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30 March 2017
For the first time since 1991, Nigeria's economy has contracted for four consecutive quarters, in other words, for an entire year in 2016 according to the National Bureau of Statistics. The GDP shrank by 1.3% in the fourth quarter of 2016 and 1.5% for the entire year. This is the trend the 2017 budget, termed the Budget of Recovery and Growth, is apparently meant to reverse.
The government may significantly realize its projected oil revenue given that oil price according to the United States' Energy Information Administration (EIA) is projected to sell at average price of $55 this year, despite the threat posed by the increasing production activities in the US shale oil, while the 2017 budget benchmark is $42.5. However, this will be dependent on the OPEC and non-OPEC countries like Russia agreeing to renew the cut in oil production deal when the current one ends in June. Another factor is the possibility of the current truce reached with militants in the oil producing communities breaking down and renewed hostilities breaking out. This, if it happens, will impact severely on oil production. This possibility may look remote now but as tussle for 2019 general elections begin; the national question may sharpen with some ferocity.
Nigeria may not be again exempted from contributing quota to the OPEC cut. However, the reality is that Nigeria, according to OPEC's secondary sources and Reuters, is selling much less than the projected 2.2 million barrels per day (oilprice.com February 28). This is apparently due to the glut in the oil market which has led to build up of many unsold cargoes of crude. If oil makes the projected average price of $55 but Nigeria is unable to produce 2.2mbpd or sell the volume the resultant shortfall should be, to some extent, offset by the excess oil revenue over the budget benchmark.
Besides, unlike its experience with 2016 budget, the current oil price rebound, relative to last year, could make it possible for the government to largely achieve its external borrowing target put at about $3.5bn. In the 2016 budget, out of about $5billion it planned to raise, the FG could only borrow about $1.6bn. Indeed, $1bn out of the sum was the recent successful Eurobond borrowing. The reason is that, as shown by the said Eurobond, for the so-called foreign investors the fundamental of Nigeria's economy is oil which accounts for over 95 percent of foreign earning and thus the only guarantee for fulfillment of debt obligation and repatriation of profit in dollars. Also, as a largely import-dependent economy, the prospect of the non-oil revenue will also be dependent on the extent the oil revenue is able to mitigate the liquidity crisis in the foreign exchange market.
In other words, it is the health of the oil market that will largely determine the prospect of raising revenue to finance the budget. This apparently explains why the government has to significantly increase the projected oil-revenue component by 142 percent from N820bn in 2016 budget to N1.985trillion in the 2017 budget. In addition to projected borrowing, the 2016 budget was unrealistically set to be largely financed by non-oil revenue sources like company income tax, duties, VAT and independent revenue (income from revenue generating agencies). But, out of the projected N1.5trillion independent revenue in 2016 budget the government has only been able to realize just about N400bn.
However, given the general global crisis of capitalism and neo-colonial character of Nigeria's economy, it is not likely that the government will meet its total revenue target. Especially, in a situation of economic crisis with companies halving production, profitability shrinking and general purchasing power collapsing, tax revenues are not likely to yield much. As shown by previous budgets including 2016 budget, the government will respond to the revenue shortfall by not only increasing the domestic borrowing but also reduce the capital expenditure which could help provide infrastructures that possess relative potential of creating jobs.
For instance, in the current 2016 budget, which is expected to run until May, the government as of mid-March 2017, had borrowed N1.182trillion as against N984bn originally in the budget. But out of the budget's total N1.587 trillion capital expenditure, N1 trillion, representing 63 per cent, had so far been released. However, in order to satisfy the profit-first interest of the so-called investors, mostly banks that lend money to government at the expense of the real sector (manufacturing, agriculture and small business), N1.3 trillion, representing 100 per cent of the budget allocation for debt service had been released.
Though this is the said to be the biggest release of capital allocation in many years, the finance was generated from huge borrowing. This means that the Buhari government is making the future generation to share the burden of the current capitalist crisis. This is especially because, on the basis of capitalist contract system, the masses will not get value commensurate to the money spent as a considerable portion is looted or forms the outrageous profit margin of the private companies. That is why Socialists do not just call for adequate allocation to capital projects but always add that such allocation must be subjected to democratic control by the working people. We also call for the works departments to be well equipped and workers well trained to the extent of being able to execute all categories of capital projects. This would mean that much less will be spent to achieve the same quantum of job as the profit-first private companies.
By and large, for a neo-colonial economy like Nigeria no fiscal measures encapsulated in the budget or the much vaunted Economy Recovery and Growth Plan, especially on the basis of neo-liberal capitalist policies, would in themselves guarantee growth and recovery. Rather, it is dependent on the fate of oil which accounts for over 95 percent of its foreign earning and over 70 percent of the government revenue but whose prices are not dictated by Nigeria.
