roundtable on nigeria’s · strategic implementation plan 2016 objective: outline priority actions...

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ROUNDTABLE ON NIGERIA’S

ECONOMIC OUTLOOK:

THE 2017 BUDGET

By

SENATOR UDOMA UDO UDOMA

Honourable Minister,

Ministry of Budget and National Planning

Friday, 24th February, 2017

Presented at the Business Day’s Roundtable on Nigeria’s Economic Outlook for 2017

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1.0 Introduction

The 2017 Budget encapsulates key ingredients of the

Nigeria Economic Recovery and Growth Plan (NERGP)

2017-2020

It reflects government’s commitment to get the economy

out of recession unto a path of diversified, sustainable and

inclusive growth

Dealing with the underlying economic challenges and

getting out of recession requires bold and decisive steps

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2.0 State of the Economy: Understanding the Challenges that led us here

Falling External Reserves

Unchecked Corruption

Oil Production Disruptions

Declining GDP

Rising Domestic

Debt Profile

High Recurrent

Exp.

Structural Weakness:

Mono-Product Economy,

Import Dependency

Poor Infrastructure

FX Scarcity

Narrow Tax Base

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2.0 State of the Economy: Understanding the Challenges that led us here …/2

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4

2

6

2016F

10

0 2012 2011 2009 2005 2013 2014 2006 2008 2010 2007 2015

Fall in oil prices

SOURCE: NBS

6.3% 7.4% 5.9% Compound annual growth rate %

Recovery Wake of financial crisis

Real GDP growth rate In % p.a for rebased GDP, 2005-2016 (YoY average for Q1-Q3 2016)

2.81%

1 Growth for 2015

-1.5%

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3.0 Getting the Economy out of Recession: The Economic Recovery and Growth Plan and the 2017 Budget

Strategic Implementation Plan 2016

▪ Objective: outline priority actions to put the economy on a path of sustainable and inclusive growth

▪ 34 key actions selected for immediate implementation

▪ Sectoral plans also developed for agriculture, solid minerals, oil & gas, and water resources sectors

Nigeria’s Economic Recovery and Growth Plan

▪ Objectives:

– Prioritize key turnaround interventions and enablers in order to generate concrete, visible impact by end of 2017

– Articulate medium-term economic policies to implement over 2016-20

▪ Key actions will be articulated drawing from the SIP and other national development plans

Nigeria’s

ERGP

The NERGP builds on the existing 2016

SIP, and contains strategic objectives and

enablers required to revive the economy.

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3.0 Getting the Economy out of Recession: The Economic Recovery and Growth Plan and the 2017 Budget …/2

Promote national prosperity and an efficient, dynamic and self- reliant economy to secure the maximum welfare, freedom and happiness

of every citizen on the basis of social justice and equality of status and opportunity

Vision 2020: Inclusive Growth

Investing in our people

Building a competitive

economy

Restoring growth

Enablers Improving governance and security

Delivery Implementation and financing

The ERGP is based on 3 strategic objectives supported by enablers and a clear delivery plan

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Focusing on tackling

constraints to Growth

Leverage the Power of the Private Sector

Promote national cohesion and

social inclusion

Allow markets to function

Uphold core values

PRINCIPLES OF THE PLAN

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To achieve the objectives of the ERGP, FGN will focus on 5 Big Execution Priorities and categories of initiatives

Stabilize the macroeconomic environment

Privatize selected assets

Accelerate non-oil revenue generation

Align monetary, trade and fiscal policies

Drastically cut costs

Achieve agriculture and food security

Deliver on agricultural transformation

Drive industrialization focusing on SMEs

Accelerate National Industrial Revolution Plan implementation

Improve Ease of Doing Business

Urgently increase oil production

Boost local refining for self-sufficiency

Expand power sector infrastructure

+

Ensure energy sufficiency in power & petroleum products

Improve transportation infrastructure

Enable private sector financing of infrastructure

Deliver targeted high priority infrastructure projects

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4.0 Approach to the 2017 Budget

MTSS (MCA)

RAPIPS

Building Blocks of the “Budget of Recovery & Growth”

ZBB

ERGP, SIP, MTSS

and MTFF

MDAs that were not involved in the MTSS process used Rapid

Appraisal Project Identification and Prioritization System (RAPIPS).

