THE ROAD TO RECOVERY

Address by President Olusegun Obasanjo on Budget 2001

Presented to a joint sitting of the National Assembly

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Seventeen months into the life of our democracy, the outlook remains positive. A solid foundation has been laid with the achievement of macro-economic stability.

We are beginning to enjoy a good standing in the global community because of our ongoing commitment to democracy, economic reforms, sustainable peace and development particularly in our sub-region.

Yet, for this government and most Nigerians, our hard-won democracy is yet to translate into significant improvements in our lives.

This democratic endeavour demands that as a government we exercise choices, which must reflect both our immediate priorities and those elements for our longer version. These make for durable peace, democracy and rising standards of living.

The challenges before us as a people are fairly clear:

• First, how do we make the Nigerian dream of a better life under democracy a reality?

• Second, how do we return our people to work and revitalise the productive sector?

• Third, how do we promote and strengthen national integration by reducing the wide disparities in economic development between states and between urban and rural areas in the country?

These challenges informed the philosophy and preparation of the budget, and I will expatiate on these.

In this budget we intend to invest in human development through a significant redirection of expenditure in favour of social development and poverty reduction. We will continue to address those bottlenecks that increase the cost of doing business.

We will provide incentives for the private sector to be the leading engine of growth through increased investments. Accordingly, this year we are presenting a budget, which we hope will pave way for the revamping of the productive sector.

Overview of the Economy in year 2000
Durng the year 2000, government maintained disciplined monetary and fiscal policies. This enabled the achievement of macro-economic stability. The resultant effect of these have been single digit inflation rate, fairly stable, market determined exchange rate, stable interest rates and modest growth rate.

The GDP in the year 2000 is estimated to grow at the rate of 3 per cent, which compares favourably with 2.7 per cent achieved in 199. However, the population growth rate of 2.7 per cent almost effectively wipes out the growth in nominal GDP. This indicates that the per capita income and correspondingly, the standard of our people have barely improved.

The real GDP per capita, which declined by 0.12 per cent in 199, has increased marginally by 0.1 per cent in 2000. Value added in Agriculture is estimated to attain a growth rate of 4 per cent in 2000 compared with 3.90 per cent in 1999. The external reserves position improved from 5.4 billion US dollars in December 1999 to 8.2 dollars in August 2000. If current levels of oil prices remain, our external reserves will exceed an all-time high of 10 billion US dollars by the end of the year 2000.

The rate of inflation was 7.5 per cent in December 1999. In the year 2000 single digit inflation rate has been maintained so far. Indeed, it is expected to decline to about 4 per cent by the end of the year.

During the year, interest rtes declined slightly. However, lending rates are high and the spread between lending and deposit rates remains too wide.

The exchange rate of the naira to the dollar was market-determined and fairly stable, hovering around one hundred naira to a US dollar. As part of our efforts to maintain exchange rate stability, all ministries and government agencies have expenditure accounts with the Central Bank of Nigeria.

In August 2000, government signed a Stand-by Arrangement (SBA) with the International Monetary Fund (IMF). With this, Nigeria hopes to obtain international donor’s financial support to meet funding requirements of social sector and poverty alleviation projects. We are optimistic that with the SBA in place, we will gain investor confidence in the management of our economy. Government does not intend to draw down on the SBA facility.

The wage increase from May 1, 2000 saddled government with an unexpectedly heavy recurrent expenditure. By end of September 2000, our total overhead cost was 219.2 billion naira. This amount is 49.8 billion naira higher than the comparable budget of 169 billion naira for the period. However, the staff audit of the ministries undertaken by government during the year has so far recorded about 25 per cent savings in the Personnel Cost. Additional savings are expected when the manpower audit of the police, armed forces and the parastatals is carried out.

Because of the late approval of budget 2000 and the need to ensure the observance of due process and procedure in incurring expenditure we have kept expenditure to match budget revenue. And this would mean recurrent budget as a result of increases in wages eating into capital budget if we will put a lid on inflation and exchange rate stability.

