real sector policy measures in the year 2000 budget and
TRANSCRIPT
Bullion Bullion
Volume 24 Number 2 Year 2000 Budget Policy Seminar, Central Bank of Nigeria in Collaboration with National Centre for Economic Management (NCEMA) and the Nigerian Economic Society (NES)
Article 8
4-2000
Real sector policy measures in the year 2000 Budget and Sector Real sector policy measures in the year 2000 Budget and Sector
performance appraisal performance appraisal
Isa Yuguda NAL Merchant BanK Plc
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Recommended Citation Recommended Citation Yuguda, I. (2000). Real sector policy measures in the Year 2000 Budget and sector performance appraisal. CBN Bullion. 24(2), 44-50.
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Volume 24 No 2AprjuJune. 2000
REAL SECTOR POLICY MEASURES IN THE 2OOO
BUDGET AND SECTOR PERFORMANCE APPRAISAL
BY
ISAYUGUDAMANAGING DIRECTOR & CHIEF EXECUTIVE
NAL MERCHANT BANK
1.0 INTRODUCTION
I will like to express my ap-preciation to the organizers of thisprogramme for having invited me
to be part of this policy seminaron the year 2000 Federal Govern-
ment Budget. Of great honour
and privilege ls the fact that I have
been chosen as one of the paper
presenters and facilitators and in
this regard, I thank you all.
As an opening remark, I will
like to observe that thisprogramme, which was bilted to
have taken place earlier, is com-
ing up today having been largelyheld up by the delay in approvalof the 2000 Appropriation Bill. Al-though, recently passed into law,
the details are yet to be formallymade available to the Nigerianpublic. As a result, the content ofthis paper is largely based on theinitial presentation made by thePresident to the National Assem-bly and other available documentson the Budget.
The entry of the Obasanjoadministration into governance in
Nigeria was welcomed with hopeand undaunted optimism. Nigeri-ans hopes and aspirations werebased on the beliefthat the demo-cratic govemmentwill provide thebasis for full and equal participe-
tion chaning the correct part forsustainable economic growth and
development.
It is on record that the ad-
ministration inherited a prostrate
economy characterized by, poor
perf ormance of major
infrastructural facilities, unsus-tainable liquidity position. rising
levels of unemployment andinflation and decline capacityutilisation in the real sector.
Government, in responsetook urgent steps to ameliorate
the problems by mopping up the
excess liquidity in the monetarysystem, stamping out the phe-
nomena of shortage of petroleumproducts and improving te perfor-
mance of major infrastructurefacilities, especially reducingpower outages across the coun-try.
Within a relatively shortdu ration, some identif iableachievements were recorded. Ofnote, decline to 10.5% in Augustas against over 13% in May, 1 999and the elimination of queuesfrom the filling stations.
However, despite theseachievements, basic structuralimbalances persist. These in-clude in the main, the lingering
problems of import dependence,reliance on a single economicproduct - oil, weak industrial base,low level of agricultural produc-
tion, a weak private sector, high
external debt overhang, inefficientpublic utilities, low quality of so-cial services and the high rate ofunemployment.
The government policy frame-work, as contained in the Year2000 Budget, was thereforegeared towards addressing theseproblems.
It is an acknowledged fact thatthe 1999 Budget did not achieveits set objectives as a result ofcertain obvious distru ptions,which impacted on its implemen-tation. Notable among these,were the global decline in the in-
ternational crude oil prices, the re-
duction in the Nigerian quota ofoil Producing and ExportingCountries (OPEC) output and therestive situation in the Niger-Deltaarea of all which resulted in re-duced government revenue andforeign earnings from oil.
The enatic supply of petro-leum products, arising principallyfrom the break down of our refin-eries, the wholesome activitiesoil racketeers and the epilepticpower supply situation affecte
44
April/June 2000 Volume 24 No. 2
economic performance with
negative imPact on the real sec-
tor whose outPut was signifi-
cantly constrained. CaPacityutilisation therefore recorded a
drop to about 28% as against
aboul 34% in the first half of th'e
previous year. Extra-budgetarY
spending exacerbated the liquid-
ity overhang resulting in further
Naira depreciation to the Dollar
by up to 8%.
