The Minister of Finance, Mrs. Kemi Adeosun has said the federal government plans to boost agricultural production and spend billions of dollars upgrading dilapidated infrastructure that will help drag Africa’s top oil producer out of recession this year.
Low oil prices plunged the West African nation into its worst economic crisis in 25 years with output, contracting by 1.5 per cent last year.
The situation was exacerbated by militant attacks on pipelines in the oil-rich Niger Delta and what business executives said have been poor policy decisions.
Adeosun told the Financial Times that she expected growth to pick up to 1 per cent this year on the back of improved crude prices and government spending on power and rail projects, with $6.9 billion earmarked for infrastructure projects.
The executive arm is also seeking approval from lawmakers to borrow nearly $6 billion from the Export-Import Bank of China to upgrade the rail network linking Lagos, the commercial capital, and Kano, the largest city in the north.
The International Monetary Fund (IMF) is forecasting growth of 0.8 per cent this year.
“We’re confident this will be a year of recovery. Modest, slow recovery, but we hope we will get out of negative growth by the second quarter,” Adeosun said.
“The question of how much growth there’ll be will be a function of a number of things — number one, sustained oil production and number two the impact of some of the polices we’ve pushed.”
Nigeria, Africa’s most populous nation with 180m people, produces less than 4,000MW and power shortages are seen as a critical constraint on businesses.
The government made similar pledges last year to invest in infrastructure to create jobs and drive growth, but spent less than a third of the N1.8 trillion ($5.9bn) budgeted for capital projects.
That was blamed on funding shortfalls and delays caused by the late passage of the budget.
Adeosun insisted this year will be different. “We haven’t taken a scattergun approach, we’re focusing on rail and we want to do it sensibly and sustainably,” she said.
Nigeria, which depends on petrodollars for 70 per cent of state revenues and 90 per cent of export earnings, is also grappling with a severe foreign exchange shortage and a fiscal deficit the IMF estimates will widen to 3.7 per cent of gross domestic product (GDP) this year.
The IMF has also raised concern over Nigeria’s “higher than historical” debt servicing costs, which doubled in 2016 to 66 per cent of revenue, as the government has borrowed to fund capital expenditure.
Adeosun said the government was committed to raising revenue by improving tax collection and cutting wasteful spending, saying it had culled 58,000 ghost workers on the state’s payroll last year.
“As a people and as a government, we’re chastened by what happened last year,” she said.
“We’ve messaged strongly to our people . . . that fiscal discipline has to be a permanent feature. We are going to continue with this reform programme.”
However, concerns over the health of President Muhammadu Buhari, 74, have raised additional questions about the government’s ability to implement its policies.
Buhari spent almost two months in London receiving medical treatment earlier this year for an undisclosed illness. He has not been seen outside the presidential villa since his return to Abuja, the capital, in early March and failed to chair a cabinet meeting on Wednesday — the third in a row he has missed.
But Adeosun said the pace of government had not slowed because of Buhari’s absence from cabinet meetings and other public events. “Nothing is being delayed,” she said.
But as Adeosun banked on stable oil prices and improved on earnings from tax to fund the country’s infrastructure projects, oil prices dropped yesterday to their lowest level since last November, with Brent breaking below $50, amid concerns of rising global supply and still high inventories.
At 11.22am EDT, WTI crude was trading down 2.82 per cent at $46.47, while Brent was down 2.62 per cent at $49.46 — with both WTI and Brent having effectively wiped out all the price gains since OPEC announced on 30 November 2016 the output freeze deal aimed at reducing oversupply and propping up prices.
On Wednesday, a day after the American Petroleum Institute (API) injected a bit of optimism among traders by reporting a crude oil inventory draw of 4.2 million barrels, the EIA once again poured cold water on the oil bulls by reporting a much smaller decline, of 900,000 barrels, against expectations for a decrease of 2.3 million barrels.
While U.S. crude oil inventories have declined in the past couple of weeks, stocks are still at 527.8 million barrels, near the upper limit of the average range for this time of year.
In addition, production from countries not signatories to the OPEC/Non-OPEC deal – most notably the U.S. – is on a continuous rise since that very same deal managed to lift oil prices and keep them steadier at above $50 for a few months.
“At some point, the market should recognise OPEC isn’t the most important player in the market any more. That is non-OPEC, and, above all, U.S. shale,” Commerzbank analyst Eugen Weinberg told Reuters.
Comments and speculation ahead of OPEC’s meeting on May 25 in Vienna would likely bring prices back to the $50s, according to Weinberg. “Still, the damage is there and I wouldn’t be surprised to see lower levels this summer after the meeting,” he noted.
OPEC is expected to decide at its meeting at the end of May whether to extend the production freeze deal, with inventories still not drawing down as fast as expected, and oil prices now basically at the same level at which the deal was announced.
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