Revenue Performance in 2000
Total federally collected revenue from January to August 31, 2000 amounted to 930,8163 billion naira indicating an increase of 100,1497 billion naira over the corresponding budget estimate of 830,6666 billion naira. The oil sector recorded a positive variance of 145,3416 billion naira while the non-oil sector showed a negative variance of 32,9190 billion naira.

Oil Revenue
Receipts from crude oil and liquid gas exports for the first eight months of the year were 596,6574 billion naira. The amount is higher than the corresponding budget estimate of 504,9067 billion naira by 91,7507 billion naira or 1871 per cent. Receipts from oil joint ventures in respect of PPT Royalties, Rent, etc, amounted to 298,3927 billion naira between January and August 2000. This amount represents and increase of 17.97 billion naira or 6.02 per cent over the corresponding budget estimate of 280,4266 naira for the period.

Non-Oil Revenue:
Non-oil revenue for the eighth months of the year amounted to 197,8081 billion naira, which was 32,591 billion naira below the corresponding budget estimate of 230.4 billion naira for the same period.

Foreign Exchange Earnings
Foreign Exchange receipt for the first eight months of the year amounted to 8,742,07 million US dollars indicating an excess of 1,682.07 million US dollars or 23.8 per cent over the corresponding budget estimate of 7.060 million US dollars for the same period. Out of the total receipts for the period, NNPC crude oil and gas exports accounted for 6,050.50 million US dollars or 67.9 per cent, while PPT, royalties and other payments by oil joint ventures accounted for 2.780 million US dollars or 32.1 per cent.

Independent Revenue of the Federal Government.
Total Federal Government Independent Revenue collected between January and August 2000 was 32.05 billion naira. This amount is 1.28 billion naira lower than the corresponding budget estimate of 33.33 billion naira for the period.

Economic Prospects for year 2000
The economic outlook for 2001 is based on the macro-economic framework of the 2001-2003 rolling plan. The framework consists of:

• maintenance of discipline fiscal and monetary policy;

• continued liberalisation of the economy to attract assistance from the international community and other donor and multilateral agencies;

• improved security of life and property;

• sustained transparency, accountability and value of money in the procurement of products and services for government;

• diversification of the economy through increased private sector participation in production and exports of manufactured goods;

• accelerated implementation of the privatisation and deregulation programme;

• incentives to attract increased inflow of foreign and domestic investments;

• upgrade of the performance of key infrastructure using private sector participation wherever feasible; and

• improve human capital through targeted investment in health, education, sanitation and skills acquisition.

In the 2001 fiscal year, the economy is projected to grow by about 5 per cent, compared with 3 per cent in year 2000.

The projected growth of 5 per cent anticipates improvements in agriculture, manufacturing, mining, oil and gas, and wholesale and retail trade, amongst others; in particular, the agricultural sector is projected to grow from estimated 4.0 per cent in 2000 to 6.0 per cent in 2001.

In the same vein, growth in manufacturing is expected to increase from 1.5 per cent in 2000 to 2.5 per cent in 2001.

Policy Thrust for 2001
The policy thrust of the year 2001 Budget includes:

• restructuring the Nigerian economy to make it market-oriented, private sector-led and technology driven;

• reducing unemployment and increasing productivity;

• maintaining price and exchange rate stability and a healthy balance of payments;

• reducing lending rates and improving savings;

• implementing the Universal Basic Education and Skills Acquisition Schemes;

• improving the performance of major infrastructure such as power supply, communications and transportation;

• improving the operational capabilities, effectiveness and efficiency of the law enforcement agencies at crime prevention, detection and control;

• entrenching probity, transparency and accountability in governance and ensuring value for money in public expenditure; and

• improving credit delivery and extension services to Small and Medium Scale Enterprises.

