Wednesday, January 6, 2010

Assessment of Nigeria’s 2009 Economic Performance

The performance of Nigeria’s economy in 2009 is nothing to cheer. It is more of unfulfilled promises than notable achievements. The year’s budget of N3.102 trillion passed by both chambers of the National Assembly in April 2009 handed out a lot of promises. Two supplementary budgets were later sent to NASS. In July, the first supplementary budget totalling N102 billion was sent to the NASS while another supplementary appropriation bill of N353.6 billion was sent in November. Both were passed but the entire performance level was dismal.
In its self assessment while presenting the 2010 budget to the National Assembly in November 2009, President Umaru Musa Yar ‘Adua has this to say about the Nigeria Economy: “Notwithstanding the global economic crisis, the Nigerian macroeconomic environment has improved with macroeconomic stability maintained in 2009 due to Government's proactive response to the crisis. As a result, economic growth has remained resilient, with real GDP growth for 2009 estimated to be about 5.86%. Headline inflation has fallen from 15.1% in December 2008 to 10.4% in September, with core inflation falling to 7.4% over the year to September 2009. The government's debt position remains sustainable, with an external debt stock of US$3.86billion as at the end of October 2009. Indeed, our total public debt is estimated to be less than 10% of our GDP, showing that it is still within acceptable and cautious limits compared to countries in our peer group. Our external reserves position is secure, with reserves increasing from US$43.19billion in early July to US$44.095billion at the middle of October 2009. The official and parallel market exchange rates have converged considerably as a result of further liberalisation of the inter-bank market by the Central Bank.”
How I wish these were true. However, the facts on the ground contradict the upbeat and optimistic picture presented by the president in the 2010 budget speech. By President’s own admission, “implementation of the 2009 Budget has been challenging with revenue from both oil and non-oil sources falling well below projections. On a positive note, oil prices recovered during the course of the year from a low of US$37/barrel recorded in December 2008 to the present level of about US$79/barrel. However, oil production in our country suffered numerous disruptions during the first half of 2009. Non-oil revenue receipts were affected by the global economic downturn which impacted on the domestic business environment. Consequently, both oil and non-oil revenues were about 17% and 21%, respectively, below budgeted levels as at the end of the third quarter.
On the expenditure side, while budgetary allocations have been promptly released to the MDAs, actual utilisation has been below expectation.”
Whatever may be the official position of the President or Ministries, Departments and Agencies under him on the economy in 2009, what I do know for sure is that majority of Nigerians are worse off in terms of standard of living. This is to be expected as the cost of living soared to high heavens. The Niger-Delta crisis particularly between January and October when the amnesty deal was sealed robbed Nigeria of huge oil revenue as the militants acts of destabilisation ensured that Nigeria do not meet her oil production quota. The other issue which was a carryover from 2008 was the global financial crisis which impacted negatively on Nigeria’s financial sector. First to be exposed was the Nigeria Stock Exchange where the initial bull market turned bearish with yet no end in sight. Hitherto, shares particularly those of banks which used to be the most sought after between 2006 and early part of 2008 have lost between 70 to 80 per cent of their values during the initial public offerings. The bearish trend that started in 2008 continued throughout 2009 and as such shareholders in the stock market lost considerable investment in the market.
Concomitant to the Stock market debacle is the on-going banking reform that was ignited by the audit of the 24 operating banks in Nigeria in August and September 2009. The outcome of the audit was eye-popping. 10 banks were found wanting in three main areas viz. Liquidity, capital adequacy and corporate governance. Chief Executive Officers and Managing Directors of eight of the 10 banks were removed and arraigned in court for corrupt practices alongside with some of their executive directors. These are former MDs of Intercontinental Bank Plc, Oceanic Bank Plc, Union Bank Plc, Afri Bank Plc, Fin Bank, Bank PHB Plc, Spring Bank Plc and Equatorial Trust Bank Plc. The other two affected banks were Unity Bank and Wema Bank whose new owners were given until June 2010 to recapitalise. Kudos should be given to the new management of the Central Bank of Nigeria who ensured that a bail-out of N620 billion was given to the ailing banks to rescue them from total collapse. Official report has it that there is no run on any of the banks while Economic and Financial Crimes Commission has assisted the banks to recover over N100 billion hitherto non-performing loans.
As part of the banking reform, a bill has been drafted and sent to the National Assembly for the establishment of Asset Management Company. The company is to facilitate an improvement in banking sector liquidity, protection of the earnings of banks from further erosion and a reduction of the debt overhang on the capital market and its participants. This, CBN says, should provide a much-needed fillip for the revival of the Nigerian Capital Market.
The CBN has also promised that it’s recent intervention in the banking sector "focus on building capacity within the regulatory regime; fast-tracking the implementation of risk-based consolidated and cross border supervision frameworks; easing the flow of credit, particularly to the real sector of the economy; improving governance structures and practices in the financial services sector; and improving confidence in the economy in general." It is hoped that Governor Sanusi Lamido Sanusi of CBN will sustain the tempo of the reform.
One of the many factors that have made Nigerian economy dysfunctional is the power sector or energy sector challenge. The Federal Government has allocated huge funds to the sector to ensure speedy completion of the various power projects across the country. Unfortunately, in spite of these gargantuan financial commitment to the sector, Government was unable to meet the 6,000 MW of electricity generation it promised the citizenry by December 2009. The main official excuse being adduced for the inability to deliver on the set target was inadequate gas supply to the thermal stations located at Egbin, Papalanto, Omotosho, Geregu, Utorogu and others. Other reasons include pipeline vandalisation, low water level for the hydro electric dams of Shiroro, Jebba and Kainji, weak transmission lines etc. The negative impact this has had on our economy is that it has made us essentially a generator economy as the country relies heavily on private power generators. A news report in Thisday of September 28, 2009 quoting a National Electricity Regulatory Commission (NERC) source said Nigerians spend about N796.4 billion on fuel to generate electric power every year. A breakdown shows that N540.9 billion is spent on diesel and N255.5 billion goes into the purchase of petrol annually for power generating sets.
