Time to wean Nigeria off oil
As the Nigerian economy cranks back to life, it may not yet be Uhuru as revenue expectations for 2017 show signs of flanking the government’s target. The Federal government earned N200.59 billion in the month of January, according to data provided on request by the Office of the Accountant-general of the Federation, over 50 percent below a pro-rata estimate of N411.66 billion monthly, required to meet an overall revenue ambition of N4.7 trillion in 2017.
Lower than planned revenues could widen the 2017 budget deficit from 2.8 percent of Gross Domestic Product (GDP) to 3.7 percent, stoke already high naira yields on the back of increased government borrowing domestically and ultimately crowd out private-sector lending, according to Washington-based lender, the International Monetary Fund.
If revenues disappoint this year, it won’t be a first. Between January and September 2016, total revenues for the account of the Federal Government was N2.17 trillion, 75 percent short of the full-year target of N3.8 trillion for that year, according to most recent data available on the Central Bank website.
To be sure, the underperformance was down to sabotage on pipeline infrastructure which crippled oil output by a third and the steep blow dealt by weak corporate earnings on non-oil revenues.
Despite missing the mark in 2016, revenue estimates are up 28 percent this year to N4.7 trillion, from the N3.8 trillion projections made last year.
The government raised oil revenue projections by 140 percent to N2 trillion, from N820 billion in 2016. The increase is derived from an upward revision in oil prices from $38 per barrel in 2016 to $44.5 per barrel in 2017. Output is unchanged at 2.2 million barrels daily.
The country, however, trimmed independent revenue projection by almost 50 percent to N807 billion, while non-oil revenues- largely comprising Companies Income Tax, Value Added Tax, Customs and Excise duties, and Federation Account levies – are estimated to contribute N1.373 trillion, 5 percent lower than 2016’s forecast.
However, between January and March, Nigeria’s average oil production was 1.55 million barrels daily, according to organisation of petroleum exporting countries (OPEC) data. Prices averaged $53 in the period, up to a 20-month high, according to Bloomberg data, thanks to OPEC’s decision to cut output by 1.2 million barrels to shrug off a supply overhang and boost prices.
This effectively means that while prices are 19 percent higher than budgeted, production is running at a deficit of 700 thousand barrels daily, using OPEC’s data, or even much steeper at 900 thousand barrels, using Bloomberg data.
To make matters worse, oil prices are surrendering gains from OPEC’s production cuts, falling to levels last seen before the oil cartel agreed to offset a supply overhang by shaving 1.2 million barrels of daily production. Oil prices were down to $48 per barrel on Monday.
Government needs to wean itself from dependence on oil revenues, which is so volatile and unpredictable for sustainable budgeting. The government needs to grow tax and other sources of revenue. For long, we have mouthed diversification of government revenues to no effect. This is the time to get serious about it otherwise, our yearly budget will just be a ritual that will always be negated by the vagaries and dynamics of the oil market/environment.
The struggle to break decades-old dependence on oil is much harder than officials are sometimes willing to disclose. In 2016, oil exports accounted for 80 percent of total exports, the highest since 2014, signalling that the economy is more dependent on oil today than it was before the new administration, despite renewed efforts targeted at revenue diversification.