Whenever the Giant of Africa is mentioned, one country on the west end of the continent comes to mind. Apart from being Africa’s most populous country, Nigeria is also a regional superpower and has the continent’s largest market. Nigeria is Africa’s big brother, mediating and helping to resolve conflicts on the continent. Nigeria is also Africa’s largest producer of crude oil, with production at over 2 million barrels a day. Ordinary Nigerians are however yet to benefit significantly from Nigeria’s vast oil wealth and regional clout. Years of corruption, mismanagement and poor economic planning have resulted in widespread poverty, unemployment and insecurity. The Emergence of democracy in 1999, after more than three decades of military dictatorship, renewed the hopes of many Nigerians of a better life and an improved standard of living. More than a decade of democracy has left Nigerians still hoping and praying for change. Many Nigerian’s gladly look back and reminisce about Nigeria’s golden era in the 1960’s where people enjoyed an above-average Standard of living and where agriculture was the number one employer and chief foreign exchange earner. The massive corruption and mismanagement that followed during the military era wiped off Nigeria’s good image and perception on the continent and beyond. It also ushered Nigeria into an era of economic chaos from which the country is yet to fully recover. Thirteen years of democratic governance in Nigeria have done very little to change things. More than 80% of Nigerians live below $2 a day and the official unemployment rate is a staggering 20%. Poor public infrastructure and mismanagement of oil revenues have continued under democracy. Nigerians are yet to benefit meaningfully from 13 years of democratic governance. Nigeria’s story may however be set to change.
President Goodluck Jonathan, elected on a popular mandate in last year’s general elections, has promised to undertake widespread reforms to correct the damage inflicted by years of corruption and inefficiency in government. In his budget presentation to parliament last December, his first address to MP’s since his election last year, President Jonathan outlined his plans to boost agriculture which still employs a significant proportion of Nigerians, and create badly needed jobs. Jonathan has proposed to restrict the importation of Nigeria’s major staple crops. Duties on rice and wheat will be increased and there will be an outright ban on the importation of cassava flour. The oil boom of the 70’s and 80’s fuelled Nigeria’s appetite for everything foreign. Nigeria used petrol dollars from the oil boom to flood the country with everything, from tooth picks and clothing to luxury items of all kinds, and food. Local food production declined over time as local producers lost the battle to cheaper foreign imports. Jonathan plans to cut Nigeria’s spending on importation this year with special emphasis on food imports. The plan is to cut Nigeria’s huge food import bill by up to a quarter this year. Cassava is Nigeria’s number one staple food and Nigeria is the world’s largest producer of Cassava. Most of the 40 million tonnes of cassava Nigeria produces annually comes from small farm holdings and is lost shortly after production due to poor storage and processing. The rest is consumed locally leaving very little for export. Jonathan plans to reduce this inefficiency in the cassava value chain through a cassava transformation policy. The government plans to improve storage and processing techniques as well as create a local market for cassava. Bakeries in the country have been given up to 18 months to blend cassava flour with wheat flour used in making bread. Bakers who attain a 40:60 blending ratio of cassava flour to wheat flour will enjoy a tax rebate of more than 12%. In addition to creating a local market for cassava, the plan will ultimately reduce dependence on imported wheat. Nigeria is the world’s ninth largest importer of wheat, importing more than $4billion worth of the commodity last year. With the policy on blending cassava flour with wheat flour in place, Nigeria’s wheat import bill is set to decline by more than a tenth this year.
Farmers in the country will also enjoy reduced interest rates on bank loans. The Ministry of Finance has reached an agreement with local banks to grant farmers access to loans at rates significantly below interest rates. The government will also guaranty up to 70% of the principal on the loans to farmers. Jonathan also plans to cut duties on equipment for storage and processing of agricultural products, especially cassava. From March this year, farmers will be able import agricultural machinery duty free.
