Capital Spending Dips as Oil Prices Spiral Downward

The federal government has more than halved capital expenditure to less than 10 per cent of the 2015 Appropriation Bill, axing badly needed infrastructure investment due to the collapse in the price of oil, the country’s main source of revenue, according to the full budget submitted to parliament.

Even though Nigeria’s capital spending seldom materialises as planned, shelving projects such as port upgrades and roads will only perpetuate the inefficiencies that have plagued Africa’s most populous nation and biggest economy for decades.

The document, seen by Reuters, puts capital expenditure at N387 billion or 8.9 per cent of total spending of N4.357 trillion.

This is a significant drop from the 2014 spending plans, when capital expenditure (capex) accounted for 23.7 per cent of projected government outlays.

It is also only just over half the N634 billion that the Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, in her revised budget presentation last December, said would go on capital expenditure and related items.

The Director General of the Budget Office, Bright Okogu, said the reductions were the direct result of the halving in the last six months of the price of crude, which normally accounts for 70 per cent of the cash flowing into state coffers.

“The capex was severely affected by the huge reduction in revenue,” Okogu told Reuters, adding that it was easier to wield the axe on infrastructure projects than Nigeria’s notoriously over-bloated bureaucracy.

He said wages were difficult to cut and “you cannot reduce staff numbers overnight”.

Despite the overall capital expenditure reduction, spending on military equipment was set to rise slightly, reflecting the need for weapons to counter Boko Haram Islamist militants in the North-east.

The National Assembly is expected to start discussing the budget later this month and it is likely to be passed some time in March, regardless of who wins the presidential election on February 14, though supplements could be added.

One such could be for military equipment if Nigeria secures a loan of up to $1 billion, which President Goodluck Jonathan requested last year.

The oil-price slump has hammered Nigeria whose currency has hit a series of record lows against the dollar in the last three months despite the central bank burning through 20 per cent of its reserves to prop it up.

The government’s benchmark oil price for this year’s budget is $65 a barrel, a figure the finance ministry said would not be changed despite crude falling as low as $45 a barrel in January. Oil prices rallied yesterday to over $55 a barrel.

As well as knocking this year’s overall growth forecast, the impact is being felt in the construction sector where sources said infrastructure projects that were already moving at a snail’s pace have been put on ice for this year.

Construction firms have halted work on roads, railways and bridges, firing up to a third of workers and maintaining only skeleton crews.

One industry source said Ministry of Works disbursements for a major highway were less than 3 per cent of the project’s value.

“At this rate it will take 33 years to complete,” the source said.

The same source put layoffs nationwide at 20,000, while another said at least 5,000 had been let go in the Abuja area alone, a worry for President Jonathan ahead of the election, when he faces an opponent accusing him of squandering revenues from high oil prices over the previous three years.

Despite the capital expenditure reductions from December, N2.62 trillion or 60 per cent of total spending continues to be earmarked for recurrent expenditure, essentially the day-to-day cost of running the government.
National Assembly spending is also in line with last year at N150 billion, suggesting that Nigeria’s political elite are being spared any belt-tightening.

However, doubts are creeping in that the government will be able to meet even its day-to-day obligations should crude prices remain low for months on end.

“We’re paying salaries but it’s going to catch up,” said Bukola Saraki, a senator from the central state of Kwara. “We were struggling to pay at even $80-$90 a barrel. By June it’s really going to start biting. You’ll really see the effect of the low oil price.”

ThisDay, February 05, 2015

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