Implementation Strategies:
To achieve these objectives, government will adopt the following strategies:

• Power Generation & Transmission:
  The poor power supply situation will receive priority attention in Budget 2001. Government recognises the importance of regular power supply as a pre-requisite for speedy economic growth and as a basic need or our people. In line with this administration’s commitment to provide stable electricity by the end of 2001, we invested heavily this year in power generation.

  We intend to build on our efforts by focusing on transmission, distribution and rural electrification in year 2001. In addition, government will implement is Emergency Power Programme (EPP) and encourage the establishment of Merchant Power Plants (MPPs) as part of continuing efforts to deregulate power production and supply in Nigeria.

• Water Supply:
  Most of our towns and villages lack access to potable water. In 2001, rural and urban water supply nationwide will be accorded priority. The Federal Minister of Water Resources will work closely with other tiers of government to enable the achievement of this objectives.

• Works & Housing:
  Government recognises the importance of good, motorable roads in facilitating the movement of goods and people. In the year 2000, road construction and rehabilitation received this administration’s attention. This will continue in year 2001. However, a Road Maintenance Agency will be established as part of government’s efforts to ensure that our people imbibe a maintenance culture. Government will also announce a new housing policy in 2001.

  Accordingly, the options of the Federal Mortgage Bank will be improved to enable it discharge its mandate as a development bank in the housing sector.

• Agriculture:
  Government will expand the Buyer of Last Resort Scheme under the framework of the Farmers Income Guarantee Scheme especially as regards grains. The aim of extending the scheme is to cover other crops such as palm kernel, soyabeans and groundnuts. It is hoped that the programme will provided the must needed succour to the rural farmers in addition to providing agro-based industries with stable supply of raw materials. We will develop nurseries for tree plants throughout the country.

  Similarly, government will address the other constraint in this sector, which is the availability of credit to farmers. The Agricultural Credit Scheme will be strengthened to ensure access to credit for our farmers to procure key agricultural inputs. At the same time, the Nigerian Agricultural and Cooperative Bank will be recapitalised and restructured to perform the functions of a development bank in the agricultural sector.

• Education:
  The implementation of the Universal Basic Education (UBE) scheme, rehabilitation of higher institutions as well as the completion of on-going or abandoned projects in tertiary institutions, will receive priority attention in 2001.

  Also, secondary and tertiary curriculum will be expanded to include information technology skills amongst other, so that the approximate quantity and quality of skilled manpower is produced. I also intend to send before the National Assembly for enactment, a Bill for the establishment of a Trust Fund to administer unclaimed dividends, which will provide additional source of funding for Small & Medium Scale Enterprises.

• Petroleum Products:
  This administration increased domestic refining capability from 36,000 barrels per day to 127,000 barrels per domestic refining capability will utilise its maximum allocation of 300,000 barrels per day.

  In our determination to make our industries competitive and reduce production cost, one of the key policies regarding petroleum products is to make the adequate supply of diesel and LPFO to major industries a priority in 2001. the NNPC will sign bulk purchase agreements with major industrial users and a commitment to ensure adequate supply of diesel. In addition, priority allocation will be given to major industrial users of LPFO over exports.

• Transportation:
  In 2001, government intends to fund the inland waterways and railways. Work will continue on the construction of Itakpe-Ajaokuta-Warri Line. The Nigerian Railway Corporation will undertake additional rail rehabilitation. The rail rehabilitation project contracted to the Chinese will now continue since the panel has submitted its report on the project.

• Anti-Corruption Commission:
  Government is committed to the fight against corruption and in that regard, adequate funding has been provided for the effective take-off and operation of the commission.

• HIV/AIDS:
  The AIDS epidemic continue to ravage the population of sub-Saharan African and is seen as a threat to productivity and development. The incidence of the disease in Nigeria is at an all time high with an estimated 2.6 million Nigerians already infected. Government continues to sponsor awareness and enlightenment campaigns on HIV/AIDS. It has also commenced the development of instructional materials as preparatory efforts towards the integration of HIV/AIDS awareness into the curricula of secondary and primary schools.

