HE world is a global village because of the drastic reduction in the price of oil in the international market, and the Nigerian economy has been thrown into confusion. This is expected since the economy depends solely on petrol dollar to thrive.
The seed of what was to be expected in 2015 was sown late last year when the Federal Government came out with series of austerity measures designed to cut expenditure to the barest minimum.
On November 16, 2014, the Coordinating Minister for the Economy and Minister of Finance, Dr Ngizi Omonjo-Iweala, announced revenue yielding and expenditure reduction measures to mitigate the effects of dwindling oil price in the international market.
According to her, the fall in oil prices was not happening for the first time, having experienced it in the 1980s when prices fell to $8 per barrel and the economy fell into recession, with GDP contracting by at least 8 per cent in 1986 and 1987. At that time, she said the Federal Government had to turn to international financial institutions for budget support.
She said Nigeria also experienced a price shock in 1998 when oil prices fell below $10 per barrel, and the economy was again gripped by stagnation with growth of 0.47 percent in 1999 according to World Bank data.
Dr Okonjo -Iwesla said the present situation is very difficult, as Nigeria is losing as much as 3 per cent growth in GDP as a result of oil price volatility.
The minister disclosed that as part of measures to cushion the predictable hardship due to the continued drop of oil price in the international market, the government would henceforth collect “tax on luxurious goods, stressing that this was part of measures aimed at increasing revenue from non-oil sectors.
“We all know the definition of luxury goods. We are still compiling the lists and one of the things we can tax is champagne, alcoholic beverages, jets, luxury cars, and we will look at the engine capacity, and yachts. We are putting the list together but we intend to do a surcharge going forward on these items. The principle is that those who are better off in the society (and I hope they won’t mind) should be willing to share a bit more in remitting a little bit more to the treasury than what they normally do on these things,” she said.
Apart from the taxation increase on luxury goods, the minister disclosed further that there would be a reduction in international travel within the public service.
More austerity measures were announced by the government during the presentation of the 2015 budget. As a short term measure, Okonjo-Iweala, while giving a breakdown of the budget, said a 10 per cent import surcharge would be imposed on new private jets.
Similarly, she explained that a 39 per cent import surcharge would be imposed on luxury yachts, which potentially would contribute N1.6 billion in 2015; while another five per cent import surcharge would be placed on luxury cars, which is estimated to yield about N2.6 billion in additional revenue.
The 2015 budget parameters as announced by the Federal Government could best be described as austerity budget if oil production remains at 2.2782 million barrels per day with a benchmark oil price of $65/barrel.
While the projected GDP growth rate stood at 5.5 per cent, the government put the exchange rate at N165 to the US dollar.
The non-oil revenue (including non-Federation Account) is projected at N1,684.63 billion with a Fiscal Deficit of N755 billion (or 0.79 per cent Domestic Borrowing of N570 billion down from N571.9 of GDP); and billion in 201.
The stark realities of what the future holds for Nigerians in 2015 manifested in December 2014, when many Nigerians working with the Federal Government ministries, agencies and parastatals and workers in almost the 36 states of the federation and local government staff celebrated the Yuletide without their December salaries. The last celebration was the first one in recent times when workers across the nooks and crannies of Nigeria would do without receiving December salaries.
Since the Nigerian economy is mono-cultural in nature, economic experts and those at the helms of affairs of the Nigerian economy were of the view that the dwindling oil is bound to affect virtually all sectors of the Nigerian economy in 2015 with negative effects on the citizenry unless far reaching measures are taken to mitigate the effects.
Dr Omonjo-Iweala did not mince words on the general effect the sliding oil price would have on the economy when she disclosed that the Nigerian economy would slow about a percentage point next year due to adjustments to falling crude oil prices.
She said the tightening policy would shrink growth to around 5.3 per cent, affect infrastructure provision and force the country to tax a booming informal economy that has long escaped oversight.
