By Duno Kogbara
Last week, I published a thought-provoking article that I picked up from the internet. It was written by an unknown author and titled Delusions Of Wealth: Nigeria Is Not Rich”.
Those of you who didn’t get a chance to read the above article last Friday can find it online, on the Vanguard website, in the COLUMNISTS section.
You’ll need to read it to fully appreciate the follow-up points that are made below by Hector Igbikiowubo, a journalist friend who used to work for this newspaper and sent me this educational response.
Delusions of Wealth – another perspective
I read through your article titled “Delusions of wealth”, published last week, calling attention to the delusions of grandeur Nigerians suffer – living under the illusion that we are a rich country.
Indeed, the level of delusion that assails our senses may be telling, but there are a few gaps in your article I want us to consider.
It is important to establish that Nigeria’s Gross Domestic Product, GDP, surpassed that of South Africa about a decade ago, according to the World Bank. In 2019, Nigeria’s economy was valued at $397 billion, while South Africa – once the biggest player on the continent – had a GDP of $366 billion.
The GDP is the total value of goods and services produced in a country in a given year.
Since this is the case, the question then is how come an economy which accounts for a GDP of $397 billion has a federal budget of $29 billion while an economy which boasts of $366 billion has a federal budget of $122 billion? Clearly, there is more to the Nigerian budgeting process than meets the eye.
For the purposes of appreciating the opacity that characterises the budgeting process in Nigeria perhaps we need to establish a practical definition of what a federal budget is.
The federal budget is the government’s estimate of revenue receipts and spending for each fiscal year. The federal budget itemises the anticipated revenue and expenditure of public funds for the upcoming fiscal year.
When government decreases taxes, disposable income increases. That translates to higher demand (spending) and increased production (GDP). Similarly, an increase in government spending will increase the GDP, boost demand and production, and reduce unemployment.
From an economic standpoint, it may be difficult to see how a $29 billion Nigerian federal budget could possibly stimulate the production of goods and services valued at $397 billion but not that difficult to see how a $122 billion South African budget could stimulate the production of goods and services valued at $366 billion. At this point one is forced to wonder what exactly does the Central Bank of Nigeria, CBN and the Ministry of Finance fail to capture? Are there parallel structures functioning outside government control?
In a bid to get an answer I did some digging around and only came up with more questions which I guess the CBN, the Ministry of Finance and perhaps economists and financial experts who may know better can help us answer.
How come the NNPC contribution to oil joint venture budget with major international oil companies, including Shell, ExxonMobil, Chevron, Total and Eni is never captured in the federal budget? How come production Sharing Contract agreements which results in the investment of billions of dollars by these same international oil companies among others is never captured.
Some may argue that these investments are loans but it is important to note that the governments gets to pay back over time. These investments are inflows which impact the economy in no small measure.
Is the NNPC a parallel government? I have always been under the impression that the NNPC is a wholly owned national oil company. Perhaps my impression was premised on a delusion.
How come Nigeria accounts for more crude oil and gas production and export than Algeria, yet that country declares much more revenue receipt from export of same than Nigeria does?
In 2019 and 2020 foreign currency inflows from Nigerians in diaspora gave a boost to the economy in no small measure, even competing with revenue receipt from crude oil and gas export during the period. How come this was hardly captured?
How come all manner of mineral resources, including gold, tantalum (coltan), among others, is exported by some state governments and individuals in Northern Nigeria without any returns to the federal coffers?
Over the years, owing to the resource curse the Nigerian government has failed to develop a tax regime which effectively captures taxable firms and individuals in the informal sector.
This situation has resulted in the growth of the informal sector such that the commonly held view among the populace is that it is a waste of money to pay taxes. Clearly, the Nigerian economy is out of whack and that’s why there is a parallel market for forex as well as every other thing. Who knows – perhaps we have a formal and informal budget.
It is important to note that there is a direct correlation between the size of a country’s GDP and that country’s annual budget and it is obvious that the size of Nigeria’s GDP and the annual budget is completely misaligned.
While I am totally sold on the need for Nigerians to wake up from the delusions of grandeur and wealth that assails our collective sense of reality, it is important to note that the budgeting process is characterized by a high degree of opacity and that it has become imperative for us to stop lying to ourselves and, worse still, believing the lie.