Emmanuel Nwachukwu
Oil prices continue to plunge following OPEC’s decision last Thursday to maintain oil production at current levels. This was a departure for the cartel which usually cuts production to drive up prices. Although there was pressure to cut production, Saudi Arabia and the United Arab Emirates were firmly against it, a move that shocked the international oil market sending energy prices tumbling. In just five months, the price of crude has dropped from over $110 in June to under $70 a barrel, a fall of about 40 per cent in five months. Managing this decline will be difficult for Nigeria where oil accounts for over 80 per cent of the revenue. The fall in oil price has been attributed in the main to a weaker global demand and an oversupply of crude, fuelled in part by an increase in the production of shale oil in the USA. Some industry analysts believe that oil prices could fall as low as $50 a barrel. At prices this low, it will become less economically viable to pump shale gas in the USA. Analysts believe that this is why Saudi Arabia is reluctant to shore up oil prices, so as to stem the current boom in shale oil.
The first casualty of the fall in oil price has been the naira which has slumped to a record low of N185 to the dollar, a fall of about 13 per cent from June this year. Even as the Central Bank of Nigeria increases the sale of dollars in order to stabilise the naira, it is inevitable that interest rates will continue to rise to stem the depreciation of the naira, with all the attendant impact this would have on the economy.
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 states like Lagos and Akwa Ibom have been head and shoulders above other states in terms of infrastructure 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.
The tragedy is that even some oil rich states that had the opportunity to transform 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),for many years, enjoyed revenue allocations that far exceed the incomes of many African countries like Togo, Benin Republic, Rwanda, Niger and Congo that have other additional responsibilities like defence, policing 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 beautiful city 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 with Asaba, the capital of Delta State. It is hard to believe that this is the capital of an oil rich state with annual revenues that compare with some counties in England, with roads full of gullies and potholes that are reportedly swept away every rainy season due to poor drainage. The 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 neighbouring states like Edo and Anambra with under a third what Delta State gets in revenue allocation have visibly done better in building vital infrastructure.
But for a few states, the story across the board has been that of poor performance, wrong choices and allocations squandered, with no vision for the people. In the worst of these states, civil servants are owed many months’ salaries and allowances. 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 live and govern from Abuja. If these governors could not pay salaries in the 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.
The Minister of Finance and Co-ordinating Minister for the Economy, Ngozi Okonjo-Iweala, has indicated that the government will 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. We do not need 42 ministries and over 700 parastatals. This in itself is scandalous with so much duplication in the system. The government must put the interest of Nigeria before individual interests. The entire federal budget, on the face of it, can be cut by a half without any impact on services, and so release the much needed funding for security and infrastructure development.
There is the 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 please is scandalous and irresponsible.
The government must now use the 2015 budget process to reduce waste and inefficiency in the system. They need to look at the way budgets are currently built and reported, to address systemic corruption and make budgets more accountable. We must look again at 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 cut of at least 25 per cent in its current allocation. This is the least it can do in the circumstance, considering that its members already occupy the ignominious position of being the highest paid politicians in the world.
As the world watched with amazement the recent brawl at the National Assembly involving the Police, you will not believe that this country has huge challenges on every front, with 17 of Borno State’s 24 local governments reportedly under the firm control of Boko Haram. The actions of the police are pivotal to the survival of this democracy, especially with the 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 current economic crisis may well turn out to be a blessing in disguise if it forces the government to diversify the economy away from oil and if it forces state governments to generate more internal revenue.
Punch
The first casualty of the fall in oil price has been the naira which has slumped to a record low of N185 to the dollar, a fall of about 13 per cent from June this year. Even as the Central Bank of Nigeria increases the sale of dollars in order to stabilise the naira, it is inevitable that interest rates will continue to rise to stem the depreciation of the naira, with all the attendant impact this would have on the economy.
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 states like Lagos and Akwa Ibom have been head and shoulders above other states in terms of infrastructure 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.
The tragedy is that even some oil rich states that had the opportunity to transform 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),for many years, enjoyed revenue allocations that far exceed the incomes of many African countries like Togo, Benin Republic, Rwanda, Niger and Congo that have other additional responsibilities like defence, policing 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 beautiful city 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 with Asaba, the capital of Delta State. It is hard to believe that this is the capital of an oil rich state with annual revenues that compare with some counties in England, with roads full of gullies and potholes that are reportedly swept away every rainy season due to poor drainage. The 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 neighbouring states like Edo and Anambra with under a third what Delta State gets in revenue allocation have visibly done better in building vital infrastructure.
But for a few states, the story across the board has been that of poor performance, wrong choices and allocations squandered, with no vision for the people. In the worst of these states, civil servants are owed many months’ salaries and allowances. 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 live and govern from Abuja. If these governors could not pay salaries in the 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.
The Minister of Finance and Co-ordinating Minister for the Economy, Ngozi Okonjo-Iweala, has indicated that the government will 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. We do not need 42 ministries and over 700 parastatals. This in itself is scandalous with so much duplication in the system. The government must put the interest of Nigeria before individual interests. The entire federal budget, on the face of it, can be cut by a half without any impact on services, and so release the much needed funding for security and infrastructure development.
There is the 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 please is scandalous and irresponsible.
The government must now use the 2015 budget process to reduce waste and inefficiency in the system. They need to look at the way budgets are currently built and reported, to address systemic corruption and make budgets more accountable. We must look again at 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 cut of at least 25 per cent in its current allocation. This is the least it can do in the circumstance, considering that its members already occupy the ignominious position of being the highest paid politicians in the world.
As the world watched with amazement the recent brawl at the National Assembly involving the Police, you will not believe that this country has huge challenges on every front, with 17 of Borno State’s 24 local governments reportedly under the firm control of Boko Haram. The actions of the police are pivotal to the survival of this democracy, especially with the 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 current economic crisis may well turn out to be a blessing in disguise if it forces the government to diversify the economy away from oil and if it forces state governments to generate more internal revenue.
Punch
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