Nigeria’s Economic Woes in 2016

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By Anayo Ezugwu  |

FOR Nigerians in all walks of life, 2016 is a year characterised by unfavourable economic climate marked by recession, hardships, and starvation. There were flip-flops in the fiscal and monetary policies of the federal government through the federal ministry of finance and Central Bank of Nigeria, especially in the case of management of the foreign exchange which nose dived as the country’s revenue form oil declined due to fall in crude oil price at the international market.

It is a year Nigerians will not forget in a hurry as prices of goods and services skyrocked.  More than one million people suffered from starvation and malnutrition in the internally displaced persons, IDP, camp in the Northeast Nigeria. They also lacked access to good sanitation facilities and other infrastructure necessary to keep body and soul alive, and consequently, many of the IDPs died, especially children.

But President Muhammadu Buhari has raised the hopes of Nigerians with the presentation of N7.28 trillion budget of recovery and growth for 2017. On Wednesday, December 14, the president, who presented the budget to the joint session of the National Assembly for approval, promised Nigerians that the budget will bring the country out of recession and hardship. He said the 2017 budget was higher than the N6.07 trillion 2016 appropriation by about 19.95 percent.

The proposed budget was based on crude oil benchmark price of $42.5 per barrel, against the benchmark price of $38 per barrel used in the 2016 budget. Daily crude oil production estimate was put at about 2.2 million barrels per day, same as the figure in last year’s budget, while the exchange rate was put at N305 to the dollar as against N197 to the dollar in 2016.

Further details of the proposed budget showed that government proposed to spend about N2.243 trillion on capital projects and N2.9 trillion as recurrent expenditure. The 2017 proposed capital and recurrent expenditures were higher than the N1.8 trillion and N2.65 trillion, respectively, provided in the 2016 Appropriation, representing about 15.44 ‎and 9.43 percent, respectively. About N1.66 trillion has been allocated for servicing of domestic debts, for which N1.3 trillion earmarked in the 2016 budget, with foreign debt expected to take about N175.9 billion as against N54.5 billion last year.

This notwithstanding, statistics from the National Bureau of Statistics, NBS, on Thursday, December 15, said the Consumer Price Index, CPI, which measures the rate of inflation in the country rose by 18.48 percent in November. The NBS said in the CPI report for the month of November that the 18.48 percent inflation rate is 0.15 percentage points higher than 18.33 percent recorded in October.

The report blamed the rise in inflation rate on increases recorded in the housing, water, electricity, gas and clothing materials. “The CPI which measures inflation increased by 18.48 percent (year-on-year) in November 2016, 0.15 percentage points higher than the rate recorded in October (18.33 percent). During the month, the highest increases were seen in housing, water, electricity, gas and other fuels, clothing materials, books, liquid fuel passenger transport, motorcycles and shoes.”

The report stated that communication and insurance index recorded the slowest pace of increases in November, rising at 5.61 percent and 6.76 percent year-on-year respectively. It said the food sub index increased by 17.19 percent year-on-year in November, up by 0.10 percentage points from the 17.09 percent recorded in October.

The urban index, according to the report, rose by 20.07 percent year-on-year in November from 19.91 percent recorded in October, while the rural index increased by 17.10 percent in November from 16.95 percent in October. On a month-on-month basis, the report stated that the urban index dropped by 0.03 percent while the rural index was also down by 0.05 percent.

In a bid to generate more revenue for the government, the National Executive Council, NEC, on Tuesday, September 20, proposed the sale of national assets. But the Senate declined the proposal saying that previous sales had not benefited the country in any way. The proposal was criticised by many prominent Nigerians and labour leaders.

With the refusal of Nigerians to support the sale of assets proposal, President Buhari on October 25, asked the National Assembly to approve his administration’s external borrowing plan of $29.960 billion for the execution of key programmes and infrastructural projects across the country. He said the fund will cover projects between 2016 and 2018. This plan was also criticised by Nigerians as being unnecessary since the government has not spent the money it recovered from its war against corruption from public officers who stole from the public treasury. The National Assembly has not approved the president’s request.

