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Author Name: Ifeanyi Izeze
Number of articles: 174

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State Of The Nation: Dangers Of False Expectations As Nigeria Slips Into Austerity
Author: Ifeanyi Izeze | March 05, 2015

As witnessed, the last several years of high oil market prices have given way since June 2014 to lows not hit since late 2008. Oil prices more than halved between June 2014 and January 2015 as a global glut pushed Brent crude, the equivalent of our premium grade, the Bonny Light from a peak above $115 to a near six-year low of $46.

Since June 2014, oil prices fell by more than 50 per cent and have continued to oscillate in a range that cannot be described as impressive recovery. Whether anybody wants to hear this or not, the truth is that the recently announced austerity measures by the Jonathan government are headed for nowhere and will not do much to stem the wild tide of the nation's economic woes because they are as vacuous as the stale promises of the government to fight corruption and instil transparency and accountability in management of public funds especially earnings from oil.

Is it not shameful how Nigeria was immediately thrown into a panic mode by fallen oil prices that forced the federal government to announce some austerity or rather belt-tightening measures in anticipation of definite drop in our oil earnings? The only practical purpose of the federal government's proposed measures to put the economy back on an even keel is just to stem the obvious panic within government circle, panic that has been trickling down to the states and local authorities in the form of dwindling allocation from the centre.

Many states across the country are unable to pay the workers' salaries not to talk of contractors. Truth be told, the problem this country faces today as a consequence of the crash in oil prices is one of corruption. Had we done the right things before now, plugging all the holes through which Nigeria's wealth is both stolen and wasted, we would be far better off than we are right now that our national purse is lean or more aptly outrightly stolen dry.

But rather than plug these holes, the country's leadership has opened them up for more and better plundering of the economy and President Goodluck Jonathan, rather unfortunately, seems handicapped to face this systemic corruption problem. As rightly observed in a statement signed by the Director of Media and Publicity of the APC Presidential Campaign Organisation (APCPCO), Malam Garba Shehu, “It is apparent that the Federal Government has suddenly found itself in a bind with plummeting crude oil prices in the international market.

But typical of a team that lacks capacity for anticipatory actions, the Federal Government has been running from pillar to post in a vain bid to stabilize the economy. Unfortunately, all conceived palliatives applied to save the nation's declining economic indicators have merely scrapped the surface of the problems leaving the mass of Nigerians desperate, confused and hungrier.”

It is disheartening that while the country recorded the highest revenue accrued from impressive crude oil prices over a five-year period before the downward spiral of international oil prices, some of the taskforce or more aptly austerity measures ushered into the 2015 budget because of the crash in the prices of crude oil showed an economic management team that never anticipated and so did not plan for a sudden shock in the source of funds for the nation's economy.

The panicky measures would have been avoided if the management of our earnings from oil in the last few years were better coordinated and transparently managed. No doubt, Nigerians would agree with the APC posit that the Federal Government's casual response to the nation's rising economic challenges depicts gross insincerity on the part of those that administer the economy.

As said “With external debt standing at more than $10 billion and our internal debts at more than $5 billion, it is without doubt that President Jonathan is driving Nigeria into economic wilderness. This should be a cause for concern for all well meaning Nigerians, more so when the Federal Government responses to these rising economic challenges have, at best, been casual.

“Emblematic of this casual, non profound approach to the management of the national economy is the Central Bank of Nigeria's devaluation of the national currency in November 2014 while retaining the Retail Dutch Auction System (RDAS). Dramatically, just under three months after that devaluation, the CBN, obviously buffeted by unanticipated dynamics in the foreign exchange market, announced the closure of the RDAS and the Wholesale Dutch Auction System (WDAS).

This shows clearly an uncoordinated template in the management of the national economy. “It is crystal clear that our revenues are dwindling by the day and if we must survive, we cannot continue on this path of near absence of accountability, mismanagement, outright waste and jamboree that has characterised the management of public resources under the Jonathan-led PDP government.”

Despite what the federal government described as alternative funding sources for the 2015 fiscal projections, the truth remains that successful implementation of the budget whether anybody wants to hear this or not is heavily and crucially dependent on whatever we derive from oil as revenue. As said by an analyst, “While all the oil producers have most of the same problems following the price crash, Nigeria has one that is uniquely its own – economic terrorism.

Some of its features include oil theft, deliberate and inadvertent damage to pipelines, under-cutting of official selling prices and denial of revenue to the country. Several syndicates have become established for all of these. And because appetite grows with eating, they want more – even if the nation receives less. It will amount to grand illusion to expect they will curtail their activities – now that Nigeria needs more revenue.”

The question is: Is the government really sincere with addressing this economic terrorism? The stack truth is that if the government does not plug these leakages, the crunch on the economy may be better imagined than experienced. Mark my words! The 2015 Budget which was christened budget of transition premised revenue estimate from the oil sector on daily crude oil production of 2.28 million barrels per day with a benchmark price of 65 dollars per barrel and at an exchange rate of N 165 to the dollar.

We saw at least three adjustments to the benchmark price of crude oil used in the budget as it downgraded from $78 (US dollars) per barrel when the Medium Term Expenditure Framework was presented in September, 2014 to $73 before finally settling at $65 per barrel. Though the final benchmark used by the Budget Office was premised on the Federal government's optimism that oil price will average between $65 to $70 within the 2015 fiscal year.

The Senate believes that the $52 per barrel benchmark which the upper chamber approved last week was more realistic giving the price vagaries at the international markets. Characteristically, estimate of daily crude oil production used for budget appropriation were never met at least in the last six years of budget projections because of what industry watchers have described as leakages underscored by vandalism, crude oil theft and deliberate starvation of upstream investments by the various joint venture arrangements. In 2014, the 2.39 million barrels per day crude oil production used in the fiscal projections was not met even for one day except the authourities did not tell us the truth.

Various industry experts have raised serious issues with the daily production quota cap used by the federal government in the fiscal projection. As said, the assumption was outrightly over-optimistic and it remains to be seen what actually gave the government such morale.

IFEANYI IZEZE is an Abuja-based Consultant and can be reached on: ; 234-8033043009)

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