Oil rebound strengthens surge in FAAC revenue in Q3 2016

Nigeria has benefitted from the lull in militancy and rebound in oil prices, as Federation Account Allocation Committee (FAAC) revenue to the three tiers of government swelled to a one year high, reaching N1.53 trillion in the third quarter of the year.

Data obtained from the Nigeria Extractive Industries Transparency Initiative (NEITI) quarterly review, obtained by BusinessDay, shows that in September, all tiers of government received more from FAAC in 2016 than the corresponding period in 2015, aided also by reduced activities of militants in the Niger Delta region of the oil-dependent nation.

Disbursements to the Federal Government increased by 19.4 per cent to over N600 billion between September 2015 and 2016, while disbursements to states and local governments increased by 20.0 per cent and 20.5 per cent respectively, between September 2015 and 2016.

Muda Yusuf, Director-General of the Lagos Chamber of Commerce and Industry (LCCI), said that even though oil price is not in our control, the increase in FAAC revenue can be sustained, considering that the government has taken some steps to address output challenges.

“Government seems to have considered the challenges posed by militancy in the Niger Delta by increasing the allocation to the amnesty programme to N65 billion,” Yusuf said.

“This is the highest allocation to the programme so far; it used to be much less previously. The president has also made reasonable allocation to the Niger Delta Development Commission (NDDC) in the 2017 budget.”

The revenue amount for the third quarter of 2016 represents an 18.9 percent drop, compared to the N1.89 trillion that was shared in the third quarter of 2015, but it foretells of a period of revenue increase, considering that the disbursement from FAAC in the quarter was a 35 per cent increase on the N1.132 trillion shared in the first quarter of the year, and a 74 per cent upswing on the N881.65 billion shared in the second quarter.

“This increase in government revenue portends well for the execution of budgets that have been constrained since the beginning of the year, as a result of the drastic fall in FAAC disbursements,” said the quarterly review.

Details of the allocations for the quarter show that the Federal Government received N697.9 billion; the states got N512.66 billion, and the local government areas collected N324.31 billion, but the significant growth occurred in July, when the revenues rose 79 per cent, as the three tiers of government shared N546.62 billion, compared to the N304.91 billion they shared in June.

“The gap in disbursements between 2015 and 2016 has been narrowing and all tiers of government received more in FAAC allocations in September 2016 than September 2015,” the review said.

Muda Yusuf noted that the government should intensify efforts to ensure that the oil output projections for the 2017 fiscal year is realised by engaging stakeholders in the oil producing areas in constructive dialogue.

“The government should adopt a carrot-and-stick approach, talk to the right people in the region and also deal with the criminal elements of oil disruption.”

He said that too much military approach will lead to greater collateral damage, as that will impact negatively on oil output, revenues, and lives.

However, analysts say Nigeria’s state governments should brace for tougher times, as allocations from the Federal Government will do little to address revenue shortfalls, as they enter a new budget cycle.

“The truth of the matter is that revenue collection is down, revenue from customs is down because nobody is importing. Forex is not helping matters, so FAAC will keep going down,” said Cyprian Nwuya, former chairman of the Lagos Mainland District of the Institute of Chartered Accountants of Nigeria (ICAN) and partner at Agochukwu & Co, a firm of chartered accountants.

Nwuya further said that most states are doing the budget as ritual, it is doubtful they can achieve 50 per cent of it.

Similarly, Tajudeen Ibrahim, head of research at Chapel Hill Denham, told BusinessDay that the states may be tempted to borrow but that they will have to contend with high interest rates to fund their budgets.

“The best options for states are to improve on their internally generated revenues to shore up revenues.”

“The government should also evolve a new framework to ensure efficiency in revenue mobilisation,” the LCCI boss concluded.

INNOCENT UNAH & ISAAC ANYAOGU