By ETIM ETIM
In the last few months, crude oil prices have been inching northwards to the delight of Nigeria’s fiscal authorities. Apart from abductions, killings and general insecurity, dwindling incomes from both taxes and crude oil sales have been the major headache of this government since its inception. Despite some remedial measures like increase in VAT and upward review of petrol prices, our national income continued to fall below expenditures. The fiscal challenges got so bad that that the government resorted to desperate and controversial measures like enacting the Finance Act 2020 which, among others, empowers the authorities to assume ownership of balances in dormant accounts in the banks.
The steady rise in crude oil prices in recent months must therefore be a big relief to the federal government. From about $40 per barrel late last year to over $70 per barrel late July, the rise in prices, especially of Brent crude, has been fairly stable, signifying a boost to the national treasury and our enhanced capacity to save for the rainy days ahead. The nation should be making some significant savings into the excess crude account (ECA) which had only $60.85 million balance as at July 13, while the Stabilization Account had N26.34 billion only. The 2021 budget, signed into law on December 31, was based on an oil price benchmark of $40 per barrels and a production level of 1.86million barrels per day. Anything above this goes into the ECA.
The new oil boom should also have salutary effects on the finances of state governments, some of which have scaled back considerably on their capital investments while others have been unable to repay loans they got from the CBN since 2006. The increased inflows will also help the government to service the nation’s huge foreign debts a lot more easily. Interest payments take more than 80% of the national income, forcing the government to rely more and more on borrowings to finance its capital budget.
Nigerians are however worried that rising crude oil prices do come with some unpleasant consequences. Rising crude prices also lead to higher landing costs of imported refined products and this means that the government will have to choose between spending more on subsidies (or ‘’under recovery’’ as NNPC calls it) and hiking pump prices. Although the National Economic Council (NEC) is enthusiastically pushing for a complete deregulation of the downstream subsector and an appropriate pricing of PMS (petrol), the social and economic implications of increasing the pump price of petrol are clear to the government.
I will be surprised if the Buhari administration will be bold enough to add labour unrests, hyper inflation and social upheavals that would arise from subsidy removal to the already delicate security situation in the country. Nigerians are so impoverished, hungry and angry that a little provocation could explode into a conflagration. With less than two years to the end of his tenure, President Buhari will most likely approach this matter with utmost caution. The government cannot afford to be derailed from its avowed commitment to investing on infrastructure. Fast, convenient and comfortable rail transportation is gradually becoming a key feature of our social and economic life. I can only hope that every part of the country will soon benefit from this.
But as the new cycle of oil boom continues, it is imperative for the government to deepen the diversification of the economy beyond oil. We must improve earnings from the non-oil export sector and continue to diversify the components our export portfolio. We must aggressively accelerate our growth in this area in the next few years, not only in terms of Naira (or dollars) earned, but in terms of the product mix we sell overseas. Although the Nigerian Export Promotion Council (NEPC), the state-owned agency that is responsible for stimulating export growth, has been doing a fairly good job in the last few years, the uncertainties of relying on crude petroleum and our increasing population have created a renewed urgency in shifting focus from export of primary commodities to manufactured and processed products.
In the first quarter of the year, for example, the value of non-oil exports in just one month rose sharply from N2.9billion in February to over four billion Naira in March, according to NBS. But it is unacceptable that our major export commodities have remained largely unchanged since the 1960s: cocoa, coffee, cashew nuts and some minerals. No nation develops selling such a narrow array of primary commodities. Nigerians are however hopeful that the products range will improve soon to include refined petroleum products with Dangote refinery beginning production soon.
Even with the expected inclusion of petrol and diesel in our export list, NEPC should do more to enhance our export business. It should launch aggressive awareness program for the incentives it has for exporters. The two main types of incentives are Export Development Fund (EDF) and Export Expansion Grant (EEG). The EDF was set up under the Export (Incentives and Miscellaneous provision) Act of 2004 to provide financial assistance to exporting companies to cover part of their initial expenses. On the other hand, the EEG aims to support active exporters to expand their international businesses.
It is a post-shipment incentive designed to encourage Nigerian exporters to expand export volume and value and improve global competitiveness of Nigerian products. Under this scheme, the exporter can get between 5% and 15% of their annual value, depending on the product category. These incentives contain monetary, tax or legal provisions designed to encourage exports of certain goods and services. They provide financial grants to the exporters to help boost their businesses; reduce cost of production to make exports more competitive in the global markets and provide financial support which facilitates market facilitation.
The volatility of crude oil as an income earner, its diminishing importance as energy source coupled with our galloping population growth impose on Nigeria the urgency to expand and diversify our export business and boost our balance of trade. This should be the focus of this and the succeeding administration.
ETIM, a veteran financial journalist, a former bank and a media consultant lives in Abuja