President OlusegunObasanjo presented the Year
2000 Budget entitled the"Peoples Budget" to the Joint
session of the National Assem-
bly on Wednesday, 24'h Novem-
ber 1 999. The Budget, like Pre-vious budgets by past govern-
ments, is coming with fiscal and
monelary incentives geared to-
wards the growth of the real sec-
tor. As a policy initiative, the Fed-
eral Government saYS that the
Budget 2000 would a ch ieve
macro-economic stabllitY and
positive real interest rate through
the cu,laitment of fiscal deficit
and restrictive monetary stance.
The inflation rate is exPected to
be reduced considerablY.
The 2000 Budget has been
accompanied by a Protractedcontroversy between the Presi- o
dency and the National Assem-
bly before it was eventuallY aP-
proved. N598 billion was how-
ever signed into law with a reso- a
lution of the two party that the
President could sign the bill while
they both work towards a review
of the areas of disagreement. A
Supplementary APPropriation Bill
is expected to be Presented bY a
the Presidency to the Assembiy
not later than 14 days of the reso-
lution.
2.0 MAJOR THRUST OF THE
BUDGET
2.1 Objectives of the BudgetAlthough the detail of the much
awaited Budget are yet to be for-
mally announced, the Budget isexpected to usher in a new era of
intensive capital re-injection and
rejuvenation of the economY.
The specific objectives set
out in the Budget as Provided bY a
the President are as highlighted
below:
The provision of necessary
framework for divestment ofgovernment interests in eco-
nomic activities, which are fit
for private sector manage-
ment.
Laying a solid foundation forprivate led economic growth
by providing the enabling
legal, Fiscal and Ir4onetary
environment.
Upgrading the performance
of major infrastructure facili-
ties.
Paying adequate attention to
education and poverty alle-
viation; and
To continue with the policY of .probity, transparency and
accountability in order to re-
duce the cost of doing busi-
ness in Nigeria.
Reduce the inflation rate con-
siderably.
2.2 Strategies forAchievementTo achieve the Budget ob-
jectives, the Government intends
to employ the following strate-gies:
Divestment of Government
interests in comPaniesquoted on the Stock Ex-
change, which is expectedto be completed during thefirst half of this year.
Hotels, Vehicle asse.mbly
pla nts and other manufact-
uring enterprises with Gov-
ernment Holdings will be
actively p repared forprivatisation d u ri n g the
year.
The privatisation of utility
intensive enterprises is tobegin during the year with
the establislmefit ol rcgu-latory framework for the
sectors. The drawing up of
modalities for effective pri-
vate sector participation
would follow this.
lncrease industrial capac-
ity utilisation, by reduction
of import tariff of raw ma-
terials and the rehabilitation
and resuscitation of infra-
structure facilities.
Emphasis on aerial Geo-
physical surveys and exPlor-
ation of solid mineral dePos-
its in order to encourage
private investment in the
sector.
a Budget deficitto be kept at
a
a
a
a
aI
45
Apnt/June 2ooJ Volume 24 No 2
a
not more than 3% of GDP
andensuring that Waysand lvl eans advances,where required are keptwithin the statutory limit of12.5% ol expectedrevenue.
Establishment and full impl-
ementation of the Niger -
Delta DevelopmentCommission.
(vii) Capacity building
The Fiscal polrcies for theyear 2000 Budget have been de-
signed to focus on the priority sec-
tors of the economy like oil and
Gas, Export Processing Zones,
Solid Minerals and Agriculture.They are geared to achieve spe-
cific objective, which are largelyin tandem with some of the aspi-
ratrons of the OPS.
ing the economy private sec-
tor led.
Tne provision of adequateand appropriate incentives in thethree identified sectors is required
to direct invesrment flow to fun-da mental industrres where thecountry. may have comparatjveadvantages.
2.3.1 Port Reforms
a Strict implementation of the These measqres are as follows
Anti-Corruption Law.
2.3 The Fiscal Policy Mea-
Enhance capacity utilisatjonin agriculture, manufacturingand minlng industries. This
is expected to help build up
industrial capacity utilisationwhich has continued to existat low level over time
ln order to reduce the over-all cost of doing business in theNigerian market. Government. rn
the 2000 Budget intends to re-move all bottlenecks at the ports.