Therefore, if the relative rebound of oil price with the attendant increasing accretion to foreign exchange reserve is sustained, it is possible for the economy to begin to show signs of recovery and growth and thereby exit recession this year. However, this recovery and growth will be in figures especially in GDP, forex and inflation that will be vaingloriously thrown around by the government but not in the reality of quality of life of the working masses.
Already, the annual inflation rate has slowed down, dropping from 18.72% in January to 17.78% in February, the first dip in 15 months. But as the working masses would have noted while living through the month of February, there was no drop in price levels which remain excruciatingly high or decrease in the cost of living or doing business. What these figures roughly imply is that difference in price levels between February 2017 and February 2016 is lower than the one between January 2017 and January 2016. In other words, it means the rate of rise in prices has dropped year-on-year but not the high prices themselves which are indeed on the rise. According to NBS findings, on a month-on-month basis, headline inflation rose by 1.49 per cent in February 2017, representing a 0.48 per cent points higher from the 1.01 per cent recorded in January. However, there are indications that the annualized inflation rate will further decline as the year progresses especially from May and June which mark a year the rate of increase in prices spiked due to the fuel price hike and devaluation of naira. But this will mean fundamentally nothing for the poor masses whose incomes continue to be seriously eroded as the consumer prices remain high.
Also another good piece of propaganda for the government is the appreciation of naira as of mid-March at the black market from N530 a dollar to N450. But this is made possible not by the wizardry of CBN management but by a rise in the oil revenue that enables the apex bank to increase liquidity in the forex market. But for the masses this appreciation is insignificant in the face of deadweight of plunge in naira value and attendant high cost of living and doing business, under which they daily groan, following the official devaluation of naira. Indeed, since the much celebrated floating of naira, the currency has lost about 56 percent of its value at the interbank and 47 percent at the black market without attracting dollar supply from the "fabled" foreign investors.
From the relative pick up in the oil price, slowing down in inflation, which to a large extent determines the real GDP, and slight improvement in the forex market liquidity, Nigeria may exit recession this year. But this will not be hurrah for the poor and working masses. The fact is that what has worsened for the masses their original suffering arising from the global crisis of capitalism is not recession itself, which is more a technical expression for negative growth in at least two consecutive quarters than the depth of an economic crisis. Rather, it is the anti-poor policies of deregulation (increase in fuel price) and devaluation of naira introduced by Buhari government as solution to the crisis of capitalism, which have further increased prices and cost of living, something that is still raging like hurricane. As often with capitalism what is designed as solution to a problem further compounds it.
So for the masses to benefit even little there must be reversal of polices of deregulation and devaluation or significant mitigation of their devastating effects. This would mean the government providing for the masses living wages, free and quality education, free and functional health care, regular and affordable electricity, food security, access to potable water, decent housing, provision of good roads and other means of transportation, etc.
On the basis of capitalism, expecting Buhari government to guarantee all these basic needs of life is like asking for the moon. If there was any illusion that Buhari government could ever do this, now the masks are off. The Economy Recovery and Growth Plan (ERGP) launched in February 2017 by the Buhari regime as its economic plan for 2017 till 2020 is an unapologetically pro-market plan.
According to the document, the ERGP embraces "the understanding that the role of government in the 21st century must evolve from that of being an omnibus provider of citizens' needs into a force for eliminating the bottlenecks that impede innovation and market-based solutions". In other words the government is saying that company and private profit will rule and decide everything as it turns over the provision of the Nigerian people's "needs" to the "market". Thus one of the objectives of the plan is "privatizing selected public enterprises/assets".
This will not lead to a general development of society or living standards. It would require placing the commanding heights of economy like oil and gas industry, banking and financial institutions under the democratic control and management of the working people as part of general socialist planning of the society for the needs of the working people to be guaranteed. That is why we need a mass working people party on a socialist program to fight for those basic needs and struggle for political power in order to run the society in the interest of vast majority instead of the owners of the big companies and the corrupt elite.
An essential ingredient in the struggle for working peoples' political power and a socialist society is the fight against capitalist attacks and for improvement in conditions waged by the working people and youth themselves. Through these struggles which every now and then bring the working and toiling masses in clashes against the barriers of the capitalist system, the working people and youth will come to the inevitable conclusion that the capitalist system is useless and that salvation only lies with changing the system and laying the foundations of a democratic socialist society.
For examples, the labour movement, especially now with the relative improvement in oil revenue, must lead a serious fight for immediate payment of all outstanding salaries and pensions as well as a higher minimum wage without loss of a single job. Education workers and students, with support of the wider labour movement must fight for adequate funding of education and democratic management.
However it must be borne in mind that the economic situation is fragile, a new international crisis could plunge the Nigerian economy downwards. This is why Socialists argue that Labour must campaign to explain that Nigeria's rich resources will only be used in the interests of the population if they are taken out of the hands of the ruling class, a move that would also set an international example to working people of how to get out of the endless cycle of crisis that capitalism engenders.