounded) is almost 2.5% lower than the period from 2000 to 2007, while in South Africa it is only 0.8% lower. Come to think of it, it is actually 7.3% higher in Eritrea! We are on the same continent and being influenced by the same world economic forces. The disingenuity of the President’s claim is thus amplified by these stark comparisons. This is not to deny that our economy faced serious headwinds in 2011, but we were not in isolation. The slowdown was truly global in nature and effect. Moreover, the presentation of an annual budget before the NASS ought to be made with unimpeachable statistics; the difference in figures one way or the other can run into trillions of Naira. The President was less than accurate when, in highlighting the volatile nature of our oil exports, he alluded to the fact that oil prices plummeted from US$147/barrel in July 2008 to about US$38/barrel in November 2008. In actual fact, the highest crude price in 2008 was US$145.29/barrel on July 4 while the lowest was US$49.93/barrel on November 21. Accurate historical figures underpin the integrity of a budget, especially when they relate to events during the same economic cycle.
International food prices have always been volatile, as they largely depend on natural phenomena like weather patterns and the absence or occurrences of natural disasters. However, I do concur that the less reliance we have on food imports the better for both our economy and food security.
Developments In The Domestic Environment:
It is laudable that the President created the EMT (which he chairs) and the EMIT (chaired by the Finance Minister). Strong unity of purpose, oneness of ideals and proper coordination of efforts will go a long way in the successful implementation of the budget; and twinned with the oversight functions of the NASS, we can reasonably expect this budget to do what it says on the tin. It is alright for the President to talk up the economy, but he runs the risk of raising false hopes. He attributed the strong growth recorded in the first half of 2011, in part, to the resilience of our economy. I’m afraid this is a fallacy, at best, and an attempt at falsity, at worst. He should know that while figures may back up his claims, the average price/barrel for crude oil between 07 January and 24 June, 2011 was US$99 while it was only around US$91 between 01 July and 09 December, 2011. That’s a difference of US$8/barrel. Elementary mathematics shows that represents an extra US$3.33 billion in revenues (a whopping N516.15 billion at N155/US$)!! Is it such a wonder then that the ‘robust growth’ in the first half of 2011 was largely down to the high average price of crude oil, and not the resilience of our economy? These extra revenues alone accounted for almost 11% of the N4.848 trillion appropriated for 2011; yet fiscal deficit for 2011 was 2.96% of GDP (perilously close to 3%) A very pertinent question indeed is ‘what would the fiscal deficit figure have been had crude oil prices been depressed the whole year?’ How much exactly did we borrow in 2011, and for what purposes?
Even so, the figures don’t paint all that a rosy picture. The IMF recorded a GDP growth of 6.9% for us in 2011 and a projected growth of 6.6% for 2012 (a contraction, but by no means disastrous). For Afghanistan (a warzone, for all intents and purposes), the figures are 7.1% and 7.2% respectively! While our growth performance isn’t all that bad, we should be doing a lot better and this is not the time to pat ourselves on the back. Far from it. We have been blessed by providence to have these enviable resources; we have been cursed by our leaders’ inordinate greed, and criminal neglect, not to use them judiciously and make our country a much better place for everyone and a frontrunner in the world.
The President stated his administration’s goal of pursuing a programme of greater fiscal discipline. Good fighting talk, but I’ll come to that. The devil is in the detail. The contribution to the overall economic growth of the non-oil sector was noted by the President to be on an upward trend, but hard figures were not forthcoming. The threadbareness of statistics in this regard, once again, detracts from the integrity of this budget. Budgets are about figures and words in more or less equal measure. When emphasis is skewed towards words, for me, it’s squeaky-bum time (as Sir Alex Ferguson would say!) The unpreparedness or unwillingness to back up this claim with figures makes scrutiny of the analysis nigh impossible. It is, however, a source of inspiritment to know that oil production is now getting back up to speed (100,000 barrels/day more than 2010), and food inflation is being depressed to single figures at last (14.1% in 10/10 to 9.7% in 10/11.) Long may these continue.
Review Of Implementation Of The 2011 Budget:
The President, at last, attributed the strong performance, revenue-wise, to the higher oil prices and production levels. This is not too difficult to deduce in any case, as projected oil revenues were always going to be ahead of expectations because benchmark prices were very conservatively set in the first instance. The President again, uninstictively, ruined the party by attributing the slowness of the implementation of the 2011 budget to the General Elections and the passage of the 2011 Amended Budget in May. Scant relief to Nigerians and businesses who depend on the timely, effective and efficient implementation of the budget. Why couldn’t allowance be made in every election year to counterbalance such perceived adverse effects? Nonetheless, the ‘revelation’ that, as at mid-November the implementation was 67% complete (expected to reach 70% by the year’s end), is to be mildly applauded.
