Budget 2012 proposal: Economic transformation on the wings?

Reactions have continued to trail the 2012 budget proposal presented at a joint session of the National Assembly by President Goodluck Jonathan recently. In the face of economic uncertainty, having a budget that would boost economic growth and development is pertinent, writes ALEXANDER CHIEJINA

During the military regimes and up until 1999, when the country transited to democratic rule and beyond, Nigerians have been greeted by impressive budget speeches, eloquently delivered in past Head of states and President. Unfortunately, the implementation has not matched the words, as economic policies often lack continuity and projects are needlessly discarded or abandoned.

Remarks like “We have what it takes to be a great nation or a world power. But we have never challenged ourselves sufficiently over the years to attain this desired goal. It is our hope and sincere belief that this budget will challenge us; and to take the challenge, we must tighten our belts. To do so, we must ensure that all sectors and every Nigerian, irrespective of position or status are involved,” have rented the air, yet there has been no marked improvement in the lives of the citizenry after each fiscal year.

To economists and financial experts, the role of a budget in an economy is enormous. This is because budget, which is a reflection of government’s income and expenditure pattern, is an important instrument of national resource mobilization, allocation and economic management as well as an economic instrument for facilitating and realizing the vision of government in a given fiscal year or period.

As budget has to be effectively and efficiently implemented, adequately monitored, and its performance well evaluated, moves by President Goodluck Jonathan’s administration towards economic transformation saw him present a N4.749 trillion budget proposal to the National Assembly based on set of assumptions reflecting government’s stance in the face of continued uncertainty in the external environment.

While presenting the 2012 budget at the National Assembly, President Jonathan promised to offer zero - duty on importation of power and agricultural equipment, fiscal consolidation, inclusive growth and job creation.

The budget proposal reflected an increase of six percent over the N4.484 trillion appropriated for the 2011 fiscal year and capital share of about 28 percent of total expenditure, against 26 percent in the previous year.

The President disclosed that aggregate expenditure comprises of N398 billion for statutory transfers; N560 billion for debt service; N2.472 trillion for recurrent (non-debt) expenditure; capital expenditure has an allocation of N1.32 trillion, representing a 15 percent increase, while the fiscal deficit projected stands at about 2.77 percent of GDP, against 2.96 percent in 2011.

He however told lawmakers that the 2012 spending plan was based on a benchmark oil price of $70 a barrel and production of 2.48 million barrels per day.

Major key structural reforms to be implemented in the 2012 fiscal year, according to the president, include privatisation of the power sector- based ports and customs, aimed at reducing the cost of doing business for our private sector actors, as well as promoting job creation and inclusive growth, by investing in critical infrastructure, human capital development and security.

President Jonathan unveiled plans to give priority attention to critical sectors, namely information and communications technology, solid minerals development, manufacturing, aviation and creative industries, in order to further develop these sectors known as sources of growth and job creation.

To address the problem of power, Jonathan revealed that the administration would as from 31st January 2012, offer zero duty on importation of equipment and machinery in the power sector, and create a credit risk management initiative to provide Partial Risk Guarantees (PRG) to give comfort to gas producers in respect of payment.

In its renewed effort to attain food sufficiency and promote exports in agriculture value chains where the country has comparative advantage, Jonathan unveiled plan to process and add value to different crops such as rice, cassava, sorghum, oil palm, cocoa and cotton, etc.

In addition, the administration is expected to support the development of private sector-driven marketing institutions, and push for policies that would promote the country’s agriculture to create jobs.

“To unleash the potential of this sector, the Federal Ministry of Finance has put in place a mechanism to share risks with the banking sector by guaranteeing 70 percent of the principal of all loans made for supply of seeds and fertilizer by the private sector this season. In addition, to get the inputs to farmers at affordable costs, we are subsidising the interest rate on these loans to bring it down from 15 percent to 7 percent per annum. The Minister of Agriculture and the Central Bank are collaborating to extend these services for credit availability for the medium term.