The year also witnessed unending pipeline vandalisation in the Niger Delta region with the Nigerian Petroleum Development Company, NPDC, exploration and production subsidiary of the Nigerian National Petroleum Corporation, NNPC, saying it lost N1.5 trillion to attacks on its facilities from January till date.

Maikanti Baru, group managing director, NNPC, who disclosed this at the opening ceremony of the 2016 NNPC Security Awareness Week with theme, “NNPC Security: A Task for All Stakeholders, lamented the rising spate of criminality in the society at large and in the oil and gas industry in particular leading to loss of much needed revenue.

“At industry level, we are all conversant with the seriousness and frequency with which national assets in form of pipelines, flow stations etc. are vandalized and crude oil and white products stolen with impunity. In 2016 (January to date), for example, NPDC alone recorded 59 security incidents resulting in crude production shut down/deferment and revenue loss of over N1.5 trillion,” he said.

These incessant attacks on oil and gas facilities made the federal government to

remove fuel subsidy on Wednesday, May 11, thereby increasing the price of fuel from N86 to N145, about 80 percent increase. Defending the increment, Ibe Kachikwu, minister of state for petroleum, said the increase was the only way out of the exorbitant prices of N150 to N250 Nigerians were subjected to at many filling stations across the country.

“In order to increase and stabilise the supply of the product, any Nigerian entity is now free to import the product, subject to existing quality specifications and other guidelines issued by regulatory agencies. All oil marketers will be allowed to import PMS on the basis of forex procured from secondary sources and accordingly PPPRA template will reflect this in the pricing of the product.”

The economy in 2016 equally witnessed incessant power supply outages in the country with the electricity distribution companies, Discos, still giving its customers estimated bills. The year started with the increment in the electricity tariff by more than 40 percent starting from February 1. Despite the increase in tariff, the Discos are still struggling to improve their power supply to Nigerians.

But Babatunde Fashola, minister of power, works and housing, attributed the perennial electricity problems in the country to incessant gas pipeline vandalism. He said over 200 incidences of crude oil and gas pipeline vandalism was recorded in the past six months. He said the sabotage of the pipelines by vandals had constrained gas supply to the power plants, a development that had seriously affected electricity supply.

This, he said, was the major constraint to adequate power supply across the country, stressing that 81 percent of power being generated in the country was from thermal generation plants, which were dependent on gas.

In the year under review, the massive cash crunch in the economy witnessed towards the end of 2015 as a result of the Treasury Single Account, TSA, continued. The Central Bank of Nigeria, CBN, said the movement of federal government funds from the banks to the CBN did not have any major negative impact on the liquidity conditions of the banks.

Godwin Emefiele, CBN governor, said that the apex bank would continue to closely monitor the money market to ensure that the policy did not in any way affect the industry and that it had the muzzle to play its roles as a catalyst for the economic development of the nation.

The beginning of the year witnessed the effect of foreign exchange restrictions placed on the importation of certain items considered unnecessary and unhelpful to the nation’s macro-economic development. As of December 16, every item in the market has increased by 100 percent including items like palm oil and locally made goods in the country.

But Emefiele said the foreign exchange access restriction have led to the re-opening of factories that had closed down due to the inability of their products to compete with the dumping of foreign goods in the country.

Likewise, the economy experienced high exchange rates leading to scarcity of dollar at the parallel market. The exchange rate of Naira to Dollar stood at N480 at the parallel market as of December 16. While CBN and interbank exchange rate stood at N290 as at the last check. However, the continuous fall in the price of crude oil at the international market also affected the flow of money into the economy in 2016 with the state governments borrowing money to pay salary.

— Jan 2, 2017 @ 01:00 GMT

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