  Furthermore, government has allocated the sun of four billion naira for 2001 to be administered by the National Action Committee on AIDS. Nigeria has also secured the financial assistance of Multilateral Financial Institutions, to the tune of 80 million US dollars towards the fight against HIV/AIDS. Nigeria will host an African Summit on HIV/AIDS in April 2001.

• Security of Lives and Property:
  The protection of lives and property is a major concern of this administration. In 2001, we will continue to improve the operational capabilities of the Law Enforcement Agencies at crime detection and control. We will also address the issue of morale, training, welfare and living conditions of the Police. In this regard, therefore, the sum of Four billion naira has been allocated for the repairs, maintenance and renovation of barracks for the military and police.

• Poverty Alleviation Programme:
  Skill Acquisition Scheme
  The Poverty Alleviation Programme will continue in 2001. However, it will be improved to accommodate a Skill Acquisition Scheme.

• Defence:
  The government recognises that training is the bedrock of military professionalism. Already, this year the military has embarked on both local and overseas training, which had been suspended for years. The past neglect of the military’s barracks, equipment and welfare will be addressed in 2001.

• Revenue Estimates for 2001:
  The estimated federally collectable revenue in 2001 is 1,589,4451 billion naira from both the oil and non-oil sectors.

• Oil Revenue:
  At a price of 22 US dollars per barrel and an export volume of 2.4112 million barrels per day, total receipts from government crude for 2001 is estimated at 882.740 billion naira. Petroleum Profit Tax (PPT) is projected to yield 353.43 billion naira while oil royalties, rent on gas flared, etc are expected to generate 163.18 billion naira.

  Domestic crude allocation of 300,000 barrels per day to the NNPC is estimated to yield only 104,3100 billion naira in revenues at a subsidised price of 9.50 US dollars per barrels and an exchange rate of 100 raira to the dollar. Accordingly, the in-built subsidy amounts to 137.25 billion naira for the year. Earnings from the up-steam gas operations and other miscellaneous oil sector activities are projected to generate 42.30 billion naira in the 2001. Thus the total expected revenue from the oil sector is 1,136,145 billion naira. In addition, a transfer of 99.73 billion naira will be made from the Excess Crude Account to augment the total revenue from the oil sector to 1,235,88 billion naira.

  To support our oil revenue projections, the Joint Venture Cash c\Calls will continue to receive priority attention. Therefore, the sum of 9.5 billion US dollar has been allocated for cash calls of which the sum of 300 million US dollars will be used to pay the cash call arrears.

• Non-oil Sector:
  Total revenue from the non-oil sector is projected at 453.3 billion naira. The sources are Customs & Excise, Companies Income Tax, VAT, Federal Government Independent Revenue, Levies, Education Tax, Tax on Petr5oleum Products, Proceeds from sale of grains, fertiliser and privatisation proceeds. In addition, government expects to earn a minimum of 40 billion naira from the auction of four GSM licenses.

  Accordingly, the total projected federally collected revenue from both oil and non-oil sectors will be 1.589.445 billion naira, an increase of 343.445 billion naira or 27.56 per cent over the 2000 budget estimate of 1,248,000 billion naira.

  Government intends to embark on a vigorous non-oil revenue drive in 2001. Accordingly, a Non-Oil Revenue Committee to include members of the Chartered Institute of Taxation has been established. The Committee’s objective is to substantially increase noon-oil revenue in 2001.

• State and Local Government Finances:
  The performance of State Governments and Local Government Councils in terms of revenue receipts in 2000 was relatively satisfactory. While the Federation Account Revenue estimate for Year 2000 was N1,099.44 billion, the actual disbursement from January to September 2000 was 777.933 billion naira.

  With regard to the Value Added Tax (VAT) the actual amount disbursed from January to September 2000 was 40.927 billion naira as against the 60.7 billion naira budgeted for the year.

  Consequent upon these receipts;

  • the sum of 362,736 billion naira went to the Federal Government;

  • 236.116 billion naira to the States and FCT; and

  • 149.600 billion naira to the Local Government Councils including the Area Councils of the FCT.

