With the revelation that the Federal Government may soon be unable to offset its financial obligations because of dwindling revenue, experts say incidence of pipeline vandalism, oil theft, bunkering and other anti-growth activities must be checked, writes Assistant Editor (Investigations) ADEKUNLE YUSUF
Of late, the atmosphere has been suffused with conflicting signals on the state of the economy, loud enough to drive the public into the panic mode. Although there are signs that the unexpected may happen any moment from now, the official position is that the economy is not heading for Armageddon. Some of the mantras of members of the Economic Management Team are: From whatever parameters and yardsticks that are adopted to measure the health of the economy, it is glaring for the discerning to see that it is growing by leaps and bounds and that it may soon come out of the woods and join the league of top-rated economies in the world. However, despite repeated official sophistry that there is no cause for alarm, available indices show that all is not well with the economy. Consequently, there is need for pragmatic last-minute measures to arrest the drift.
As grim and portentous as it may appear, news about the Federal Government’s imminent cash trouble is not a mere doomsday forecast. This revelation came from the Coordinating Minister for the Economy and Minister of Finance Dr Ngozi Okonjo-Iweala, who told a bewildered nation recently that the country may soon be reeling from cash crunch. This, she said, may bring about inability to pay salaries. Besides providing an inkling about the state of the economy, the fact that the minister said the government may soon start defaulting in the payment of salaries made the issue more dramatic. Although she had tried frantically to edit herself, ostensibly so as not to sentence the economy to unnecessary tremor, it was glaring from her submissions that the economic prospect is gloomy, at least for now. She is, however, happy to have Nigerians believe that the country is not broke. Yet, the economist in her often forces her to acknowledge the mounting fears in the public domain that the revenue projection for the fiscal year may not be met in the face of dwindling oil revenue accruing to the nation’s purse lately.
Due to the renewed stealing of crude oil, which is the mainstay of the economy, there is apprehension that the government is grappling with problems in its bid to implement the 2013 budget. Despite involving a plethora of security agencies to secure pipelines, including awarding fat contracts to some Niger Delta ex-militants to the same effect, the truth is that the economy, which depends almost solely on oil revenue, is merely racing on frail limbs to join the best 20 economies of the world. Massive oil theft, resurgent illegal bunkering and pipeline vandalism have fused to leave the economy bleeding. For reasons best known to those in power, security agencies have not been able to curb crude oil theft, thus further making the economy vulnerable.
Although the government has repeatedly maintained that it is committed to measures to diversify the economy, knowing too well that doing so is the surest route to stimulate real economic growth, oil export still accounts for more than 80 per cent of nation’s revenue and 95 per cent of the foreign exchange income. That is why experts insist that any substantial hurt to Nigeria’s oil production capacity is the equivalent of an uppercut to her already fragile economy.
Here are the facts. Going by the monthly allocations to the three tiers of government from the Federation Accounts Allocation Committee (FACC), only N3.893 trillion was received as gross revenue in the first six months of 2013, as against the projected revenue of N4.215 trillion for the period, leaving a shortfall of N321.73 billion. According to a FAAC document, the monthly budgeted gross federally collected revenue for the country is put at N702.54 billion, which it hopes to realise from three sources – mineral revenue, N465.057 billion; non-mineral revenue, N158.711billion and value added tax, N78.77 billion.
That is not all. A breakdown of the N3.893 trillion earned for the first half of 2013 is as follows: January, N651.26 billion; February, N571.7 billion; and March, N595.71 billion. In April, May and June, revenue receipts by the country were N621.07 billion, N590.77billion and N863.02 billion. It is, therefore, apparent that the country recorded significant revenue drop between January and May. Other months, except June, also witnessed a revenue shortfall. January, N51.28 billion; February, N130.84 billion; March, N106.84 billion, April, N81.47 billion and May, N111.77 billion.
However, there was a surplus of N160.48 billion in June as the country’s revenue receipts of N863.02 billion exceeded the budgeted N702.54 billion, which experts said was attributable to completion of pipeline repairs in some terminals.
