In just five months the price of crude oil has dropped from a high of $110 in June to under $80 a barrel, a fall of about 30 percent in five months. Managing this decline will be difficult for Nigeria where oil is responsible for over 70 percent of the country’s revenue. The fall in oil price has been attributed in the main to a weaker global demand for crude oil and an oversupply of this commodity, fuelled in part by an increase in the production of shale in the USA. Industry analysts believe that this trend will continue into 2015 at least. With the developed world and emerging economies investing heavily in renewable energy the demand for crude oil, long term, does not look good. Perhaps this is another warning for Nigeria to diversify its economy away from oil.
The first casualty of the fall in oil price has been the naira which has slumped to a record low of N177/$, a fall of about 10 percent from June this year. The CBN Monetary Policy Committee on Tuesday fixed the exchange rate at N168/$.
So for Nigeria, the chicken has come home to roost, as we have yet again failed to use the record high price of oil to transform our country, like our Arab friends in Dubai where we love to shop and holiday. If in the time of plenty many state governments struggled to pay pensions, salaries and allowances, Nigerians should better brace themselves for the challenges ahead. Whilst state governments like Lagos and Akwa Ibom have been head and shoulders above other states in terms of infrastructural development, many more states have failed woefully due to corruption, incompetence, and lack of vision. The worst of these governors have had difficulty differentiating between their private estates and the revenue allocation from Abuja.
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The tragedy is that even some oil rich states that could have transformed their states to another Dubai or Singapore with their huge revenue allocations chose instead to share the money. These oil rich states (Akwa Ibom, Rivers, Delta and Bayelsa) enjoyed revenue allocations that far exceeded the incomes of many African countries like Togo, Benin Republic, Rwanda, Niger, Congo and many more. Of the governors of these states, Godswill Akpabio stands out in what his government has achieved in under eight years. Uyo is a beauty to behold with an ultra-modern stadium and airport, good road network with an underground drainage system that compares with the best in the world.
Contrast this performance with Delta State, another oil rich state. Its state capital Asaba is nothing short of a disgrace with gullies and potholes on roads that are reportedly swept away every rainy season because of poor drainage. Same story is told of other towns in Delta State. Asaba stadium is believed to have been under construction since the 1980s, with an airport that is nothing more than an airstrip purportedly costing billions to build. Even a neighbouring state like Anambra with under a third of what Delta State gets in revenue allocation has visibly done better in building infrastructure.
But for a few states the story across the board has been that of poor performance with allocations squandered, with no vision for the people. In the worst of these states, civil servants are owed many months of unpaid salaries and allowances.
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Northern states have fared even worse in terms of development, lacking in vision. With rampant poverty, exacerbated by the current insurgency, most northern governors are reported to now live and govern from Abuja. If these governors could not pay salaries in time of apparent plenty, how can they pay now with a much-reduced allocation? States like Lagos that have over the years built in resilience in the system with innovative successes in internal revenue generation are better prepared to cope with a reduction in federal funding.
Ngozi Okonjo-Iweala, coordinating minister for the economy, has indicated that the government would not be using quantitative easing (printing money) to plug the funding gap arising from the shortfall in revenue. This is welcome, as quantitative easing could fuel inflation and put further pressure on the naira.
The government must now take this opportunity to address a federal budget that is mired in corruption, waste and inefficiency. First, we do not need all the ministries and over 700 parastatals. This in itself is scandalous with so much duplication in the system. The entire federal budget, on the face of it, can be cut by a half without any impact on services, and so release much-needed funding for infrastructure development.
The government must put the interest of the country first before individual political interests and implement the Stephen Oronsaye report on the streamlining of the public sector. There is need for an urgent review of the laws governing the income revenue-generating agencies remit back to government. The current arrangement that leaves so much revenue in the hands of these agencies to use as they choose is scandalous and irresponsible.
The government needs to use the budget process to reduce waste and inefficiency in the public sector. The current system breeds corruption. Good budgeting practice needs to be standardised and rolled out to all MDAs to enable them make the right choices. This would help address systemic corruption. We must look again at how budgets are formulated, what we spend our money on, how we spend it, and where we spend it.
The National Assembly must now show some magnanimity by voluntarily agreeing a proportionate reduction in their allocation, commensurate with the reduction in oil revenue. The $73/b benchmark price being proposed by the government for the 2015 budget may prove too optimistic as most industry analysts believe that prices will fall further. JP Morgan has warned that in “extreme circumstances”, oil price could drop to $65/b. Saudi Arabia, the biggest player in OPEC, is believed to be reluctant to shore up oil prices so as to drive down the production of shale gas in the US.
As the world watched with amazement the recent brawl between the police and parliamentarians, you will not believe that this country has huge challenges on every front. The actions of the police are critical to the survival of this democracy, especially with 2015 elections round the corner. As a nation we seem not to learn from history. We cannot have the same ignominy we saw in the Rivers State Assembly repeated yet again in Abuja. The police must maintain their independence and resist any attempt to be politicised. The current economic crises may well turn out to be a blessing in disguise if it forces state governments to generate more revenue internally.
Emmanuel Nwachukwu