Budget 2001 and Nigeria

Budget 2001 and Nigeria's economic development

The Obasanjo administration planned the 2001 budget more carefully than previous years, the central objective being to achieve at least, a three per cent growth rate in Gross Domestic Product (GDP) and to achieve stability in the macro-economic policy, which is a pre-condition for sustainable economic growth.

The budget is designed to be market-oriented, private sector-led economy and technology driven. In addition, it is aimed at stimulating agriculture and industrial production, ensure price and exchange rate stability and healthy balance of payments, reduce lending rates and improve savings among others.

In a similar vein, the fiscal measures for this years budget as announced by the Federal Ministry of Finance is tariff review aimed at encouraging the productive sector. The fiscal policy reflects the Federal Government commitment to trade liberalization as required by the World Trade Organisation (WTO). The objectives is to encourage manufacturing and agricultural sectors, both which have remained virtually stagnant in recent years, as reflected in their low GDP per capita growth rate.

An important issue to be pointed out in the 2001 budget is its early passage by the National Assembly. Given the controversy over last years federal budget and consequent delay in passing it, the executive and the legislature deserve commendation for resolving their differences in time to ensure an early implementation of 2001 budget. A delayed budget causes a lot of uncertainties and uneasiness in the business community. It is bad for foreign and local investors and should be avoided.

The issue of appropriations between the arms of government was the reason for most of the friction between President Obasanjo and the National Assembly. While the executive expressed displeasure over the slow pace of work on its budget proposal, the legislature on the other hand pleaded with good reasons that it needed adequate time to be able to do a thorough job on the budget. That is why President Obasanjo should be commended for sending the budget proposal in time, and the legislature for immediate passage of the Appropriation bill.

A typical budget serves as instrument for planning and control. A cursory analysis reveals that this years budget stands as an important policy thrust in the nations search for self-reliance and economic reconstruction. A review of budget 2000 showed that many of the objectives were not realized. The national economy is still characterized by a weak, import-dependent industrial base and low productivity in the agricultural sector. We, consequently continue to live with a weak industrial base, an inefficient agricultural sector, a weak private sector, dependence on a single sector-oil for revenue and high external debt overhang. Infrastructural facilities remain inefficient.

The policy thrust of the year 2000 budget included, among others, the lowering of inflation rate, laying a solid foundation for private sector-led economic growth, paying profound attention to education, agricultural and manufacturing production, ensuring prices stability and reducing unemployment and poverty level. But these policy thrusts were poorly implemented and most of the objectives not realized.

Of total projected budge of about 894.2 billion, recurrent expenditure (general administration) accounts for 496.5 billion with the balance earmarked for capital expenditure (investments). Total expenditure far exceeds last years budget in nominal as well as in real terms, given the decline in the rate of inflation. But the cost of administration has increased vastly with a negative impact on the investment ratio. With the current greater stability in the macro economy, the 2001 budget should pave the way towards a modest recovery of the national economy this year.

Though the budget policy is commendable, the recent wage increase and huge size of budget may cause inflation. This high rate of inflation without a corresponding change in the purchasing power of the people is not good for our economic development. Equally, the budget does not seem to adequately address the problem of the high bank interest rates on lending. The gap between savings and lending rates is too wide, and is the predictable response to the excess liquidity in the system, a situation that the banking sector finds very comfortable indeed.

The biggest problem of the economy remains mass unemployment and deepening mass poverty. The vast increase in the capital expenditure, if carefully handled, should lead to an increase in employment, as it should put more people back to work. Mass poverty is both an economic and moral problem which undermines national and social development.

The problem here is that the investment climate, remains largely unattractive with a poor infrastructure and massive public corruption. Capacity utilization in the manufacturing industry has continued to decline largely because of the rising cost of doing business in Nigeria. The increase in allocations to infrastructure in the 2001 Federal budget should make a difference to the ailing infrastructure. But, given Nigerians poor record of budget implementation, no one can be certain that there will be any significant improvement in the infrastructure particularly in the supply of electricity. The long-term solution to the poor performance of the entire energy sector, including oil and gas, is to expedite the process of privatization in the sector. The failure of public utilities and its constraint on the national economy can only be ended through privatization.

The current budget should be fine-tuned to ensure that the productive sector is protected against the vicissitude and onslaught of market forces and global competition notwithstanding the dictates of free market enterprise. With escalating cost of capital and high exchange rate, there is the need for continual policy incentives to enable the manufacturing sector renew and modernize its antiquated plant and machines. Most, if not all manufacturing companies, have to provide their electricity and other infrastructure including roads. All these add substantially to overhead cost. The 2001 budget should be implemented in such a way that more effort and resources be deployed in the provision of infrastructure so that the manufacturers can concentrate on production with attendant reduction in unit cost. This will make the industries more competitive.

There is urgent need for a firm resolve on the part of government to exercise tighter control and discipline over its spending as a way of curtailing budget deficit and inflation - both which erode consumerss purchasing power and impoverish the people in real terms. Specially, from a discussion of the recent experience and developments in the industry as well as the occurrences recorded in the last political dispensation, it will be observed that there are number of problems that will linger in the future if not decidedly dealt with and accepted as a big challenge for the economy. There are also prospects for the manufacturing sector just as there are for the macro-economy.

It should be emphasized that the effectiveness of macro-economic policies contained in the budget is hinged on the efficient implementation of sectorial policies. Sectorial policy, strategies and measures should therefore be as far as practical consistent with and complementary to the macro-economic policy.

In conclusion, the importance of stability and continuity in policy formation and implementation cannot be over emphasized. This will generate and enhance investors confidence and make planning and resources allocation more meaningful. The Obasanjo Administration should strive towards establishing certain macro-economic policies and strategic direction that would restore the productive sector as the prime mover of the economy. The Federal Government should correct the impression that Nigerias problem is lack of good budgets and development plans but that of implementation.

Mr. Abone, is the General Manager, Slok Group and sent this in from Lagos.