With this grim financial outlook staring the country in the face, going by the revenue generation trend witnessed in the first half of the year, financial experts believe that the country may end up raking in about N7.78 trillion for the 2013 fiscal year, instead of N8.43 trillion it projected, unless revenue generating agencies redouble their efforts and plug loopholes.
Oil theft as albatross
Worried by the frighten.ing trend, Dr Okonjo-Iweala admitted that the country is losing 400,000 barrels of crude oil daily to illegal bunkering and oil pipelines’ vandalism. That means a whopping 20 per cent of the daily production capacity of two million barrels is creamed off by daredevil criminals. She spoke during her appearance before the House of Representatives Joint Committee on Appropriation/Finance in Abuja on July 16.
She said: “We are losing revenue; 400,000 barrels of crude oil are lost daily due to illegal bunkering, vandalism and production shut-ins. I have to clarify that it is not as if the entire 400,000 barrels is stolen, no. What happens is that whenever the pipelines are attacked and oil is taken, there is a total shut down. All the quantity of oil produced for that day will be lost because it means government cannot sell it and it means a drop in revenue.”
The minister added that the persistent drop in the nation’s projected revenue was the reason President Goodluck Jonathan sought to amend the 2013 Appropriation Act, as against sending a supplementary budget to the National Assembly. With the revenue shortfalls facing the country, said Dr Okonjo-Iweala, there was no way the government could afford a supplementary budget.
“You cannot talk of supplementary budget when your revenue is going down. That is why we are asking for an amendment to restore the money that was removed,” she added.
The shale oil challenge
What the government has not admitted is the effect of the shale oil on the economy. Rising shale oil production in the United States has slashed light oil imports from Nigeria by more than half.
“The shock waves of rising US shale gas and light tight oil… are reaching virtually all recesses of the global oil market,” the the International Energy Agency (IEA) wrote in its 2013 Medium-Term Oil Market Report.
In the first three months of 2013, US refiners cut their crude imports from Nigeria and elsewhere to just 681 million barrels, down from 785-800 million barrels in the same period in 2012 and 2011. The reduction has fallen entirely on light grades, which Nigeria supplies to the U.S.
According to the Energy Information Administration (EIA), imports from Nigeria, which produces light low sulphur oils, have fallen more than 52 million barrels, making the country the worse hit.
The IEA said: “As light crudes from Nigeria and Algeria are displaced from North American refineries, they must find new markets in Europe and Asia, where they compete with local supplies such as Brent and Malaysia’s Tapis.”
Not a sweet music
As expected, news that a behemoth Federal Government may run into possible cash problem cannot be sweet music to the ears of discerning Nigerians, especially coming at a time officials of government have inundated the public with sweetheart statistics about the much-talked about impressive performance of the economy, which, they say, the much-vaunted Transformation Agenda of the Jonathan administration has made possible. Stunned by the disturbing news about the state of the economy, the Managing Director, Financial Derivatives Company Limited, Mr. Bismarck Rewane, sounded a note of warning, saying a further revenue drop could hurt the nation’s economy beyond repair.
Rewane said: “If indeed about 400,000 barrels of crude oil are lost every day, that’s about 20 per cent of daily oil production. Remember, crude oil is the mainstay of Nigeria’s economy. If they take away 20 per cent of your salary, you know how that will affect you. Nigeria cannot survive on what will be left if that amount of revenue is lost every day.”
Henry Boyo, a political economist, expressed a similar disgust that Nigeria is losing so much to oil bunkering despite having spent a huge amount to secure oil facilities and pipelines.
“It is quite surprising that despite the huge amount that has been spent by the Federal Government to put in place security patrols on the coasts of the Niger Delta, oil bunkering has reached this stage,” Boyo said.
Prof. Pat Utomi of the Lagos Business School said the diversification of the nation’s revenue streams, and not worries about a drop in revenue, should be the government’s immediate concern.
“I have always belonged to the school of thought that suggests that only a small percentage of the oil revenue should be shared between the three tiers of government. I have even suggested, even though with tongue in cheek, that Nigeria should cap its oil wells so that we can make a conscious effort at developing other sectors. All kinds of individuals who should not have been anywhere near governance are running to become public servants because of oil revenue. We have been killing other sectors of our economy. Maybe we need to be broke to return to our senses and dedicate more time to other sectors, such as agriculture and manufacturing,” he said.