The 2017 Budget proposal reflects:

- many of the reforms and initiatives in the SIP & ERGP are in the

budget

- 2017-2019 medium term sector strategies (MTSS) and

- 2017-2019 Medium Term Fiscal Framework.

Zero-Based Budget (ZBB) principles were used in preparing the Budget.

ZBB ensured that expenditures in the 2017 Budget are linked to

government’s strategic reforms and initiatives for economic recovery.

Multi-criteria analysis (MCA) approach was adopted to prioritize and

select 2017 capital projects for 14 large capital spending MDAs

involved in the MTSS.

Projects were linked to government policies and strategic priorities.

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5.0 Key Assumptions of the 2017 Budget

Oil Production (2.2 mbpd)

Oil Price ($42.5/b now ($44.5/b )

Exchange Rate

Nominal Consumption

GDP Growth Rate

$

N87.95 tr

2.5%

Key Assumptions

& Macro

Framework

305/

N107.96 tr

Inflation Rate 15.74%

Nominal GDP

$

The 2017 Budget proposal reflects many of the reforms and initiatives in the NERGP

It is based on the following assumptions:

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5.1 Key Budgetary Reform Initiatives to Improve the Revenue Base of the Country

Broaden the tax base, improve effectiveness of revenue collecting agencies, improve tax compliance, etc.

Reducing leakages by tackling trade misinvoicing and introduce single window to drive customs efficiencies.

2.0

Treasury Single Account

IPPIS

Customs

Independent Revenue

0.3

Taxes

Ensure that all MDAs (particularly revenue generating MDAs) present their budget in advance, and remit their operating surpluses as required by the FRA

Extension of the Integrated Personnel Payroll Information System (IPPIS) to all MDAs.

Sustaining the use of TSA to monitor the financial activities of over 900 MDAs from a single platform.

Joint Venture Cash-Call

JV operations to be subjected to a new funding mechanism, which will allow for Cost Recovery. Additional oil-related revenue include: Royalty Recovery, Marginal Field Licenses, Early licensing renewals, etc.

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5.2 The 2017 Budget Highlight

FAAC and VAT Projection

Increase in FAAC allocation compared with initial proposal as a result of increased oil

price benchmark

2016 Approved

Budget 2017 Proposal 2017 Approved

2.200 2.2000 2.2000

38.00 42.50 44.50

197.00 305.00 305.00

5,719,614,015,274 8,231,284,017,574 8,513,073,248,127

1,857,932,792,818 2,664,647,698,307 2,739,941,780,710

1,149,917,483,675 1,737,677,489,496 1,812,971,571,900

708,015,309,143 864,000,000,000 864,000,000,000

1,382,148,896,179 1,993,023,899,143 2,051,072,480,637

886,538,179,780 1,339,676,507,620 1,397,725,089,114

495,610,716,400 604,800,000,000 604,800,000,000

3,240,081,688,997 4,657,671,597,450 4,791,014,261,348

2,087,237,947,540 3,154,092,748,523 3,290,760,525,342

198,244,286,560 241,920,000,000 241,920,000,000

2,285,482,234,100 3,396,012,748,523 3,532,680,525,342

Net FGN's Share of VAT Pool Account (14%)

TOTAL FGN

Total Share States & LGAs

Net FGN's Share of Federation Account (48.5%)

TOTAL LGCs

Local Govt.'s Share of Federation Account (20.60%)

Local Govt.'s Share of VAT Pool Account (35%)

TOTAL STATES

States' Share of Federation Account (26.72%)

States' Share of VAT Pool Account (50%)

Total Distributable Pool (FAAC & VAT)

SUMMARY OF APPROVED 2017- 2019 Medium Term Fiscal Framework

FISCAL ITEMS

Oil Production Volume (Mill Barrels per day)

Projected Budget Benchmark Price (US$ per barrel)

Average Exchange Rate

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5.2 The 2017 Budget Highlight…/2