“We are introducing further fiscal policy measures to support the development of the agricultural sector. In this respect, the duty on machinery and certain specified equipment for the sector will, effective January 31st 2012, attract zero duty. We will further look at supportive fiscal policies for the rice and wheat sectors, to stimulate domestic production.

“Government is also introducing policies to encourage the substitution of high quality cassava flour for wheat flour, in bread-baking. Bakeries will have 18 months in which to make the transition, and will enjoy a corporate tax incentive of 12 percent rebate if they attain 40 percent blending. With effect from March 31st 2012, importation of cassava flour will be prohibited, so as to further support this programme,” Jonathan revealed.

He however added that “All equipment for processing of high quality cassava flour and composite flour blending will enjoy a duty free regime, as incentive to bakers for composite flour utilisation. Consultations with the sector to ensure a smooth transition are on-going. From July 1st 2012, wheat flour will attract a levy of 65 percent, to bring the effective duty to 100 percent, while wheat grain will attract a 15 percent levy, which will bring the effective duty to 20 percent. Similarly, there will be a levy of 25 percent on brown rice, to bring it to 30 percent.

“In addition, to encourage domestic rice production, a levy of 40 percent will be placed on imported polished rice, leading to an effective duty rate of 50 percent. Effective December 31st 2012, all rice millers should move towards domestic production and milling of rice, as the levy of 50 percent will be further raised to 100 percent. Let me add here that no waivers or concessions will be entertained for rice and wheat importation.”

In the meanwhile, analysts, critics and stakeholders have continued to evaluate budget 2012, which is expected to usher in transformation, following a short on capital expenditure which constitutes 28 percent of the budget

Reactions trail budget proposal

Razia Khan, Head of Macroeconomics and Regional Head of Research, Africa, Global Research of Standard Chartered Bank, argued that the nominal growth projection – real GDP growth of 7.2 percent and inflation of 9.5 percent may not differ much from the consensus as Nigeria is still hugely dependent on oil revenue and not domestically generated revenue for the financing of its budget.

Khan revealed that the seemingly modest 6 percent increase in 2012 is nonetheless still over 50 percent greater than the total budgeted amount of spending seen as recently as 2009 when measured in USD terms.

“Given global downside risks, this would still leave Nigeria vulnerable to any unanticipated shocks. Until this changes (and we would like to see more detail of revenue raising measures), forecasts of domestic growth are almost redundant – with little impact on eventual budget outcomes. Should budget projections disappoint, the foreign rate (FX) rate may have to take the strain.  The monetary authorities will need to do even more to offset the liquidity impact of increased spending, and preserve some measure of price stability,” Khan stated.

Also reacting, Abdulwaheed Omar, Nigeria Labour Congress (NLC) President, described the lion share voted to security as a misplacement of priority.

The labour leader noted that the budget needed reworking to conform with the nation’s social and economic reality, particularly in favour of agriculture and infrastructure rehabilitation across the country.

According to Omar “That means all is not well in Nigeria N180 billion for works means nothing; not enough even for road maintenance. Government does not see any importance in agriculture. That means the continued importation of those things we can easily produce to preserve foreign exchange.”

For Sam Nzekwe, former president, Association of National Accountants of Nigeria (ANAN), the increase in expenditure from 2011’s N4.48trillion to the N4.749trillion was in order as a result of the urgent need for the country to address its huge infrastructure deficit.

According to the former ANAN boss, “infrastructure is even more important than security. This is because if you spend all the money to buy the most expensive and modern security equipment, they cannot be put to good use if there is no adequate infrastructure.  So as far as I am concerned, our infrastructure deficit is so huge that the government cannot really achieve anything unless it addresses the problem.”

Nzekwe also applauded the allocation to power, stressing that like infrastructure, this was critical to boosting the nation’s economic growth and development. He however faulted critics’ claim that the increase in expenditure in 2012 budget would not help the effort to fight inflation and further put pressure on Naira.