A notable omission from this year’s budget will be the subsidy on petrol. President Jonathan plans to remove Nigeria’s age long subsidy on petrol. Petrol subsidies consumed a whopping 1.3 trillion naira or $7billion last year; more than a quarter of the budget. The Pump price of petrol climbed more than 100% on New Year’s Day, from 65 Naira or $0.42 to 140 Naira or $0.9 per litre of petrol. More than 60% of the petrol consumed locally is imported. Local refining of crude is insufficient to meet local demand. Local Consumption is 35 million litres of petrol per day and production from Nigeria’s three refineries is a little over 13 million litres per day. To meet the shortfall in supply, the Federal Government grants licences to importers to bring in petrol and augment local supply. President Jonathan’s proposal is a departure from the past where the national budget always included compensation or subsidies to the importers for costs incurred in importing and transporting petrol across the country and for selling at a government regulated price. The subsidy removal will leave the importers to bear the cost of bringing in the commodity and also remove the government’s price regulation. President Jonathan plans to use savings from the removal of the petrol subsidy to fund health care programs, rehabilitate roads and railways and fund education.
For the first time in more than a decade, Security will consume the chunk of the national budget. President Jonathan has proposed to spend more than 900billion naira or $5billion to equip and modernise the Nigerian Police. Security challenges between 2007 and 2008 forced Nigeria to shut in production on more than a million barrels of crude oil from the Delta region and exposed the vulnerability of Nigeria’s oil exports to disruption. Although the violence in the delta has condensed to mere skirmishes, concerns still loom over security in the rest of the country. Rising tensions between Muslims and Christians in the middle belt region and a wave of kidnappings have prompted long overdue reforms in Nigeria’s security system. This year’s quantum leap in the allocation to security is however largely in response to the rising threat of home grown terrorism in Nigeria’s Northern region. A militant Islamic uprising in the North is threatening to plunge the entire country into civil war. Boko Haram, a home grown Islamic militant group with suspected links to Al-Qaida, has threatened violence against Christians living in the majority Muslim north of the country. Boko Haram is responsible for almost daily violence and bombings in the Northern Border States of Borno and Yobe. The group also claimed responsibility for last year’s deadly bombs attacks on the Nigerian Police Headquarters and the United Nations office building in Abuja, and a string of other bombings mostly in the North. Nigeria’s security forces have shown little or no preparedness in combating this threat. Commercial and economic activities in the North and in the capital, Abuja, have ground to a near halt due to insecurity. Hotels and restaurants in Abuja were left deserted last November following rumours of an impending attack on one of them. While on a working visit to Nigeria last July, British Prime Minister; David Cameron, spent the entire duration of his visit in Lagos rather than the Abuja due to concerns about security in the capital. The following month in August, more than 13 persons were killed and 154 trucks burnt, at Dangote Cement Company in Benue state following communal clashes between rival ethnic groups. Dangote Cement Company is Africa’s largest cement producer with investments scattered all over the continent. Insecurity has become not only a threat to life and property in Nigeria, but also a threat to economic and commercial activities. President Jonathan plans to implement long overdue reforms in the Nigerian security services to enable them confront these emerging threats and to guaranty the safety of foreign investments needed to bolster growth and development.
Notwithstanding the many positives, President Jonathan’s budget proposal has come under criticism for many reasons. A paltry 28% of the budget has been earmarked for capital spending compared to recurrent expenditure of more than 2 trillion naira or $12 billion; more than 72% of the entire budget. President Jonathan’s budget proposal for capital projects is less than ideal for a developing country in dire need of infrastructure needed to encourage investment. Massive funding should be committed to rehabilitating and upgrading ailing power and transport infrastructure.
President Jonathan’s intension to borrow more than 1.6 trillion naira, 35% of the total budget sum of 4.7 trillion naira, to finance this year’s budget is also drawing the ire of many Nigerians. There are fears that Jonathan’s planned spending will add to Nigeria’s already growing debt. Nigeria successfully negotiated a deal with its major creditors in 2005 to pay off more than $30 billion in debt under a debt relief programme. Nigeria made a single lump payment of $18 billion and had the rest of the debt cancelled for good. Nigeria had previously been committing huge sums annually to meet its debt obligation totalling $36billion, starving off funding for education, Health care, housing and developmental programs. Almost a decade on and Nigeria’s debt is again piling precariously. Total debt from internal and external borrowing now stands at around $40 billion, amid fears of a return to the imprudence of the past decade. Just as before the debt relief programme, Nigeria will be committing more than 500 billion Naira, or $3billion, this year to meet its debt obligations, erasing the gains of the debt relief program of 2005.
There are also fears that increase in food prices will drive up inflation. President Jonathan’s intention to increase the duties on rice may drive the price of rice northwards. More than 70% of rice consumed in the country is imported. There are concerns that local production of rice may be insufficient to meet demand and thus drive up prices.
