Nigeria’s economy has seen considerable slowdown in growth in 2015 compared to 2014 with the major culprit being the slumping oil price, uncertainty surrounding elections, weak consumer spending and falling earnings for the three tiers of government that also crimped capital spending on infrastructure such as roads and bridges.
Growth that averaged 6.5 percent per annum in the decade to the year 2014, will come in at slightly less than half that level at 3.1 percent last year according to International Monetary Fund (IMF) estimates.
A new Nigerian Government headed by President Muhammadu Buhari was elected last year with a mandate to end corruption and foster inclusive growth.
The Finance Minister Kemi Adeosun recently laid out the government’s vision for achieving this mandate in a series of articles.
The major thrust of the economic vision is to plug loopholes and efficiently target spending on capital projects to give a Keynesian or countercyclical lift to the economy.
“We can transition from being a commodity economy to an industrialised, regionally dominant one. Oil is important but clearly, oil it not enough,” Adeosun said.
The Nigerian economy is already well diversified with services making up 50 percent of the economy and major non oil sectors including Manufacturing, Agriculture, Entertainment and arts and ICT and telecoms.
However there are major gaps when non – oil exports are measured as a percentage of GDP.
Oil’s outsized impact on the economy can be seen with proceeds from its export making up 70 percent of Government revenues, 95 percent of dollar earnings, despite making up only 10 percent of GDP.
According to Adeosun the provision of a spending stimulus to the economy is critical to releasing the upside in the economy, and the government shall be investing specifically in Power and Transportation which will release the opportunities in solid minerals, manufacturing and agriculture.
These sectors are particularly important to the Nigerian economy with Agriculture and Manufacturing contributing 21 percent and 9 percent to GDP respectively.
Manufacturing however is in a particularly dire strait, as it is currently mired in recession, a situation the Minister’s policies hope to turn around.
The recognition that private capital is an important part of the mix is laudable and makes the Ministers policies more likely to succeed.
The Minister noted that a Public Private Partnership framework is being fine-tuned to provide a seamless pathway to attracting needed private, financial and operational input to service delivery.
The plan to focus on increasing the revenue collection of Government is a step in the right direction
“The 2016 budget is deficit financed; and the fiscal housekeeping which is aggressively blocking revenue leakages and reducing costs is firmly aimed at ensuring that the borrowed funds are channelled into capital projects, rather than seeping through an inefficient financial management system,” Adeosun said.
Reforms such as the Treasury Single Account (TSA), BVN, and the establishment of an efficiency unit should help the government better monitor and execute the spending by all levels of government and agencies, and generate some fiscal savings by the end of the year.
The closing of leakages in customs and FIRS will also enable the sovereign to rebuild fiscal buffers, especially as oil prices begin to slowly climb in coming months.
According to ratings agency Moody’s in a recent ratings update the Nigerian government is undertaking a range of plans that could mitigate the impact on its credit standing, including tax reform to broaden the non-oil tax base.
The government is also negotiating existing contracts downwards, with significant savings being recorded.
Moody’s in its update released this week said it would maintain and confirm Nigeria’s current Ba3 rating if the rating review (to be concluded in two months) were to conclude that the current government’s plans represent a clear, credible fiscal and economic policy response, which offers the prospect of containing the deterioration in the government balance sheet to contain the impact of the sharp fall in the oil price.
We believe that the government’s policies are credible and the Finance Minister has laid out a sustainable growth path out of Nigeria’s economic slowdown.
PATRICK ATUANYA
PATRICK ATUANYA, is the Chief economist for BusinessDay.