  The 13 per cent derivation principle, which took effect from January 01, 2000 was implemented in April 2000. Between January and September 2000, the sum of 47,781 billion naira was paid to the oil producing states on the 13 per cent derivation principle.

  Government has commenced the implementation of the Niger Delta Development commission (NDDC) Act and the Federal Government’s provision has been made for in budget 2001.

• Recovered Public Assets:
  In 2001, the sum of 80 billion naira will be used to finance part of our expenditure. Government remains committed to the recovery of looted Nigerian money in overseas bank accounts.

• Fiscal policy:
  The fiscal policy thrust of the Budget for the year 2001 is designed to achieve the following objectives:
  • Enhance capacity utilisation in agriculture, manufacturing and mining industries;
  • Provide appropriate protection for domestic industries against unfair competition from imports and dumping;
  • Encourage diversification of foreign exchange earnings through increased export activities;
  • Reduce operating costs and inflationary pressures; and
  • Provide appropriate incentives for investment in manufacturing, agriculture and mining.

• Expenditure Estimates:
  Because our resources are finite. There is the need to ensure prudence and discipline in our expenditure patter. We have to manage our resources prudently focusing on the need to ensure value for money. In 2000 the World Bank, jointly with Federal Government Officials, carried out a "Country procurement Assessment Study," the outcome of which is expected to reform our contract award system and make it more transparent. Meanwhile, we are overhauling our procurement system to ensure that we get value for every naira of expenditure.

• Recurrent Expenditure:
  The estimate recurrent expenditure for 2001 is 414.2 billion naira. Of this amount, the sum of 204 billion naira is earmarked for personnel costs, 110.2 billion naira for overheads and 100 billion naira for Domestic Debt Service. The increase in personnel cost by 34 billion naira over the 170.17 billion naira budgeted in 2000 is due to the wage review in the public sector.

• Capital Expenditure:
  The proposed total capital expenditure for 2001 is 480 billion naira. In 2001, the priorities of government for enhanced funding shall be in the following areas:

  • Power and Steel - 69.8 billion naira
  • Works and Housing - 53 billion naira
  • Water Resources - 49.8 billion naira
  • Education - 24.8 billion naira
  • Health - 29.1 billion naira
  • Transport - 23.0 billion naira
  • Agriculture - 18.1 billion naira

  These ministries account for 267.6 billion naira or 55.7 per cent of total capital expenditure for the year. Allocations made to Ministries/Agencies will cover on-going and new projects. Priority will be given to meet each ministry’s critical needs and some of those projects not implemented in year 2000.

  As a follow up to the consultations with the leadership of the National Assembly, efforts will be made to ensure that expenditure under the priority areas is equitably distributed along the various geopolitical zones.

  A provision of 20 billion naira has been made for the payment of debts owed on National Priority Projects. As from the year 2002, all provisions in respect of on-going priority projects will be made through the implementing line ministries/agencies.

• Taxation:
  In 2001, Government intends to consolidate the gains of previous years derived from a stable tax regime and to increase the disposable income of individual taxpayers. The policies on the following areas will be reviewed to positively impact real income.

  Personal Income Tax:
  Tax-free earned income of individuals will be increased to positively impact on the real income.

  Allowances approved to workers as non-taxable in both public and private sectors will be undertaken subject to specified limits and widening of the personal income tax bracket will be effected.

  Companies Income Tax:
  Tax-Free Interest on Foreign Loan, Tax-free Interest earned from Loans made to Export Oriented Companies, Investment tax Credit and taxation in the shipping sector will all be reviewed.

  Value Added Tax (VAT):
  This has become a veritable source of revenue earnings for the government and therefore needs to be strengthened and expanded. To broaden the tax base and to bring the VAT administration closer to the tax-payers, new local VAT Offices shall be established all over the country in Year 2001.