The President almost begged for universal agreement in his assertion that the previous two budgets were relatively expansionary. Sorry to disappoint you, Mr President. On this point, you lose me. Those budgets may have been ‘expansionary’ in principle, but sir, the implementation must have been discretionary in intent. What were the effects of these ‘expansionary’ budgets? I’d much sooner find a needle in a haystack! How many jobs were created? How many abandoned projects were successfully completed? How much infrastructural improvement was there? If you can’t provide the figures don’t make assertions, Mr President. Nigerians are not stupid.
Priorities Of The 2012 Budget:
It was fair play to the President to note that the outlook on Nigeria was set at ‘stable’ by Fitch. What he ought to have also made clear was that this was only the Long-Term Issuer Default Rating (IDR). The most pertinent measure of our credit rating was carefully omitted, I suspect, because it’s not particularly attractive. Nigeria’s rating is BB- (Fitch), some way down the pecking order in the speculative grade; thereby making the interest on our borrowings disconcertingly high. These high interest payments are impacting on the government’s ability to invest adequately in much-needed infrastructure, health provision, education and training for our people. With such immense wealth at our disposal, and with good fiscal discipline, Nigeria ought to aim to be in the investment grade. This would make our borrowings cheaper and enhance our ability to invest in areas that would make a real difference to the welfare and wellbeing of our people. This aspiration has to be one of the main priorities of the government. Or should it not?
The President informed us that, with his Transformation Agenda in mind, he has designed the 2012 budget to focus on three main objectives: fiscal consolidation, inclusive growth and job creation. He also advised that in order to achieve those objectives, he has established ‘four main pillars’; namely macroeconomic stability, structural reforms, governance and institutions, and investing in priority sectors. Well said. Now, let’s take these in turn.
Macroeconomic Stability:
Here, I must betray my sense of bewilderment. The President said, among other things, that the aim is to manage our debt level in such a way that the Debt-to-GDP ratio would be no more than 30%. In the same vein, he noted that our debt profile has increased sharply in recent years and now stands at 16.4% of GDP. So, if he reckons 16.4% is rather burdensome, why set an upper limit of 30%? What this implies to me, in plain language, is that this government intends to go on a borrowing spree in the short- to the medium-term. He bemoans the burden we’re putting on our children and he’s planning to add more misery to the burden. If I’m wrong to draw this conclusion I’d like to be put right. Initiatives aimed at blocking revenue leakages, and improving revenue generation, are to be welcome. In the same vein, plans to incrementally slash the share of recurrent expenditure (hopefully not just ‘non-debt’) are good, as long as those steps announced (tackling waste, inefficiencies, corruption and duplication) are decisively taken. The fly in the ointment, for me, is the light-handed approach to the curse of corruption in government at all levels; seriously tackling revenue leakage via CORRUPTION is key to the success of this rather heart-warming raft of initiatives.
Structural Reforms:
This section is basically a rehash of old news, to be honest. Nothing much to comment on in the context of this critique. Please refer to http://9jainc.blogspot.com/2011/10/economic-ignominy-mtff-to-rescue.html as it relates to the issue of fuel subsidy removal. The ongoing reforms at our Ports facilities and Customs, if diligently carried out, will bring a lot of succour to businesses and individuals, while improving the income stream from this sector. For fear of omission, I will just add that the liberalisation of the Power sector is highly welcome as it is based on sound economic fundamentals; but, as always the case, the manner of implementation is key. Safeguards have to be in place to avoid the pitfalls of corporate greed and poor performance. Consumers need to have guarantees and conflict resolution mechanisms established in law to offer them adequate protection.
Governance And Building Institutions:
It’s all well and good putting the allocation of revenues to the three tiers of government in the public domain. That is half the story. The more important half is the disclosure of expenditures on a regular basis. Knowledge is power and information is the primer of knowledge. Dissemination of information, say, on a quarterly basis, with regards to how the government is fulfilling its budget commitments would enable people to rate its performance. Not every Nigerian has the nous to exercise the constitutional right accorded them by the Freedom of Information Act. Strengthening of the anti-graft agencies should not be a lip service (as, I fear, it has hitherto been.) Several posts on this blog have been devoted to this particular issue.
