On the positive side, the Jonathan administration's report of macroeconomic achievements seems impressive. A single digit inflation rate, foreign reserves of $48.57bn, credit rating of BB-, stable exchange rate, fiscal reserves in Excess Crude Account and Sovereign Wealth Fund of $9.5bn, real GDP growth rate of 7.01 per cent, 36 in global ranking in terms of GDP size and budget deficit as a percent of GDP down to 2.82 per cent. Although the contribution of manufacturing to GDP is low, we have satisfied local demand for cement and can now export up to six million metric tonnes annually.
On the reverse side, agriculture is still the highest contributor to GDP at 40 per cent. But this is not mechanised but rain-fed agriculture. Unemployment officially is at 27.4 per cent in 2012 and government says this is attributable to the phenomenal growth in the number of the active population. About 70 per cent of the population is classified as poor. We have poor statistics in maternal and child health, about 10 million out of school children, and unemployable graduates who literally have no skills and a disconnect between the skill needs of the economy and what the institutions are turning out. Thus, education and industry are working at cross purposes.
There is a strong missing link considering the robust growth (and this level of growth has been sustained for close to a decade) and the massive unemployment and poverty. So, what is wrong? First, government's revenue as at 2012 is 79.78 per cent from oil and gas and 20.22 per cent from non oil receipts; oil being an enclave sector that has little impact on job creation and human capacity development. And the incidental industries from the sector such as petrochemicals and refining have not been developed. Essentially, the administration has not been able to diversify the national income stream and create jobs.
Second, the expenditure of government revenue is heavy on the recurrent side. For instance in 2012, following the trend in previous years, capital expenditure was supposed to account for 28.5 per cent of the budget but only 51 per cent of it got spent. Essentially, N688bn was spent out of a capital expenditure budget of about N1.3tn. The country borrowed about N744bn in 2012. In essence, there would have been no money for capital expenditure but for the borrowing. President Goodluck Jonathan indicated in the 2013 budget speech that unutilised funds from SURE-P in 2012 amounting to N93.5bn would be carried over to 2013 to make the total expenditure for 2013 to come up to N273.5bn. This shows that the SURE-P utilised only 48.1 per cent of the N180bn resources available to it in 2012. By the end of June 2013, only N417bn representing about 25 per cent of the year's N1.62tn capital expenditure would have been spent. N217bn was utilised by the MDAs from the first quarter release and only N200bn had been released for the second quarter. The government has failed to utilise available resources despite the obligation to use the maximum of available resources for the progressive realisation of citizens' welfare. Government is not investing enough in the real growth drivers that will create jobs and impact on the broad spectrum of the population.
The third issue is the dogmatic fixation with models of infrastructure development that fail to use up available resources. It appears we are fixated on using only official budgetary capital expenditure when the absorptive capacity of the MDAs is very low. There have been a lot of discussions about Public Private Partnership for over a decade and nothing concrete has come out of it. The major one (Bi-Courtney’s Ikeja Airport) has since this administration become a subject of interminable disputes which have sent wrong messages to investors.
Over N2.9tn in pension funds are lying idle and have not been channelled into infrastructure or other growth-inducing projects. Some other countries have used pension funds to develop infrastructure while the government gradually appropriates funds over the years to pay back the loans. Even funds purportedly borrowed for specific purposes from the Chinese and other sources do not seem to be yielding the desired results.
The fourth issue is the improper articulation of priorities in critical sectors. For instance, the decision to channel SURE-P funds to projects already being done through the regular budget is problematic considering the poor absorptive capacity of the MDAs. SURE-P came out of the fuel subsidy crisis which itself is a product of our inability to do local refining. One would have expected the funds to be channelled through the PPPs to new refineries which would either further reduce the subsidy or remove it totally. Continued expenditure of about N1tn representing about 25 per cent of the yearly budget on subsidies is not sustainable in the short and long runs. Various Memoranda of Understanding have been signed with investors in refining in the past and nothing came out of it. With local refining, the humongous sums required for subsidies would be reduced as this would cut off shipping, insurance, demurrage and the proverbial corruption involved in importation. The investment will create local jobs, corporate tax will accrue to government and local human and industrial capacity will be built. There is nothing stopping the government from building new refineries and privatising later, a model that is being used for the power sector.
The fifth issue is the failure to learn lessons, identify best practices and replicate what works. What were the strategies that led us to gain self-sufficiency in cement production and a capacity to export? What were the unique points that led to the success? Can we replicate the policies in other critical sectors of the economy over a target time frame?
It is thus the first recommendation that government's economic policies must be reviewed to become employment-centric. The Buy Naija-Create Jobs campaign of the Ministry of Investment and Trade is a step in the right direction and should be implemented beyond rhetoric. Government's expenditure should lead to creation of new jobs; and private sector should be the hub of new job creation. But the sector needs policy and fiscal incentives (including tariff and non-tariff measures) and clear strategies to increase value addition and become more competitive. In this respect, power sector improvements need to be driven to their logical conclusion. The second is that government must stop paying lip service to cutting down on recurrent expenditure to free up resources for capital expenditure. The Oronsaye Panel report should be studied and implemented. There is an undue delay in releasing the White Paper and following it up with legislative work to amend or repeal laws or enact new ones.
The third is that government must explore all reasonable funding options for Nigeria to fill the infrastructure gap. This will include PPPs, utilisation of pension funds, possible low cost and concessional borrowing subject to the setting of the consolidated debt limit by the President with the approval of National Assembly. The fourth is the proper articulation of priorities through targeting special funds like SURE-P to long term national priorities such as the acquisition of refining capacity and key infrastructure projects. The fifth is that we must study and analyse our economic success stories with a view to replication of best practices. Finally, the government must fight corruption to a standstill.
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