1 2016 Approved

Budget 2017 Proposal

2017 Approved by

NASS

2 2.200 2.2000 2.2000

3 38.00 42.50 44.50

4 197.00 305.00 305.00

139 3,855,740,432,515 4,942,231,948,132 5,078,899,724,950

140 a Share of Oil Revenue 717,552,872,400 1,985,508,131,586 2,122,175,908,405

141 b Share of Dividend (NLNG) 95,545,000,000 29,585,000,000 29,585,000,000

142 c Share of Minerals & Minning 6,901,228,158 1,064,532,425 1,064,532,425

143 d Share of Non-Oil 1,454,694,382,138 1,373,211,428,771 1,373,211,428,771

144 Share of CIT 867,458,267,330 807,823,799,444 807,823,799,444

145 Share of VAT 198,244,286,560 241,920,000,000 241,920,000,000

146 Share of Customs 326,435,418,187 277,562,873,948 277,562,873,948

147 Share of Federation Acct. Levies 62,556,410,061 45,904,755,379 45,904,755,379

148 e Independent Revenue 1,505,880,000,000 807,570,000,000 807,570,000,000

149 f FGN's Share of Actual Bal. in Special Accts 10,788,751,405 6,643,655,741 6,643,655,741

150 g FGN's Balances in Special Levies Accounts 14,378,198,416 9,289,357,517 9,289,357,517

151 h FGN's Unspent Bal. of previous Fiscal Year 50,000,000,000 50,000,000,000 50,000,000,000

152 i FGN's Share of Signature Bonus 114,298,470,334 114,298,470,334

153 j Recovery from Swiss. (US$320 Mill) 97,600,000,000 97,600,000,000

154 k Domestic Recoveries + Assets + Fines 261,897,225,484 261,897,225,484

155 l Other FGN Recoveries 205,564,146,274 205,564,146,274

FGN Retained Revenue

2017- 2019 Medium Term Fiscal Framework: AS APPROVED BY NASS

FISCAL ITEMS

Oil Production Volume (Mill Barrels per day)

Projected Budget Benchmark Price (US$ per barrel)

Average Exchange Rate

An Overview of the Revenue Projection Highlights

▪ Total FGN revenue in 2017 is projected at N5.08 trillion, exceeding FY2016 projection by 32%.

▪ Contribution of oil revenue projections (41.8%) compared to 19% in FY2016 driven mainly by JVCC cost reductions, higher price, exchange rate and additional oil related revenue.

▪ 11% of projected revenue expected from recoveries of looted/ misappropriated funds and fines.

▪ Independent revenue, Customs & CIT projections lower than 2016, reflecting current realities

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An Overview of the Expenditure Estimates Highlights

▪ 2017 FGN spending estimated at N7.303 trillion, exceeding FY2016 projection by 20.5%.

▪ Debt service at N1.66 trillion

▪ Provision to retire maturing bond to local contractors increased to N177.46 billion.

▪ Recurrent (non-debt) spending expected to rise by 13% from N2.64 trillion in FY2016 to N2.98 trillion.

▪ Capital spending is 31% of total FGN expenditure in 2017.

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An Overview of the Fiscal Deficit

Highlights

▪ Projected budget deficit of N2.36 trillion in 2017

▪ Projected deficit as a % of GDP remains within threshold stipulated in the Fiscal Responsibility Act (FRA) 2007.

▪ Additional revenue of N131.28 billion available to FGN (rising from the increase in benchmark price) may be used to reduce deficit and proposed borrowing of N2.32 trillion

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5.2 Capital Expenditure in the Proposed 2017 Budget../5

Notes

▪ In dollar terms, the 2017

budget proposal at

($23.80bn) is lower than 2016

estimates ($30.76bn).

▪ As a % of GDP, we have

grown the size of the Budget

from 4.7% in 2015 to 5.9% in

2016 and to 6.7% in 2017.

o Compared with South Africa

(20.7%) and Ghana (19.2%)

as at 2015, this is very low .

▪ Ratio of capital spending in

total budget increased from

16% in 2015 to 30% in 2016

and 31% in 2017.

▪ Increasing infrastructure

spending will increase

revenue generation

opportunities and over time

significantly reduce deficit.