But it is also an open secret that the manufacturing sector, Utomi referred to is in a shambles. According to Rasheed Adegbenro, acting Director-General, Manufacturers Association of Nigeria (MAN), the full potential of the manufacturing sector, which is one of the few economic activities with the highest multiplier effects, is hamstrung. He identified drastic reduction in the level of electricity supply to industries, harsh operating environment, infrastructure gap, multiple taxation and insecurity as some of the limiting factors for businesses and urged the government to address these issues.
Yet, at every opportunity, cabinet members have never missed flaunting the economic performance record of this administration, with a promise that things can only get better. For example, on May 29, while giving account of his stewardship as contained in his mid-term report, Jonathan scored his administration high in the handling of the economy, though he conceded that the public also reserves the right to come up with their own marking scheme, as long as the assessment guarantees fairness This drew flaks from several quarters, especially his critics. Like her boss, Dr. Okonjo-Iweala was even more assertive on the state of the economy, boasting with an air of aplomb that the country is heading towards the right direction under the watch of Jonathan and members of his economic management team. Among other things, she said as part of what she called the green face of the economy, that the exchange rate at N155-160 to a dollar is stable. The minister added that Nigeria is posting an economic growth rate of 6.5 per cent, which is said to be good enough for an economy that contends with huge infrastructure deficit, endemic corruption, epileptic electricity supply, and other daunting investment challenges.
Is the economy growing?
Without doubt, the issue of economic assessment is highly polemical, if not a subjective issue among economists. However, if measured by the performance of the Gross Domestic Product (GDP), which stands at $262.61 billion, experts say there is no gainsaying that Nigeria’s economic profile is quite pleasing and promising. By measuring the status of the economy through GDP, which measures the national income and output for a given period, economists explain that officials of the government are absolutely right to say the Nigerian economy is on an even keel. But is the GDP the best index for measuring the health of any economy, especially a developing one? Experts disagree. According to Utomi, using the GDP to gauge the health of the economy is open to a lot of flaws, since it can aid reaching a distorted conclusion about the true health situation of the economy being measured. His reasons: “It can engender a situation where a few people have an unfair share of the output of the country, thus opening the system for social tensions since the purported growth will not stimulate job creation or wealth.”
Besides, the inclusion of massive government spending, which sometimes may not be beneficial to social welfare, alongside market transactions, detracts from the usefulness of measuring the economic outlook through the GDP.
“One of the problems of using GDP or output to measure the economy is that you can have a situation in a country where some individuals can have an unfair proportion of the output of the country. It is even more problematic when what they get is significantly disproportional to their input as a situation where you have people who have a lot of money without having a business that is creating wealth or employment. That kind of economy is likely to create a lot of social crises and tensions,” Utomi said.
Soaring unemployment
According to experts, one democracy dividend that will truly gladden the hearts of the masses is to defuse the ticking time-bomb, which the soaring unemployment rate has become. While the higher institutions churn out thousands of graduates every year, the rate of their absorption into the ailing economy is terribly low, leaving millions of graduates to continue to pound the streets in the major cities in search of gainful employment. By the recent figure of the National Bureau for Statistics (NBS), unemployment increased to 23.90 in 2011 from 21.10 in 2010. Expectedly, bourgeoning unemployment rate has become the manure that is fast feeding poverty escalation in the nation. Despite official news that the economy is posting impressive improvements in its various sectors, it is distressing to note that the economy is losing more and more people to the wrenching hands of poverty. From all available situation reports, it is obvious that poverty has increased considerably in the last few years, for there is an increasing number of Nigerians slipping below the poverty line. Going by a 2012 frightening statistics by the NBS, about 112 million of the 160 million Nigerians were whipped into poverty. By that figure, it means 67 per cent of the population is finding it hard to eke out bare existence.
