The year 2013 was the last time Nigeria, Africa’s biggest oil producer, hit its projected revenue in the annual budget. This scenario is likely to continue in 2019 as the price of Brent crude, the global oil benchmark, continues to drop, according to analysts.
The slowdown in the global oil market has continued in the last one month. Brent crude fell 4.4 percent to $66.49 a barrel on Friday (6pm Nigerian time), taking its decline in the month of May to 8.2 percent, its worst performance in the year.
If the drop in oil prices continues, it will throw the 2019 Appropriation Bill of N8.92 trillion signed into law last week by President Muhammadu Buhari into disarray. This will worsen the low capital release and other factors that have marred the full implementation of previous budgets.
Nigeria estimates total revenue of N6.97 trillion (3 percent lower than the 2018 estimate of N7.17 trillion) in the 2019 budget, consisting of oil revenue projected at N3.73 trillion and non-oil revenue estimated at N1.39 trillion. Other projected revenues include Companies Income Tax (CIT) of N799.52 billion, Value Added Tax (VAT) of N229.34 billion, Customs Duties of N302.55 billion, and Independent Revenues of N624.58 billion.
The 2019 budget revenue projection is based on a benchmark of $60 per barrel of oil and assumed oil production of 2.3 million barrels per day, even though this target hasn’t been met in over a decade.
Nigeria needs the oil price to rise and in the worst case remain steady at any price above the $60 benchmark. But analysts are concerned that even if the oil prices stay high, the 2019 budget revenue projection may head the same path with previous revenue projections which have failed to meet their targets in the last six years.
Ayo Akinwunmi, head of research at FSDH Merchant Bank, said even if international oil prices were higher, the government would still not be able to meet its expected revenue because the country had yet to achieve the projected oil production of 2.3 million barrels per day.
“For the government to generate more revenue, it needs to build up infrastructure and facilities to be able to generate more non-oil revenue via tax generation and compliance,” Akinwunmi said.
The Federal Government’s actual retained revenues in 2014 stood at N3.727 trillion, according to data obtained from the Central Bank’s quarterly reports. This value represented a shortfall of N3.5 billion from the N3.731 trillion projected in the 2014 budget.
In 2015, when the country started feeling the gentle heat from the fall in crude oil prices, the difference between actual and projected revenue rose 19.58 percent to about N675.89 billion. In that year, Nigeria realised N2.776 trillion even though it projected revenue generation of N3.452 trillion.
The gap, however, widened further in the thick of the economic recession in 2016 that forced the country to look to the non-oil sector as the messiah that would lift the economy from its precarious state. For the first time in many years, the non-oil sector raked in the highest amount of revenue for the government while the oil sector played second fiddle.
Of the total N2.621 derived as revenue in 2016, non-oil revenue raked in N824.22 billion while retained revenue from oil stood at N697.80 billion. However, even an increase in non-oil revenue could not narrow the shortfall between actual and budgeted revenues. Variation between budgeted and actual revenues in 2016 ballooned some 32 percent to N1.234 trillion.
The same trend continued in 2017 and 2018 when variations between actual and budgeted revenues stood at N2.426 and N3.2 trillion, respectively.
For 2018, the Federal Government could only manage to hit revenue of N3.96 trillion, a figure that is wide off the mark from the N7.16 trillion apportioned in the budget.
Gbolahan Ologunro, research analyst at Lagos-based CSL Stockbrokers, said perennial issues such as militancy in the Niger Delta and pipelines leakages would continue to obstruct oil revenue from reaching its projections.
“We can get more money from the oil sector by simply just deregulating the downstream sector which will attract a lot of investment in the value chain, while for non-oil revenue, increasing the tax net through the use of technology and improving the operating environment such as infrastructure will go a long way in solving the problem,” Ologunro told BusinessDay.
Godwin Emefiele, CBN governor, in the last Monetary Policy Committee meeting raised the alarm on the need for the government to build revenue buffers by pegging the budget at a realistic oil price to enable the country save for rainy days in an event of a collapse in oil prices.
Ibe Kachikwu, immediate past minister of state for Petroleum Resources, also raised concerns about fluctuating international oil prices.
“I worry about oil prices which are beyond our control; any country that can produce with the minimal level of cost automatically challenges our existence,” Kachikwu said in a recent parley with journalists in Abuja.
But Nigeria is in desperate need of growing its revenue. Yvonne Mhango, head of research for sub-Saharan Africa at Renaissance Capital, said to grow revenue, the low hanging fruits such as decrepit infrastructure must be the focus of the government.
“Economy grows when infrastructure grows,” Mhango told BusinessDay at the last RenCap event in Lagos.
She also emphasised the need for champions in various sectors that can influence and push government policies.
Even though Africa’s most populous country has over time failed to meet its targeted revenue, it has continued to pay huge sums for an unsustainable oil subsidy currently tagged “under recovery” by the Nigerian National Petroleum Corporation (NNPC). In 2018 alone, Nigeria spent some N730.9 billion subsidising the price of petrol.
MICHAEL ANI & DIPO OLADEHINDE