I\rleasures are being taken tomake our Ports user-friendlier. To
this end, technology-based pro-
cess through scanners will be es-
tablished both, to facilitate goods
clearance and to detect unautho-rized use. It is expected that thispolicy will attract more importsthrough Nigerian Ports as against
the practice whereby importersprefer our neighbouring countriesto discharge and clear their goods.
Furthermore, various portcharges would be reviewed down-ward to lessen the burden on im-
porters. The obvious advantagesof all these are the reduction in
the time taken to clear goods andcost of efficiency to importerswhich could translate into lowerprices of goods and services.
2.3.2 Tax Policies
(D Value Added Tax: The flatrate of 5% is to be continued in
the year 2000. However, the VATbdse will be widened by a furtherreduction of the items on the
a
a lncrease budgetary alloca-
tion to education, health,
energy and agriculture.
sures
As a major participatinggroup in the real sector, the Or-ganized private Sector ("OPS")
had enumerated a number of is-
sues that have constituted hin-drances to industrial growth,which it wanted the Governmentto address in the Budget. Some
of these include the following:
Provide appropriate protec-
tion of domestic industries
against u nfair competitionfrom imports and dumping.
Such protection is requiredto allow for the survival oflocal industries in the face ofglobal onslaught and trade
liberalisation.
Encourage diversifi cation offoreign exchange earningsthrough increased export ac-tivities. Our mono-producteconomy requires sufficientdiversifi cation to generatecomfortable levels of foreignexchange eamings and sur-vive the vagaries of themarket.
Provide appropriate incen-tives for investment in manu-facturing, agriculture andmining with a view to mak-
a
(i) Continous crisis in the en- .ergy secto r, especiallypower and fuel.
(ii) Highand unstable ex-
change rate
(iii) High rate of inflation
(iv) High level of unemployment
(v) Decaying public utilities a
(vi) Stringent credit and tax poli-
cres
46
June,2000Vollme 24 No. 2
exemption iist with the exceptionof agricultural equipment and in-puts. A boost to agricultural de-velopment and growth will beachieved.
(ii). Petroleum Profit Tax:
Government will continue to becommitted tothe provision of taxincentives necessary for the en-couragement of investments inthe Oil and Gas sector. This is
however to be reviewed to ame-liorate its effect on projected rev-enue from Petroleum Tax Profit.
(iii) lnvestment Tax Credit:
The administration of this tax is
to be streamlined such that com-panies deriving the benefit of taxcredit, equal to 50% of capitalexpenditure, may be restrictedonly to those that signed theProduction Sharing Contractwith the Government in 1993 tofurther enhance revenue.
tic crude allocation to be paid atexport parity. We are aware of theinvolvement of the Oil marketingcompanies in the importation offuel. We also know of the re-cently resisted move by Labourtothe NNPC'S increase of the pumpprices of petroleum products.
2.3.3 Other Relevant PolicyMeasures
A major policy strategy contem-plated by government concerns theplan to empower the citizenry bothin the rural and urban areas to pro-duce by providing necessary socio-infrastructural tools. One of suchtools is the Medium{erm PovertyReduction Plan. A N'1.0 billion Fundhas been crealed to prosecute pov-erty alleviation in the countrythrough the funding of grass-rootinduced projects and programs.Such a policy, apart from opentngup the rural areas, will check theinflux of rural dwellers to the cities.
Until the details of the Bud-get are made available. the realsector will continue to operate ln
a vacuum as a result of not hav-ing a clear direction from Govern-ment. This is taking cognisanceof the fact that the Nigerianeconomy is still largely Govern-ment dominated and Govern-ment represents the bigg estspender.
secure the cash for spending.
Unlike the advance econo-mies of Europe and Americawhere the private sector chartsthe economic course, Govern-ment transactions of over 70% ofthe total Gross Domestic Prod-uct (GDP) in Nigeria. Besides,because of the instability of poli-
cjes, it is not easy to predict thepossible policy direction any yearwithout the Budget.
While the approved Budgetis still being awaited, PresidentObasanjo was said to have in
January 2000 directed allministries and heads of govern-ment departments to return to thepresidency balances of ministe-rial revenue allocations that werenot spent as at December 31,1999. The president was alsosaid to have instructed that allforms of expenditure, except pay-
ment of salaries, should henceforth be suspended until the 2000Appropriation Bill recetves theassent of the legislature.
By implication, the economyhas been further paralysed aseconomic activities are espectedto dip following the directive fromthe presidency.
