Right Timing? Nigeria’s Budget Greeted With Uncertainty

December 17, 2014 Ehidiamhen Okpamen Business, Finance/Money

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VENTURES AFRICA – Following several budget benchmark revisions, economic deliberations and recalculations of the Medium Term Expenditure Framework (MTEF) by Nigeria’s economic handlers, Dr Ngozi Okonjo-Iweala, the country’s Finance Minister and Coordinating Minister of the Economy, will today present the national budgetary plan for 2015 to the legislative arm of the government.
Okonjo-Iweala will present a N4.357 trillion budget ($), with N627 billion to be expended on capital projects, while N2.622 trillion will be gulped by recurrent expenditures. The latest figure is well below the N4.8 trillion initially proposed in September. At that time, global oil prices remained above $80, and a $78 budget benchmark was tendered.
An ideal benchmark?
With Oil prices still on a free fall, the latest being the dip yesterday of Brent Crude to $59, economic experts have called for a further review of the benchmark, which has
been pegged at $65. But there is a clear indication that the oil benchmark will not be reviewed further despite OPEC’s insistence on maintaining production levels. “We need to watch the market closely, but it will settle eventually,” Qatar’s oil minister, Mohammed al-Sada told the BBC.
Russia’s Energy Minister, Alexander Novak, reiterated OPEC’s sentiments. “If we cut, the importer countries will increase their production and this will mean a loss of our niche market.”

Oil Price Graph Credit: BBC

A meeting between Okonjo-Iweala and Aminu Tambawal, the Speaker of Nigeria’s House of Representative, regarding the budget presentation confirmed the government was sticking its “less-than-inspiring” $65 benchmark. “Following this, the decision of the OPEC at their meeting in Vienna on November 27, 2014, not to cut production to support the price led to further precipitous fall in the oil price to below $70 per barrel. This led, one more time to another downward revision of the benchmark price to $65 per barrel,” Tambawal was quoted by local newspaper Leadership as saying after the meeting. “We would like to confirm that having submitted these budget estimates, we are not proposing further revision of the oil benchmark price.”
The right time?
According to a report by Reuters, oil prices have dipped 50 percent since it peaked in June, trading at $115 at the time. It is now headed for its biggest annual decline in almost a decade having dropped below $60 last night, its lowest since 2008.
To add to Nigeria’s woes, OPEC, the international oil cartel that houses 12 of the world’s biggest oil producers, is willing to let prices fall as low as $40, $20 below the already deflated $60 selling price, before considering the option of cutting production. “We are not going to change our minds because the prices went to $60, or to $40,” a defiant Suhail al-Mazrouei, the Energy Minister of the United Arab Emirates, was quoted by The Week.
Many have called for government to wait a little longer to before setting a “realistic” benchmark, but such calls have been dismissed as the Okonjo-Iweala is expected to stand at the legislative pulpit today to deliver the budget for next year. Should Nigeria, Africa’s largest economy, insist on floating the $65 benchmark, and prices do not return to previous state – which does not seem likely in the nearest future – the country will be operating at a deficit of almost $25 per barrel.
A case for agriculture?
Nigeria’s President, Goodluck Jonathan, has long been a advocate of economic diversification, mostly because of his deep desires to grow the agriculture sector – once the backbone of the country’s economy. According to President Jonathan, it has become imperative to rapidly diversify the nation’s economy away from dependency on crude oil, and focus more on agriculture
In 2013, the agriculture sector contributed 21.97 percent to GDP growth, following the rebasing programme. This has made it the single largest sector-contributor to GDP growth after oil, Nigeria’s current economic mainstay.

Olam’s new rice mill in Nasarawa State, Northern Nigeria.

Extensive programmes and projects aimed at revolutionizing agriculture have already commenced, with some yielding significant fruits. Under the Agricultural Transformation Agenda, rice production, as well as other agric commodities, is expected to more than double. Olam Nigeria, a subsidiary of Singaporean-based multi-faceted conglomerate, recently established a milling plant in Nasarawa State. The plant will produce 36,000 metric tonnes of rice seed annually. Once operating at full capacity, Olam says its mill will cut rice import to 1.9 million metric tonnes annually. Also the number of integrated rice mills has increased from a one to 18.
A similar fate has befallen the sugar and oil palm industries, boosting any credible chance of a proper diversification plan.
Should Nigeria seek to quicken its plan to lessen dependence on oil, Agriculture offers it its biggest opportunity. An optimistic President Jonathan, who was quoted by ThisDay, believes if Nigeria produces its own food, “we will save scarce foreign exchange, reduce dependence on food imports, while reviving our rural areas and creating wealth for our farmers.”
Such has already been seen in the near zero inflation of food products, despite the crumbling naira and global crisis. “Our massive food production efforts, which led to the production of 21 million metric tons of food in the past three years, have created a buffer and mitigated the impact of the devaluation on food prices,” the president concluded.