Investing In Priority Sectors: Creating Jobs:
The thrust of the narrative here is job creation, and I’m afraid, it’s full of rhetoric and an irksome repetition of previous pronouncements. The paucity of quantifiable and verifiable policy initiatives in this area exposes the vacuousness. Fleshing out ideas with details would have accorded one the ability to evaluate the policy initiatives being touted about. To ‘give priority attention to Information and Communications Technology, Solid Minerals development, Manufacturing, Aviation and Creative industries…..’ conveys nothing of substance. The pronouncements on Agriculture made a bit more sense as we’ve got figures and timescales, and on this, I couldn’t agree more that urgent action needs to be taken to bring food security to the fore and the measures announced are quite commendable, if they are followed to the letter.
I can’t believe the President is talking about private home ownership; this is pie-in-the-sky stuff, to say the least! This idea, at this point in time, is so preposterous I can’t even believe I’m talking about it! Tens of millions are struggling to feed themselves and their families; no employment prospects; roads almost unusable; education system a sick joke; no potable drinking water; power supply lottery-like; armed robberies on the up; Boko Haram wreaking havoc with near-impunity; high-level corruption showing no signs of abating and a myriad of other social problems, and this President comes out with this? What a balmy idea this is! It’s just so utterly irrational it’s not worth a moment’s consideration.
It is true that the government can’t do everything, nor is it expected to. All we ask it to do is provide an enabling environment for people to be in control of their lives. The PPP path has to be trod with extreme caution; though sound in principle, but the risks associated with it are enormous if contracts with private finance are imprudently negotiated. Cue the PFI in Britain that has saddled some of the NHS Trusts in England & Wales with crippling debts. Tread carefully.
THE 2012 BUDGET:
Now, let’s move on to the nitty-gritty without repeating the assumptions (as narrated by the President) the budget is based on.
2012 Revenue And Expenditure Profile:
The President revealed that the share of Recurrent Expenditure in the 2012 budget proposal is 72% and 28% for Capital Expenditure (a 2% increase on 2011)
Here we go again, wait for this. Of the recurrent expenditure, Statutory Transfers gulp up a massive N398 billion! No breakdown, no nothing. Mute. Why this deliberate slap in the face of Nigerians? Aren’t we entitled to know how our money is being spent? This budget will turn out to be a massive fraud and will follow the very familiar pattern to which we have become accustomed. Why can’t the President spit it out? For starters, I strongly suspect the NASS is being appeased again at the expense of suffering Nigerians. Our NASS is the most expensive in the world, and for what? The President is mindful of the fact that we need to trim the cost of governance. What better place to start from than the NASS? Ordinary folks are clamouring for a minimum wage of N18,000 and they’re getting rebuffed. Where is equity and justice in this country? He said he has received a preliminary report of the Task Force he set up to look into how to slash the ballooning cost of governance and he shall implement ‘relevant’ recommendations. Well, Mr President, why don’t you publish the recommendations and let Nigerians determine which ones are relevant and which aren’t? Maybe those concerning the NASS are not relevant? What a cartel of rogues! I’ll stop there for now.
Moving on, the President informed that there is N1.32 trillion for capital expenditure, an increase of 15% on 2011. On the face of it, a 15% increase sounds huge, but a bit of number-crunching tells a different story: it represents an increase of ONLY N156m in real terms (out of an increase of N240m, in real terms, in aggregate expenditure.) According to Mr President, a large percentage of this will be expended on the completion of ‘critical infrastructure projects’. Any sane listener to, or reader of, this budget speech would have been rightly miffed that, once again, detail was thin on the ground. A couple of examples of ‘critical infrastructure projects’ would have been very much welcome. The shallowness of this budget is becoming more exposed by the sentence.
Fiscal deficit is projected to be 2.77% of GDP (an ever so slight improvement on the 2.96% in 2011) Good to know that the deficit is being kept within the FRA 2007; as long as it is kept below 3% I have no problem with that. It is also refreshing to know that the government is determined to keep a close watch on domestic debt. The big question is how the President can make a sensible case for setting a ceiling of Debt/GDP of 30% (from the current level of 16.4%) while asserting the government’s determination to be prudent, debt-wise. Of course the government needs to borrow to do stuff that needs to be done, but is it prudent to max out the nation’s credit card and run the risk of further endangering our already-woeful credit rating, thereby pushing the yields on our bonds to even higher levels? I don’t think so. Even though there is a lot of wiggle room, extreme caution has to be exercised when it comes to safeguarding our not-too-bad Debt/GDP figures.