“The tightening will shrink growth to around 5.3 per cent, delaying some infrastructure, and will force the country to tax a booming informal economy that has long escaped oversight.
“Undoubtedly, it is going to be a tough time. We are beginning to feel the impact,” the minister said.
The country’s workforce will certainly not be immune to the oil shock disaster as the year 2015 will definitely be one in which the Nigerian workers at the federal and state levels will not find easy . This is due to the fact that about 70 per cent of revenue accruing to each tier of government is being utilised for payment of salaries and wages.
A lower crude oil price in the international market means reduced earnings for the government and workers being owed arrears of salaries, said Comrade Musa Ibrahim in an interview on the 2015 Nigerian economic outlook in the face of dwindling oil prices.
According to him, industrial unrests in the country this year would be on the high side, as many state governments would be unable to pay salaries to their workers.
Ibrahim, disclosing the Nigerian Labour Congress (NLC) and the Trade Union Congress (TUC) are preparing for war due to the failure of most state governments to honour their salary obligations to their workers at present, told the governments at the three tiers to expect much industrial unrest this year when salaries are not paid to workers.
Also, to be expected this year is unending hostility between the Federal Government and some state governments that are not under the control of the party at the federal level.
If care is not taken, meetings of the Federation Accounts Allocation Committee (FAAC) in 2015 will be a battle ground for «war». When there was no problem with oil price, states were agitating for more revenue, now that there is not much money to share, recourse will be to the Excess Crude Account which had already been depleted to about $3.4billion.
The implementation of the 2015 will also suffer setback when the set budget parameters are at variance with realities on ground. With oil prices sliding lower than the budget projection, the federal and state governments may resort to borrowing both local and international to meet their financial obligations which may lead back Nigeria to the pre Paris debt path of the past.
Already the federal government had indicated interest to borrow from international Crédit institutions, as predicted by ex President Olusegun Obasanjo when he said the falling oil price may force the Federal Government to take foreign loan with a view to financing the national budget.
Also to be affected in 2015 is the growth of small and medium scale enterprises and other big manufacturing companies which production activities may be hampered due to lower demand for their products.
“When workers are being owed salaries, demand for goods and services may be affected, which will in turn affect big and small companies which products may suffer effective demand. The effect is that the capacity utilisation in industries which is improving gradually will go down. The result is that many companies will be forced to lay off some of their staff,” disclosed Mr Kunle Adegbite, the Managing Director of Kunze Enterprises.
Unemployment problem in the country may further exacerbate in 2015 when the government employment generation programnes like You-Win may suffer setback due to paucity of funds. States may also find it difficult to employ more workers when they are not properly positioned to pay their workers.
The Federal Government is not unmindful of the hardship that lies ahead because of cash crunch in the Nigerian economy. President Goodluck Jonathan, in his New Year message, assured the masses that the government would ensure that they did not experience much suffering.
Also, the Minister of state for Finance, Ambassador Bashir Yuguda assured of the determination of the government to maintain growth and stabilise the economy in 2015 despite the challenge of declining revenues among oil producing countries.
Yuguda stressed that the government would not waver in its resolve to further diversify the economy, significantly boost non-oil revenues, plug loopholes and cut unnecessary expenditures.
He said the planned take off of the Development Bank of Nigeria early this year was in line with the bid to sustain growth, as it would greatly enhance and improve medium to long term financing for Nigerian businesses, going forward.
Although the Federal Government has continued to pledge the protection of the masses from the likely excruciating effects of austerity measures, realities on ground pointed to the fact that almost every stratum of the society, including market women, artisans, contractors and a host of others will bear the brunt.
The only way out of the crisis is the diversification of the Nigerian economy. Dr Okonjo-Iweala recognised this and had, on many occasions, echoed this. The question is whether the diversification song will be accompanied with drums from President Goodluck Jonathan and other people in the Economy Management Team or not? Nigerians and other world economies experts are watching.
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