According to a news report in The Guardian of July 24, 2009, Nigeria’s harsh economic clime has forced 820 manufacturing firms out of business in the last eight years, according to the Manufacturers Association of Nigeria (MAN). A breakdown of this figure shows that an average of 100 firms were shut down yearly due to operational constraints between 2000 and 2008. MAN President, Alhaji Bashir Borodo at the association's 37th yearly general meeting said a major cause of the pitiable state of the industrial sector which has necessitated the relocation of some manufacturing companies from Nigeria to neighbouring West African countries is the inadequate supply of energy for manufacturing operations. It remains to be seen how Nigeria intends to stimulate the economy without resolving the energy conundrum.
Similar to the power sector challenge is the unresolved issue of regular fuel supply to power the economy. In 2009 there were frequent fuel crisis as a result of acts of sabotage such as the pipeline vandalism as a result of the Niger Delta militancy, industrial action by various unions in the sectors such as National Association of Road Transport Owners (NARTO), NUPENG, and PENGASSAN or the inability of Independent Petrol Marketers to get approval or credit to import fuel. Like in previous years, Nigeria is still largely import driven as the nation’s four refineries in Port Harcourt, Warri and Kaduna remain comatose or epileptic. Early in the year the President vowed to expose and deal with the cartel that has been plundering the oil sector. However, rather than matching words with action, government decided to foist on Nigerians deregulation of the downstream sector of the oil industry. Nigeria Labour Congress, the Trade Union Congress and the Civil Society Organisations have given pre-conditions to government before they could support deregulation. Some of these include the revival of the oil refineries and fixing of Nigerians roads. There are insinuations that the current fuel scarcity is not unconnected with the assumption that deregulation will commence by January 1, 2010.
One unprecedented thing that happened in 2009 that is worth mentioning is the reduction in the price of petrol from N70 to N65 per litre. This is as a result of the fall in the price of crude-oil in the international market. It should however be noted that fuel only sell at the official price at major cities such as Lagos and Abuja. In many other parts of the country, a litre sells for double the official price or more. Kerosene and Diesel remain more expensive than petrol as a result of previous deregulation. A major initiative of the presidency in 2009 was the drafting of the Petroleum Industry Bill (PIB). The bill generated a lot of controversies particularly among stakeholders in the Niger Delta area as well as the International Oil Companies (OICs). Many who have read the bill which is under consideration by the National Assembly say it is the best piece of legislation on the oil industry. The latest inclusion on the bill is the president’s directive that oil communities should now enjoy 10 per cent royalty from oil explored in their domain. It is hoped that work will be concluded on this bill early in the New Year.
In the Solid Mineral sector, there was a lot of motion without movement as the nation’s enormous natural resources remain largely untapped. Even though the president in his budget speech claimed that “agriculture continues to improve and drive non-oil growth, with 5% more land under cultivation being achieved and food production increasing.” This is at variance with the reality on ground as food security remains a Herculean challenge especially with inadequate funding and threat of climate change. With the passage of the Infrastructure Concession Regulatory Commission (ICRC) Act, the coast is now clear for government to fully engage the private sector under the Public Private Partnership mechanism. Already, the Lagos – Ibadan Expressway rehabilitation and expansion has been awarded to Bi Courtney on the basis of Build, Operate and Transfer (BOT).
It will be uncharitable to say that efforts are not being made to stimulate the economy, especially with all the highlighted initiatives as well as other similar attempts to revive the railway sector, award of contracts for road rehabilitation and construction as well as the commencement of the dredging of the lower Niger River. However, if these initiatives are not seen to completion or are allowed to turn into white elephant projects, then Nigeria will be worse for it. There are palpable fear that the success recorded in October 2009 with the amnesty deal as well as the prior establishment of the Niger Delta Ministry may be undermined by the non-implementation of the supplementary budget passed by the NASS in November 2009 as a result of the prolonged hospitalisation of the president in Saudi Arabia. The recent resumption of hostility by Movement for the Emancipation of Niger-Delta as well as the street protests by ex-militants in Warri, Port-Harcourt, Yenagoa and Calabar are pointers in this direction.
By far the greatest threat to Nigeria’s economic survival is the issue of corruption. Though the Economic and Financial Crimes Commission (EFCC) disclosed in its 2008 annual report to the Senate in September 2009 that it recorded 74 criminal convictions and recovered assets worth over N15 billion from those investigated and prosecuted. Many Nigerians are not convinced that the nation is doing enough to fight corruption. For instance, the only celebrated case of anti-corruption in 2009 was the imprisonment of Chief Bode George in October. In the Transparency International Corruption Perception Index for 2009, Nigeria occupies the unenviable 130th position. This was after US Secretary of States; Hilary Clinton had earlier told us that Nigeria’s anti-corruption war has fallen off the radar. Many Nigerians are still asking questions about when those who took bribes in the Halliburton, Wilbros and Siemens contracts will be brought to justice.
On the whole, in 2009, Nigeria’s economy still remains in the doldrums. As noted in the 2009 African Peer Review Panel report on Nigeria, the country's inability to effectively implement policies and laws, weak political will and lack of accountability mechanisms in the public sector are the major challenges to the nation’s development.