(iv) Companieq lncome Tax:
Government to enforce compli-ance with the practice of self -assessment by small compa-nies. This will enhance revenueand make marginal companiesmore serious. More revenue isalso to be raked from insurancecompanies by harmonizing theirtax responsibility to match de-velopments in the industry.
(v). Deregulation of thePetroleum ProductsMarket:
Deregulation of the market is
to be implemented and domes-
3,0 ASSESSMENT OF THEREAL SECTOR PER.FORMANCE (January -June,2000)
Without an approved Budgetsix months into the year, Nigeria'seconomy has been like a rudder-Iess ship anchored midstream atthe mercy of tempest. Over the lastfive months and even till now thefinal Budget is yet to be announcedto Nigerians. With the benefit ofhindsight, it may take a long timebefore funds under the approved2000 Budget starts filtering into thesystem considering the time it takesto print and circulate the Budget toministries, prepare warrants and
47
Vo ume 24 No 2
ApdU June, 2000
This has Put a lot of things on
hold especially in the private sec-
tor where oPeratives have been
unable to chart a clear course of
activity for the Year. The Public
sector, on the other hand, was
only recentlY able to expand
some money, including Payment
of salaries. by invoking certain
provisions of the constitution that
allows for the utilisation of uP to
50% of budgeted amounts Prior
to final approval of the Yearly
Budgets. The expenditure Pat-
tern is however unknown.
Notwithstanding, the 2000
Budget could be assessed for the
half-year by reviewing the activi-
ties of Government within the
confines of the objectives set for
the Budget in November, 1999
Based on its own assess-
ment, Government has scored it-
self very well when it was mark-
ing its one year in office. These
were largely related to intangible
elements of its targets such as
good governance, accountability,
human rights, etc. Becausethese are subjective elements'
the basis under which the as-
sessment could be judged is de-
batable.
With regard to hard, quan-
tifiable aspects of its Programme,the proportion of the itemsachieved and the extent, is less
when compared to the number of
overall targets.
ln terms of the real sector
objectives and policy introduc-t;on, the following are the notable
effects and likely impact:
Divestment of Govern-ment interests.
With the adoption of the ex-
ist in g privatisation and
Com mercialisation Decree No 28
of 1999, Government stated out
seriously with the divestment of its
interests in a number of enter-
prises. A total of 92 Public Enter-
prises were slated for privatisation/
commercialisation during this sec-
ond phase of the Programme.
The initial target of conclud-
ing the whole exercise within 2000
does not appear feasible as the
first segment, which was to sell off
Government interests in quoted
companies, and which was billed
to end in February, 2000 is Yet to
be concluded. The reason for this
is not farfetched considering the
fact that the Programme has been
trailed by disagreements accom-
panied by some PolicY reversals
Under, the monetary targets set bY
Government, this Phase is ex-
pected to generate N15 billion.
Although, very few comPanies
have come to the capital market
this year to raise funds, there is
the fear that the size of funds re-
quired from market throug h
privatisation will affect the level of
subscription to the share of these
other compa nies arising from
saturation.
(ii) lnstituting the PolicY ofProbity and TransParencY
Government has just signed
the Anti-Corruption Bill into law
which was to actualise its avowed
intention to stamp out coruPtlonwithin the polity. With this in place,
the objective of reducing the cost
of doing business could become
realisable. Until the implementa-
tion of the law, business will con-
tinue to be as usual for industries
whereby, companies loose a lot
of money to payments that have
no relationship to their business.
(iii) Reducing the Rate oflnflation
The granting of an instru-
ment autonomy to the Central
Bank of Nigeria is one of the
moves made by Governmentwhich has facilitated the modera-
tion of inflation and exchangerate, in that, the CBN has been
able to substantially, effectively
control the level of money suPPIY
through indirect monetary tools.
Under this regime, exchange rate
is relatively stable with the gaP
between official and autonomous
rates was less than 4% as at the
end of l\lay, 2000. Apart from this,
interest rates have continued to
drop thus allowing for cheaPer
borrowtng.
Upgrading the Perfor-mance of major lnfra-structure Facilities
This is an area that the Per-
formance of Government has not
been encouraging because most
of the necessary infrastructure
facilities are still in poor state (
etectricity, roads, rails, telecom-
munications, water, etc.). As a
result, the burden of providing
these facilities is that of the in-
dustries. One hopes that with
budgetary approval, funds willnow be available to prosecute
specifi c, relevant projects. Other-
wise, the existing cost structure
48
i.
