For some the euphoria that greeted the election of President Buhari has begun to wane as hope turns to despair with the new economic realities. Notwithstanding, the year has been a mixed bag of some successes and challenges. On the economy, things seem to have got worse for Nigerians because of the fall in oil revenue and the depreciation of the naira. On power, most Nigerians say they have seen some improvement. On crime, people are encouraged that the government is taking the war to the insurgents. Hope has replaced despair. The jury is still out on the fight against corruption as Nigerians are looking to see if all the talk and heat on corruption would lead to real convictions. On performance of states, the governors of Kaduna and Anambra seem to be setting the pace. Governor El Rufai most certainly hit the ground running. He has shown remarkable speed, boldness and innovation in addressing the challenges of his state.
Many observers have expressed deep frustration at the slow pace of change in the civil service. To the public, it is still sadly business as usual. When the word change is mentioned to most civil servants, the response especially from sceptics is, ‘what change?’ People want to see a marked change in the culture and orientation of our public services to improve productivity and curb corruption and profligacy at all tiers of government.
The price of crude continues to plunge with no end in sight because of a weak global demand for oil and a glut in supply. Prices reached an 11-year low of $32 a barrel this December from a high in June 2014 of $110, a fall in prices of about 70 percent. This has had a devastating impact on oil-dependent economies. Even Saudi Arabia is beginning to feel the strain with the country’s budget deficit projected to increase from 3.4 percent in 2014 to 21.6 percent in 2015.
Managing the decline in oil revenues has been particularly difficult for Nigeria where oil accounts for about 70 percent of the country’s revenue. Civil servants and contractors in poor performing states have borne the brunt of the loss in government revenue with some workers owed as much as 10 months of unpaid salaries. If civil servants are not being paid, it means they cannot buy from the market.
The biggest casualty of the fall in oil prices has been the naira, which has slumped to a record low of over N260 to the $dollar in the real market (bureau de change), a fall of about 40 percent from June 2014. Even as the Central Bank battles to shore up the naira with the sale of dollars and other monetary policies, it is doubtful how long the country can sustain these measures before we run out of foreign reserves. 2016 may yet see the CBN abandon the fight to stem the depreciation of the naira. The focus must now be on diversifying the economy so that Nigeria is less reliant on oil. It is the strength of a country’s economy that ultimately determines the value of its currency, not directives from the president or protestations by citizens.
The government’s pussyfooting on the removal of subsidy in the face of overwhelming evidence that this policy is detrimental to our economic growth fills one with trepidation. The public continues to be sold the lie, even by trade union leaders and intellectually lazy academics, that fuel subsidy is good for the poor when the real beneficiaries are disproportionately the rich. Just this November the government approved a part subsidy payment of N413bn to oil marketers. This amount is over five times the combined capital allocation for 2015 for Health (N22.6bn); Education (N23.5bn); Power (N5.1bn); Works (N19.8bn); Transport (N3.9bn); and Lands and Housing (N1.6bn). My question to agitators of fuel subsidy is this: if this was your money, would you spend it like this? Do poor people not have need for hospitals or quality education or good transport infrastructure?
The over N1 trillion that the previous administration spent annually on fuel subsidy, if invested instead in infrastructure development, would create in excess of 25,000 new jobs annually for our unemployed youths: they will be building our roads, hospitals, schools and power infrastructure and equipping our schools and hospitals. Surely, these are better choices than sharing the money between 130 or so oil marketers so that Abuja and Lagos residents can run their jeeps and generators. It is ironic that our leaders spend their holidays in Dubai, the UK and the US enjoying the health facilities and infrastructure that their peers in saner countries have built by making better budget choices and then come back home and feed them petrol. Leadership is about making the right choices for the people, however difficult, not pandering to public sentiments.
The incessant fuel scarcity in Nigeria is caused by inefficiencies in the supply chain as a result of the distortions caused by fuel subsidy. Remove fuel subsidy and you would solve the problem of fuel scarcity – it is as simple as that. A market free of subsidy will ensure that supplies meet demand and that competition drives down prices. With oil prices under $40, there is no better time to remove fuel subsidies. The government does not even have to wait until refineries are built. As the ‘briefcase’ oil marketers exit the scene with the removal of subsidy, the real players in the market will build their own refineries rather than import refined products, because it makes economic sense. The only thing stopping this from happening is a corrupt subsidy regime.
The biggest challenge for states in 2016 will be the payment of salaries and pensions. The federal government must resist attempts to continuously bail out poorly performing states. States requesting bail-out funding should be required to produce robust business plans on how they plan to remain viable through improvements in efficiencies and internally generated revenue.
Although there is still major work to be done in sanitising MDA budgets to reduce waste and inefficiencies, the introduction of the Treasury Single Account has been a huge success in controlling government’s income and expenditure and plugging leakages. The next step must be to reduce the huge cost of governance. Nigeria does not need over 800 parastatals with all the duplications.
The N6.08 trillion budget proposed for 2016 represents an increase in spend of about 40 percent on 2015 budget. The capital component of N1.8 trillion is over four times the 2014 budget allocation for capital. The budget proposal has set a new path for Nigeria that involves spending our way out of the current economic difficulties. Other countries have done same and succeeded. As long as the government is not borrowing to spend on recurrent expenditure, this Keynesian strategy has a good chance of creating jobs and delivering economic growth.
With the indomitable Fashola at the helm of Nigeria’s infrastructure development, the omens for 2016 are good, despite our deep challenges.
Emmanuel Nwachukwu, an international business consultant, is director, PS Solutions Management Consultants.