31%

$23.65 bn

16%

We have committed to allocating at least 30% of

the Budget to Capital from 16% allocated in 2015.

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

-

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

9,000.00

10,000.00

2015 2016 2017(P)

Agg. Exp. (N) CAPEX Agg. Exp. (US$)

$30.76 bn

$23.80 bn

US

$ ‘B

illio

n

N‘ B

illio

n

30%

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Capital Allocation by Pillar (%) Highlights

Resources were allocated to reflect the Administration’s developmental priorities.

This is aimed at engendering good governance practices and providing enablers for economic recovery & growth.

capital allocation distribution: • Infrastructure – 56% • Governance & Security – 20% • Economic Reforms/Growth–12% • Social Development – 7% • States & Reg. Dev. – 4% • Environment – 1%

Economic Reforms/Growth

12%

Environment 1%

Infrastructure 56%

Governance & Security

20%

Social Development

7% State & Regional Development

4%

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2.8 3 3.2

Major MDAs Capital Expenditure (N billions)

-

100.00

200.00

300.00

400.00

500.00

600.00

529.34

63.26 140.00 142.00

51.32

262.00

91.65 85.15 80.86 5.00 37.33

150.00

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6.0 Strategic Focus of the 2017 Budget

2.8 3 3.2

The Thrust:

“To partner with private and development capital to

leverage and catalyse resources for growth”

Much of the capital provision is directed at those projects which will

facilitate:

economic growth

diversification

competitiveness

ease of doing business

jobs and social inclusion

improved governance and security

Spending will be on critical economic sectors that have quick

transformative potentials such as infrastructure, agriculture,

manufacturing, solid minerals, services, and social development.

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6.1 Key Initiatives in the 2017 Budget On Agriculture and Food Security

Agriculture

Support the integrated transformation of the agriculture sector, including - Boosting productivity by facilitating access to inputs, financing, extension

services - Integrating agriculture value chain and improve access to markets - Increasing acreage to cultivated lands - Shifting production to higher value crops

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Use irrigable land and river basin infrastructure effectively to enable year-round agricultural production

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Some Budgetary Provisions

• N6.5bn Rural Roads and Water Sanitation programme

• N20.03bn Promotion and Development of various Staple food value chain such as

Wheat, Rice, Yam, Soya Bean, Cassava, Sorghum/Millet, Sweet Potato, etc

• N4.13bn Guaranteed Minimum Price payment

• N3.05bn Extension Services Support to Farmers, Value Chain Actors, Youth and

Women in Agribusiness

• N18.86 billion for water supply schemes nationwide.

• N14.3 billion for construction and rehabilitation of dams nationwide

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6.1 Key Initiatives in the 2017 Budget…/2 Expanding Energy Infrastructure and Capabilities

Power

Increase power generation by optimizing non-operational capacity, encouraging small-scale projects, and pursuing long-term capacity - Optimize existing installed 7,000MW capacity available for generation

3

Increase distribution companies’ liquidity - Resolve MDA’s arrears and ongoing nonpayment to Discos

4

Oil and gas (downstream)

Boost local refining capabilities to increase local production capacity 1

Revolutionize gas by launching development projects and increasing production 2

Some Budgetary Provisions • N18.7bn for the construction of 3,050mw Mambilla hydropower project (Counterpart Funding)

• N7.12bn for the completion of power evacuation facility for 400mw Kashimbila hydropower plant.

• N20bn Rural Electrification projects in Federal Universities

• N5.75 bn for Rural electrification and transformer projects nationwide

• N720m for the completion of small-scale renewable energy power plant development

• N1.36bn for the generation of 700mw from Zungeru hydropower project

• N5bn for the construction of 215mw LPFO/gas power plant

• N1.8bn for completion of ongoing construction of ITC/TDN and installation of injection & distribution substation

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6.1 Key Initiatives in the 2017 Budget…/3 Improving Transport Infrastructure

Transport Infrastructure

Invest massively in transport infrastructure, leveraging private-sector investments - Establish a robust infrastructure development framework to increase

public-private partnerships

• N213.14bn for various railway projects (Lagos-Kano, Calabar-Lagos,

Kano- Kaduna, Ajaokuta-Itakpe-Warri, Kaduna-Idu) / counterpart funds

and other rail projects

• N3.03bn for the construction of terminal building at Enugu airport.