But it is not only the local institution that has a message that is not music to the ears of Nigerians. According to the United Nations Human Development Index for 2013, Nigeria ranks 153 of 186 countries. As if that is not enough, the report says further that the average life expectancy in Nigeria is 52 years, meaning that many Nigerians will die before the mandatory 60 years retirement age. Also, the World Bank, in its May 2013 Nigeria Economic Report (NER), carpeted the economic outlook of the country, which it says is gloomy, saying the number of Nigerians living in poverty is increasing too rapidly for comfort.
The NER said: “Poverty rates remain high in Nigeria, particularly in rural areas. These rates declined between 2003-2004 and 2009- 2010, although not nearly as fast as would be expected from the pace of economic growth in the country. While the officially reported growth rates of GDP well exceed population growth in the country, the pace of poverty reduction does not; this implies that the number of poor Nigerians living below the poverty line has grown measurably.”
In essence, the uncomplimentary report concluded that poverty reduction and job creation have not kept pace with population growth, implying social discomfort for increasing number of Nigerians.
Epileptic electricity supply
Although officials of the government have been feeding the governed with bread of promises that efforts to revamp the ailing sector will soon be bearing fruits, it has all amounted to broken promises. All pronouncements of the government regarding power delivery deadlines have been observed in the breach. Despite having sunk billions over the years to reposition it, the electricity sector is still in a shambles. In major cities, lamentations are what pervades many homes as a result of epileptic power supply. While it is true that some progress has been made, it is apparent that the suffering of the people may not be history soon, as residents in many urban settlements still complain that their power supply woes still persist. Because of this, many homes are left to groan in darkness as a result of crippling power outages, forcing them to resort to power generating sets to light up their homes and run businesses. At the last count, MAN said no fewer than 60 million Nigerians own power generating sets, requiring more than N1.56 trillion to fuel them yearly.
However, with the short and medium-term programmes mapped out for the power sector in the country, Jonathan promised recently that Nigerians would no longer depend on generators for electricity supply. He made the latest promise at the ground-breaking ceremony of the N162.9 billion Zungeru Hydro Power Dam in Niger State, boasting that many of the programmes earmarked for the power sector had been attained and surpassed, and that the issue of generators would soon be a thing of the past.
“Our children must not live in a country where they get individual generators to generate light for them. This government is ensuring the regulation of the power sector to ensure power for all,” he promised.
That will not be his first. Last November, at an interactive session with Nigerians in Pakistan, Jonathan said there would be steady power supply in major cities by the end of the second quarter of 2013. He also identified poor infrastructure as the major challenge militating against efforts to evacuate power being generated through recent interventions by the government.
He said: “Currently, we have over 1000 megawatts of power that we cannot evacuate because of the transmission infrastructure that have been weak over the years and it was very recently that government started the intervention. But, we have projects that are going on, so before the end of the second quarter, almost middle of next year, most of these projects would have been inaugurated and we will be evacuating power generated. At that time, quite a number of cities will begin to have 24 hours of light.”
Yet, as the year is gradually coming to an end, Jonathan’s promise still remains unfulfilled and may not be fulfilled at all by December, as power outrages continue to worsen.
Even if power projects that are under various stages of completion in the country are completed and operational, industry watchers say power generation will only reach about 10,000 MW, which they say is still a far cry for a population of over 150 million. Speaking to a visiting business delegation from Britain, led by the lord mayor of the city of London, Roger Grifford, Minister of Power Chinedu Nebo hinted that the nation needs about 200,000 MW before it can realise its dream of adequate power supply.
“Nigeria needs to generate over 200,000 megawatts. We are still at less than 5,000MW. Within a year, we should be upping this to 10,000 and it is still a far cry,” he said.
Perhaps that is why experts have chosen to take with a pinch of salt any official statistics painting picture of rosiness about the economy, querying whether any news of economic growth can enjoy an air of credibility in an economy that is increasingly riven by mindboggling poverty, hunger and disease, amidst plenty. In other words, can an economy be said to be truly growing in the face of parlous state of its manufacturing sector, epileptic electricity supply, soaring unemployment rate, endemic poverty and pervasive corruption?