“Once the infrastructure deficit and power problem are addressed, it will boost economic production and lead to an increase in employment. The threat of inflation will not be that serious once the funds allocated to capital expenditure go into productive activities.  It will only be a problem if most of the funds are used for recurrent expenditure,” he opined.  

Furthermore, Peter Esele, Trade Union Congress (TUC) National President, faulted the huge allocation to security. He rather preferred that the education sector should have received priority attention, insisting that human development should be given adequate attention to put people out of poverty.

According to TUC leader, what the country needs now is adequate funding and resuscitation of the nation’s education system to accelerate the social and education development of the country.

Esele opined that he is not always enamoured by beautiful content of budgeting in Nigeria due to poor and inefficient implementation which, according to him has become an annual tradition.

‘Budgeting in Nigeria is not defined by the figures, but by how good a budget is implemented. We know in the past, government has not implemented budget above 50 per cent or even less,’ he said, while urging government to speak more on fuel subsidy on budget breakdown.

In a contrasting fashion, Fatima Bamidele, Permanent Secretary, Ministry of Health disclosed that the N282.77 billion allocated to the health sector in the 2012 budget by the FG would not be sufficient to cater for the healthcare of Nigerians.

According to Bamidele “The funds which were quite limited would only serve as intervention and would be allocated to critical areas to help Nigerians get access to health. The government alone cannot adequately provide care for the teeming population,” the permanent secretary stated.

Expectations ahead 2012

Conversely, the grim global outlook especially for Europe and their troubled banks, it is expected that oil revenue flow might recede or worse still a likely mild recession could crop in anytime soon.  With present scenarios, there is going to be significant decrease in aid from the United States and Europe; there could be greater cuts in future.  Meanwhile, experts expect trade with emerging market economies like China to grow in importance while we will be compelled to be more responsible.

However, President Jonathan’s subtle defense in his decision to leave out fuel subsidy from the 2012 budget, has painted a graphic picture of how the country has been borrowing to fund capital projects when the money spent on subsidy alone would have sufficed instead. But the House of Representatives has demanded that subsidy must be returned to the budget.

The President disclosed that government borrowed the entire capital budget which was N1.146 trillion this year, whereas it has paid over N1.2 trillion for fuel subsidy alone.

“This year with the present budget, we are paying back the part of the money we borrowed but what is in the budget is only N560 billion, just about half of the money we borrowed. Who will pay the balance and when, with interest? There is no way we can continue to run the economy this way,” he said.

Taking a holistic look at the current scenario, there is no gain saying that unless the economy diversifies and aggressive agriculture and industrialisation pursued, the oil reserve of the country might be threatened and/or depleted which would mean enslaving future generations.

“Government must look for ways to expand the economy. We must look for other ways of earning money. We must go back to farming and not just subsistence farming that we know but really taking farming as a business… we must create wealth through farming… we must industrialise… we must begin to produce things in this country and we need the subsidy to do that and especially with the number of people graduating from the universities every year. How do we create jobs for them? And I believe we cannot continue to borrow.

“There is no way we can continue to run the economy this way. We find it difficult to do things that appear not to be popular and I know that one of the things that worry us is the fear of the unknown. If there is subsidy, what will life be? Yes, we know there will be a little pain because we know ourselves. Nigerians sometimes exploit opportunities,” Jonathan concluded.

Giving the rising state of poverty, unemployment and discontent that have increased bottled up anger in the polity, there are fears that the removal of fuel subsidy might provide the spark for mass protests. However it may seem, going by the impact of trade and investment coming from emerging economies, it is critical Nigeria deepen relationship with the countries and get them to buy into our economic vision. In this way, the transformation vision can be brought in better focus.

 

 Once the infrastructure deficit and power problem are addressed, it will boost economic production and lead to an increase in employment. The threat of inflation will not be that serious once the funds allocated to capital expenditure go into productive activities