• N2.08bn for airside rehabilitation of Abuja airport.

• N2.47bn for the construction of an inland river port and supply of cargo

handling equipment at Baro, Niger state

• Over 65 roads & bridges construction and rehabilitation projects across

the 6 geo-political zones of the country.

• N20bn nationwide intervention fund for roads.

• N31.5bn for the rehabilitation/reconstruction and expansion of Lagos –

Shagamu - Ibadan dual carriageway sections I & II in Lagos and Oyo

states


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6.1 Key Initiatives in the 2017 Budget…/4

Driving Industrialization and Small Businesses

Manufacturing

Accelerate implementation of the NIRP, focusing on agro-processing and industrial hubs

1

Promote innovation and technology-led industries 2

Solid Minerals

Create an enabling environment to enhance private investment, targeting energy minerals, iron/steel and gold/ gemstones

3

Decrease value leaks/loss by formalizing informal mine activities 4

Cross sector strategies

Enhance support to MSMEs and boost development finance through BOI and BOA 5

Implement the export development strategy for non-oil sectors 6


N50 billion for Special Economic Zone Projects to be set up in each of the geo-political zones to drive manufacturing / exports.

N20 billion voted for the revival of EEG in the form of tax credits

N15 billion voted for recapitalisation of Bank of Industry (BOI) and Bank of Agriculture (BOA)

N1.0 billion for the establishment of mega regulatory agency for the mining

sector

N2.588 billion for detailed mineral resources evaluation, equipping National geoscience laboratory and other projects

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2.8 3 3.2

A new Social Housing Programme

N100 billion provisioned for a new Social Housing Programme towards a N1 trillion fund

Niger Delta

• N6.55 billion for dualization of East-West Road {Sections 1 to 5 covering Warri – Kiama –

Ahaoda – Port Harcourt – Eket – Oron - Calabar}.

• N8 billion counterpart fund contribution for East-West road

Social Intervention Programmes

• N500 billion for FGN Special Intervention Programme (including Home Grown School Feeding

Programme, Government Economic Empowerment Programme, N-Power Job Creation

Programme and Conditional Cash Transfers and Social Housing Programme fund).

Regional Interventions

• N65 billion for reintegration of transformed ex-militants under the Presidential Amnesty

Programme.

• N45 billion North East intervention fund.

SDGs

• N20 billion for SDGs conditional grants and social safety nets.

6.1 Key Initiatives in the 2017 Budget…/5

Social Inclusion

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2.8 3 3.2

7.0 Nigeria’s Near-Term Outlook

The key initiatives outlined and others in the 2017 Budget will support

business activities, economic diversification and inclusion in our growth-drive

It is expected that sectors such as Manufacturing, Financial, Mining, Trade

and Services should benefit from government’s focus on:

o Industry, Trade and Investment

o Works Power and Housing

o Transportation

o Agriculture

2017 Budget will stimulate real economic activities as investments in critical

sectors, and fiscal, monetary and trade policy coordination reduces the cost

of capital and FOREX shortages

Financial companies will benefit from improved returns as they service

manufacturing, trade and small businesses

Business activities that relates to sectors such as Housing, Transportation,

Agriculture, Health, Education, and Water Resources should see improved

returns on their investments

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8.0 What Role for the Private Sector?

2.8 3 3.2

As a Government, we are determined to get out of this recession and back

on the path of growth

The 2017 Budget framework acknowledges the current economic situation

and forges strong partnership and collaboration with the private sector

While government is committed to finding the resources to invest on

infrastructure and create a favourable business environment, the private

sector is encouraged to invest in some of our infrastructure being

concessioned through PPPs

The areas of current focus by Government is as follows:

o Agriculture

o Solid Minerals

o Building and Construction

o Transportation

o Energy (power and petroleum)

Private Sector is therefore encouraged to invest in these sectors

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Thank You!

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