The heaviest criticism of President Jonathan’s budget proposal has come from Nigerians opposed to the removal of the petrol subsidy. There are allegations that Last year’s 1.4 trillion naira expenditure on the petrol subsidy was massively inflated. Only 250 billion naira was earmarked for the petrol subsidy in the budget last year and there was no budgetary provision for the extra expense. The state oil company The NNPC is responsible for compensating marketers who import petrol and sell at the government regulated price. There are allegations of connivance between the importers and NNPC officials in inflating the subsidies the importers receive. The exact amount the NNPC doles out to the petrol importers is in itself a subject of controversy. Nobody knows exactly how much Nigeria spends in importing petrol. The identities of the marketers and the methods used in selecting and granting them licences have, until recently, been shrouded in secrecy. Many Nigerians believe the government can afford to keep the fuel subsidy and still run a viable budget. The NNPC has assumed the unenviable appellation of the most corrupt institution in the country; and deservedly so. Records of revenue receipts from oil exports and deals in Nigeria’s petroleum industry are shrouded in secrecy and corruption. NNPC officials have been accused of deliberately altering and inflating contracts in Nigeria’s oil sector.
There are also questions about the timing of the subsidy removal. President Jonathan’s budget proposal made no mention of a take-off date for the removal of the subsidy. Many were caught unawares by the sudden and abrupt increase in petrol pump price on New Year’s Day.
Despite the prospect of reducing corruption and freeing up funds for developmental programs, the removal of the subsidy on petrol will ultimately result in massive price increases with the accompanying increase in the rate of inflation. High prices and costs may do little to stimulate purchasing needed to build on last year’s 7% GDP growth. President Jonathan’s budget proposal is aimed primarily at building on growth in agricultural exports, without cognisance to local manufacturing and production. There are concerns that President Jonathan maybe paying too much attention on growing Nigeria’s export and agriculture dominated GDP growth, at the expense of local manufacturing and production. Manufacturing in Nigeria contributed a paltry 4% to last year’s GDP growth. The removal of the petrol subsidy and a scheduled increase in electricity tariffs this year will significantly increase costs for Nigerian producers, already with costs from non functional power and transport infrastructure,and stifle local production thus leaving the consumers to bear the brunt of high prices.
There are also criticisms about the the inclusion of frivolous expenses in the budget. The President and Vice President for instance will spend $6.5million on feeding alone this year. More than $4million will be spent on purchasing new vehicles for the presidential fleet. Also, more than $20 million has been earmarked for repair works on the Presidential Villa in addition to over $1.8 million in acquiring two new bullet-proof Mercedes Saloon cars. President Jonathan’s planned lavish spending in the midst of endemic poverty leaves much to be desired.
Nigerians want to see commitment from the government in cutting down on its expenses as a prelude to removing the petrol subsidy. Finance minister; Ngozi Okonjo Iweala, has promised a measured reduction in recurrent expenditure over the next couple of years. Recurrent expenditure fell only 2% from last year, in contrast to the sudden withdrawal of $7 billion in welfare for Nigerians through the removal of the petrol subsidy. Many Nigerians want to see a phased withdrawal of the petrol subsidy, in the same manner the government is supposedly scaling down its own expenses.
Nigeria has come a long way from the troubled period of military rule. Oil prices have more than quadrupled since that time with plenty of money now available for reconstruction of Nigeria’s ageing and redundant infrastructure. Nigeria has maintained GDP growth of more than 7% over the last four years. With recession sweeping through parts of Europe and America, foreign investors are seeking safer havens for their investments, and growth in Nigeria is attracting plenty of attention. Nigeria must however play its own part and provide vital infrastructure needed to boost the investment climate within the country. Official corruption, bureaucracy and insecurity must also be tackled head on.
It may take a while for Nigeria to shrug off the effects of three decades of bad leadership and mismanagement under the military nevertheless; Nigeria is definitely on the path of reconstruction and development. Despite its obvious shortcomings and criticisms, President Jonathan’s 2012 budget proposal carries plenty of promise for ordinary Nigerians. President Jonathan may indeed usher in the breath of fresh air he promised during campaigning in last year’s elections. Nigeria may very well be on the way to taking that Great leap forward and assuming its true status as the Giant of Africa.
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