Finally, the allocations given to those sectors mentioned by the President are, in the context of current finances, fairly good. Again, it’s all down to the degree of diligence in implementation. The allocation given to Security has generated a lot of hot debates. Rightly so. My own personal take on the issue is that it is not just the amount of money spent on security that matters, but the most important factors that could justify the expenditure are the efficiency and effectiveness of the strategies being deployed. Are we making headway in combating terrorism? Are we winning the war on armed robbers? Are there credible oversights on the deployment of funds? If Nigerians cannot get satisfactory answers to these questions, how does the government expect to justify the serious amount of dosh being thrown into security? The first job of government is to provide adequate security for its citizens, but to date, on available evidence, it has been dreadful in this most important obligation. I’m not even holding my breath to see any discernible improvements soon.
Fiscal Policy:
The President made numerous references to the issue of employment, and how the various initiatives he has set up would result in improving the sorry unemployment statistics. He reminded us of a ‘retreat’ he hosted with the Organized Private Sector (OPS) in October, to discuss fiscal policy, among other things. What is the point of having these useless retreats? Aside from being avoidable, hugely expensive exercises, they serve absolutely no purpose and they are, invariably, time-wasting. I can’t remember anything worthwhile ever coming out of them. What is OPS, anyway, and who are the constituent members? Why discuss fiscal policy with them, when they obviously have vested interests? Doesn’t the formulation of fiscal policy rest with the government? These kinds of escapades further erode confidence in this government, I’m afraid. If the government wishes widespread participation on issues of such national importance, why not invite representation from all stakeholders to a conference? Organized labour, Student Union, Civil Service, the Bar, and suchlike ought to be represented in any consultation to ensure full and meaningful participation.
Talk about the Export Expansion Grant (EEG), review of the ECOWAS Trade Liberalization Scheme (ETLS) is too fluffy, to say the least. Mr President informed us that he has signed PITA Act 2011 (Personal Income Tax Amendment) to modify the tax structure to make it more equitable. One needs to study the Act to have an opinion; I have not, so my opinion on this is reserved until I have done so. Tax Appeal Tribunals are also available under this Act for individuals with concerns about their tax liabilities. I concur this is a good idea as long as access to these tribunals are hassle-free, timely, and straightforward. The President promised us that other fiscal changes will shortly be gazetted. So much for completeness! We are waiting.
It gets even more interesting now. The President proclaimed the commencement of the National Job Creation Scheme (having made available N50 billion in the 2011 Budget.) If this scheme was meant for Nigerians, I wonder how many of us know about it. What is the idea behind it? (Job creation, apparently!) How is it run? Where is it being run from? Who are those running it? How many people have benefitted, or benefitting from it? For N50 billion bucks, aren’t we entitled to ask questions? Are these funds rapidly disappearing into those deep pockets as usual? Prompt answers, please.
In the same vein, Mr President proudly announced the Youth Enterprise With Innovation in Nigeria (YouWin). What a mouthful! He apparently launched this in Abuja in October, and according to him, has been successfully launched across the six geopolitical zones. Why all of these are even coming under the subtitle, Fiscal Policy, is beyond me. YouWin is meant to promote the spirit of entrepreneurship among the youths and is expected to create about 100,000 jobs through support to young entrepreneurs. If I wasn’t just trying to curb my irreverent tendencies, on this issue, toward the President I would have let go a few choice words. Instead, let me congratulate him on the launch of another of his useless initiatives set up to fill the pockets of more of his cronies. Meaningless in purpose and fraudulent in intent. We are waiting to read the updates on these two ‘programmes’ meant to stimulate employment! What a ‘peculiar mess’!
Conclusion:
The President engaged once again in his familiar monotonous rap about how this budget would do wonders for our economy, put an end to the misery of millions of unemployed youths and adults and kick-start that long-awaited transformation we’ve been waiting for since the beginning of time. He even had the balls to preach to us a future of hope! Finally, he thanked the ‘esteemed’ NASS for their enduring partnership with the Executive and beseeched them to consider and pass the budget proposals without much ado.
TurningPoint’s Conclusion:
Without sounding too dismissive of this Budget, I sincerely do not think it amounts to much. This budget lacks focus, integrity and clear purpose; its intellectual limitations are profound. The disjointed nature of its structure is only surpassed by the imperceptible nature of its content. The so-called Economic Team in the administration must cover their collective face in shame for coming up with such a discredited and shambolic piece of literature. I believe Nigerians deserve so much better from this administration. I’m not a prophet of doom, but in all honesty, this budget will achieve nothing of substance. The promises are as empty as the focus is bleary.
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