President Muhammadu Buhari last week presented the Appropriation Bill of N8.6 trillion for 2018 fiscal year to a joint session of the National Assembly. Dubbed Budget of Consolidation, the President hoped to sustain the reflationary policies of the past two budgets in 2016 and 2017.
The kernels for the 2018 Budget are in the 2018-2020 Medium Term Expenditure Frameworks, MTEF and Fiscal Strategy Paper, FSP with parameters and assumptions that a barrel of oil would sell for at least US$45, and a target production of 2.3 million barrels of crude oil per day.
As a member of OPEC, Nigeria canvassed for stability in crude oil prices which benchmark has given it some economic leverage in the last three quarters.
President Buhari alluded to the fact that the country is benefitting from the production cut by the 24 members of OPEC and non-OPEC. To him the relatively higher crude oil price has supported the nation’s economic recovery. That is good news considering the Nigerian economic state in the last two years of oil price instability.
The government’s attitude of relying on crude oil is characteristic of an oil dependent economy. More than 60 percent of global oil reserves are in these countries: Nigeria, 37 billion barrels; Libya 48 billion; Russia, 80 billion; United Arab Emirates, 98 billion; Kuwait, 104 billion; Iraq, 141 billion; Iran, 155 billion; Canada, 173 billion; Saudi Arabia, 268 billion; and Venezuela, 300 billion. Apart from Canada, these countries are in this train.
The Minister of Budget and National Planning, Senator Udoma Udoma in a breakdown of the 2018 budget proposal last Tuesday in Abuja said that Government’s focus is to maximize the use of revenues from the oil sector and spend in the non-oil sector, to get the non-oil sector driving the economy. It was rather too simplistic.
The vagaries of crude market and Niger Delta militancy leave us with no parameter under our control. And that should elicit change of strategies away from crude oil sales for investments in process plants at crude sources.
The Minister’s overview of maximizing revenues from oil and spending in the non-oil sector is the basic strategy of the Economic Recovery and Growth Plan, ERGP 2017-2020 in the 2018 budget.
The ERGP mirrors the National Industrial Revolution Plan, NIRP of the previous administration that no country has ever become rich by exporting raw materials without also having an industrial sector.
The more a country specializes in the production of raw materials only, the poorer it becomes. The seeming reliance of crude in this year’s budget is against the spirit of ERGP that outlines bold new initiatives such as revamping local refineries to reduce petroleum product imports by 60 percent by 2018.
For how long should Nigeria be in this situation of crude to determine our future? Jason Sullivan in Listverse urged us to look around and find the scarily endless list of petrochemical products, including plastics.
Many lubricants and cleaning substances are petrochemicals. In food production, many fertilisers, pesticides, herbicides as well as preservatives, flavourings, colourings are petrochemicals. We cultivate more food, faster, and keep it fresh for long with petrochemicals. Synthetic fabrics are readily available, durable, and easy to maintain with petrochemicals.
Most manufacturers prefer synthetic rubber to latex because of its strength and thermal stability. Many medications are derived from the petrochemical building block of benzene. Almost all over-the-counter pain medications including aspirin, ibuprofen, etc. are from petrochemicals.
We spend several billion dollars importing petrochemical products and base raw materials annually. We barter our crude for petroleum products instead of adding value to create wealth from the investment opportunities of 6000 by products and derivatives. Nigeria can make more than US$100 billion dollars from petroleum annually if we properly and effectively harness it. Using petroleum to industrialise would increase gross domestic product (nominal or purchasing power parity), increase our revenue base, employment, and skills.
The government should not remain deaf to our entreaties of revamping our refineries. The celebrated seven big wins of this administration included increase refineries’ local production capacity by rehabilitating and revamping existing refineries yet there is no provision for that in the 2018 budget.
Our national oil company, the NNPC should be real integrated oil company to lead the way in massive investment to vertically diversify our economy. If the government is relying solely on the Dangote refinery that may come on stream in 2018, we may be creating another monopoly problem. That is not to undermine the patriotic zeal of Aliko Dangote.
The private sector should be encouraged in petroleum, but we should not confuse our situation with the United States without national oil company. For as long as we have a national oil company like 49 others globally we should invest in the downstream.
Like several OPEC and non OPEC members having state owned refineries should encourage competition with private refineries to control product prices and availability. In economics a competitive market gives a competitive equilibrium price. It was time to maximize petroleum to boost our economy.