  Branch Registration:
  To ensure fair VAT distribution based on the principle of derivation of VAT proceeds, it is recommended that the VAT law should be amended.

  Administration of Tax Collection:
  The administration of tax collection will be strengthened to ensure more efficient tax collection, through training of staff, awareness campaigns and computerisation.

  Customs tariff:
  We will continue to ensure that the tariff policy enables our local industries to be competitive. Specifically, in 2001, aggressive action will be taken to block revenue leakages on high duty goods and bulk items. This will include amongst others the review of the relevant policies, adequate funding of the Customs Agency and introduction of sanctions on erring Pre-shipment Agents who contravene any section of the pre-shipment Inspection Decree No. 11 of April 1996.

  Port Reforms:
  Government will continue to take steps to remove all bottlenecks at our ports, make it competitive and reduce the diversion to neighbouring countries. Such reforms will include in particular, the rehabilitation of the ports, computerisation and the installation by the private sector of high technology X-ray scanners at the ports.

• External Debt Management
  As at September 2000, Nigeria’s external debt stock stood at the equivalent of 28.5 billion US dollars (or US$238 per capital) out of which 19 billion US dollars was in arrears. Virtually all the arrears were due to the Paris Club of creditors. In budget 2001, a sum of 1.5 billion US dollars is provided for external debt service, as was the case in 2000.

  During the course of year 2000, government took two major steps to address the debt issue. The first was the conclusion of a Stand-By Arrangement (SBA) with the International Monetary Fund (IMF), which was approved by the Executive Board of the Fund on August 4, 2000. The second was the establishment of a Debt Management Office (DMO) in August 2000 to consolidate and centralise the management of our external and domestic debts.

• External Borrowing
  Nigeria continues to enjoy positive cooperation from multilateral financial institutions, notably the World Bank and the African Development Bank Group (ADB).

  In 2000, negotiations with the World Bank and IFAD for four projects in the sum of 113.4 million US dollars were concluded. The projects are Second Primary Education, Small Town Water Supply and Sanitation, Economic Management Capacity project (EMCAP) and the second Fadama Agricultural Project. With the signing of the Stand-By Arrangement with IMF in August 200, government hopes to obtain additional international donors’ financial support to meet funding requirements of other social sector and Poverty Alleviation Projects.

  The World Bank and the ADB are already working together to provide support for the Poverty reduction programme with a combined facility of about 500 million US dollars. Government will continue to pursue the objectives of the SBA through the vigorous implementation of major macro-economic reforms to attain the set goals.

  It is expected that the successful implementation of the SBA programme will enable government proceed with the design and implementation of a Medium Terms Economic Strategy (MTES). The MTES will subsequently pave way for negotiation with Paris Club of Creditors for concessional debt relief.

• Budget Implementation:
  In 2001, government will ensure adequate and timely release of funds both for effective budget implementation and to sustain the macro-economic stability achieved this year. To ensure value for money, feasibility studies, quantitative analyses and proper costing of projects as well as satisfactory monitoring reports shall form the basis for the release of funds in 2001. Full details of implementation procedure shall be released early in the year to all ministries/agencies for their guidance.

  A proper budget-monitoring and price intelligence unit will be set up in the Presidency and along with other relevant agencies will see to the implementation of the budget to the letter.

  A regular forum will be established where the key players in the manufacturing industry and the highest economic policy body of Government - the Economic Policy Coordinating Committee, will review during the year the implementation of our policies in budget 2001 as it relates to creating an enabling environment to stimulate growth and facilitate investment in the productive sector.

Conclusion
The budget was a product borne out of consultations and interactions with members of the National Assembly. This consultative process augurs well for the smooth passage of the Bill before the end of the year.

This Bill is an instrument by which the commitment and performance of our administration may be measured. It is simultaneously a tool by which accelerated industrialisation can take place and significant poverty reduction realised by providing basic services to our people.

The successful implementation of this Appropriation Bill ought to set this nation well on the road to recovery and should mark the beginning of the visibility of democracy dividend for our people.