Petrodollars are flocking back to Africa’s largest oil producer, but the disappointment is, having come through the worst, Nigeria may now go back to business as usual.
The Federal Government raked N3.69 trillion in gross oil revenues between January and November 2017, according to data compiled by BusinessDay and sourced from the Central Bank.
Using a monthly average of N336 billion, gross oil revenues for the full-year period was probably N4.03 trillion, according to BusinessDay estimates. That is the highest value since 2014 when the federal government earned N6.79 trillion.
In 2015 and 2016, the federal government’s gross oil revenues were as low as N3.8 trillion and N2.7 trillion respectively, as a lengthy collapse in oil prices that began mid-2014 slashed earnings by more than half and inflicted a painful recession, the first in 25 years, on the oil-dependent economy.
Nigerian oil’s benchmark grade, Brent crude, averaged about $55 per barrel in 2017 almost double the average price of $38 in 2016. Brent was up to $75 per barrel on Monday, according to Bloomberg data. The highest in four years.
Oil production hit 1.8 million barrels daily in April 2018, representing a 50 percent increase from the 1.2 million barrels produced in the thick of militant attacks, according to the most recent OPEC data.
Nigeria’s improving oil fortunes frustrates because low oil prices were supposed to spark sweeping reforms to spur revenue diversification.
It never did.
President Muhammadu Buhari election bounce in 2015 has soon become bust, as promises to wean the economy off oil revenue have yielded little, a year before the country returns to the polls to elect a new president.
“The government is not ready to pay the political capital to drive the painful reforms that the economy needs,” a senior investment banking Vice President, told BusinessDay on condition of anonymity.
“The government is hesitant to reduce spending costs, formalise the informal sector to raise its (government) tax take, privatise redundant government assets and there is little appetite to reform public agencies,” the person said.
The government’s approach to dealing with lower revenues has been to raise its budget spend to record highs for three years straight.
But that has done little, as the record budgets are anywhere around 7 percent of GDP. Actual spend is much lower at about 4 percent.
That compares to South-Africa’s actual budget spend of 20 percent in the last three years and Ghana’s 15 percent, according to World Bank data.
“We must concern ourselves with boosting economic performance and curb unemployment,” Bismarck Rewane, MD of Financial Derivatives said.
Oil is still king in Nigeria as the Gross Domestic Product (GDP) for 2017 shows, when the economy expanded 0.8 per cent after contracting 1.6 per cent in 2016.
“More robust growth can be achieved by courting private capital and funding specific infrastructural projects,” Rewane added.
“Tax incentives should also be used to lure private capital and banks should be encouraged to lend more to the private sector.”
Nigeria’s corporate tax of 32 percent (Company Income tax of 30 percent plus Education tax of 2 percent), is one of the highest in Africa.
Peer countries in Asia and indeed, Africa, are deliberately reducing corporate tax rates to lure investment.
Supporters of the Buhari administration point to achievements in the ease of doing business where Nigeria moved up 24 places to 145th in the latest World Bank’s ‘Doing Business’ report, and for the first time, was recognized as one of the top 10 most improved economies in the world.
On the distance to frontier metric, Nigeria’s score went from 48.18 to 52.03 in 2018, using comparable methodology.
Nigeria implemented 5 reforms making it easier to do business in both Lagos and Kano over the course of last year in the areas of starting a business, dealing with construction permits, registering property, getting credit, and paying taxes.
The country made starting a business faster by allowing electronic sampling of registration documents, increased transparency in obtaining a construction permit by publishing all relevant regulations, fee schedules and pre-application requirements online, made transferring property more transparent by removing sworn affidavit for certified copies of land ownership records, improved access to credit information by guaranteeing borrowers the legal right to inspect credit data from credit bureaus and started to provide credit scores to banks, financial institutions and borrowers.
Despite all these and the country’s recent exit from recession, the population is growing at 2.5 per cent and in per capita terms, things are going nowhere.
They have gone nowhere since 2014 and a social crisis may now stare the country of 190 million people in the face.