June,2000 Volume 24 No 2
will continue to remain or even
worsens.vices went up astronomically ment up to 2003. ln this regard, it
is expected that the provisions ofthe budget will run in line withsuch set targets which include,GDP growth rate of 10%, singledigit inflation, 70% employment(formal & informal), household ac-cess to electricity of 60%, etc. byyear 2003.
Although the Budget hasnow been approved and signedinto law, a few suggestions con-cerning fits implementation, maysuffice and I believe they will'beincluded in the final recommen-dations to Government.
A quick release of the Bud-get to use users and makingthe details available to the Ni-gerian public will be useful and
beneficial to the economy con-
sidering the length of time it
has taken to get it passed intolaw. ln addltion, takjngcongnisance of the expendi-ture already carried out by
Government, it will be informa-tive to release details oftheamount so far spent to aid inthe proper analysis of its im-pact on the relevant sector ofthe economy.
It is heart-warming that Gov-ernment has constituted a new
Committee to be headed by
the Vice-President to handlethe Poverty AlleviationProgramme. We suggest thatthe inclusion of training progr-ammes as part of the overallstructure to assist the grass-
root beneficiaries to have a
good grasp oftheir respectiveprojects. This will enhance thesuccess of the programme.
Job C reation/PovertyAlleviation
Government has set asideN 1 O billion separately approvedby the National Assembly, to fi-nance its poverty alleviationprogramme jn the country. Theprogramme has been launchedand been implemented in allstates of the federation. lt is ex-pected to increase the dispos-able income of the populacethrough the setting up small-scale industries and enterpriseswith local advantages. This will
boost the ability of the rural popu-
lace to purchase goods. lnfor-mation emanating from thestates and government do not tell
a smooth story in that, as in pre-
vious similar programmes, theobjectives are not being realised.
it is good that the Government is
already aware of this develop-ment and is taking correctivemeasures.
lncrease in Prices ofPetroleum Products
An attempt by the govern-ment to achieve its Budget policy
of attaining export parity for do-mestic crude allocation had been
thwarted by labour. Even at theagreed ievels of 10.5% for Die-
sel and about 8% for Petrol, theeffect on user companies, whohave to depend largely on private
power generation will be sub-stantial and in turn reflect in theprices of goods and services.Within the short time of its intro-duction, cost of goods and ser-
vii. lncrease in industrialCapacity Utilization
Through a publication on theyear 2000 fiscal policy measures,the Government made public thereview of port charges/levies and
removal of some administrative ob-
stacles at the ports. ln line with thestrategy of using reduction of du-ties to increase capacity building,
a substantial list of items had theirexcise duty reduced including ciga-rettes, automotive battery compo-nents, textiles, pharmaceuticals,
detergent raw materials, etc. Onthe other hand, excise duty for thebrewery industry was re-intro-duced. These are already reflect-ing in the cost of the affected in-dustries but the overall impact willbe better seen in their financialsof at the end of the year.
4.0 CONCLUSION ANDSUGGESTIONS
From the foregoing, it is quite
clear that an appraisal of the Bud-get and its impact on the real sec-tor could only be substantially ben-eficial if the Budget had been ap-proved in a timely manner and itsprovisions made public. AIbeit, the ii
machinery of Government, ascould be seen, was not totallygrounded during the review period
as a few policies were imple-mented either with the necessaryinputs being available or not.
It is important to mention thatthe year 2000 Budget wasconceptualised within the frame-work of the overall projected eco-nomic policy targets of Govern-
49
me24NO 2
une.2000
iii. Having witnessed the kind
of resistance demostrated bY
Labour and the various inter-
es groups on the attempt
made bY Government lo in-
crease the Prices of Petro-
leum products, it maY be more
appropriate to introduce a Plan-
ned "token incremental Plan" to
be incorporated over the 3 to 5
year Plan Period. This should
be in such a way that. the Pub-
lic, at any point in time, is
aware that these token and
absorbable increases, within a
known percentage will be
implemented on a Periodic ba-
sis. This is recognizing the
fact that petroleum Prices
will continue to fluctuate over
time.
50