Nigeria needs urgent ₦7.35 Trillion

Does Nigeria really have a spending problem?

Today’s Notadeepdive is 751 words, a 4-minute read.

Poser: Does Nigeria have a spending problem or a revenue-generating problem?

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Perhaps one of the commonest beliefs shared by many Nigerians is that we’re a rich country with spending problems. Here’s some version of the argument you’re sure to have heard: “Nigeria’s National Assembly with less than 500 elected reps spends billion every year.” “Why do we spend so much money on such a small number of people?” The thinking is that if Nigeria’s National Assembly can spend ₦128 billion in one year, then the country must be flush with cash. Yet, nothing could be further from the truth; instead, the country’s spending only speaks to the notorious wastefulness of the Nigerian government. 

Take Nigeria’s 2022 budget of ₦17.126 Trillion, for instance, an ambitious figure which may suggest a rich country to the untrained eye. There’s only one problem: Nigeria can barely fund its budget because it generates too little revenue and is currently neck-deep in debt. In 2020, FG projected total revenue of ₦5.37tn but ended up generating ₦3.42tn. In the same year, spent almost its entire revenue on debt servicing.

If that still doesn’t sound like a red flag, the civic group, BudgIT explains it well: “This means nearly all FG’s salaries, overhead & CAPEX (Capital Expenditure) were financed with loans & CBN support.” As it stands, Nigeria is a living, breathing, debt-paying machine. 

If you’re holding out any hope for 2022, don’t. With its pitiful revenues, Nigeria will need to borrow another ₦7.35 Trillion to fund the 2022 budget, pushing us a little more towards a fiscal precipice. One of the reasons our revenue keeps flailing, as I shared during a previous newsletter, is Nigeria’s oil production volumes. With a seeming institutionalisation of oil theft, Nigeria has consistently failed to meet up with its oil production quota. 

“Tony Elumelu, whose company, Heirs Holdings, bought a 45% participating interest in Nigerian oil licence OML 17 and related assets, shared that, “we produce sometimes about 87,000 barrels per day, thieves take 50,000 per day and to me, this requires a national seminar or dialogue…. They do that to us; they do that to other operators also.” 

If Elumelu’s claims hold up, a very kind assumption is that somewhere between 100,000-150,000 barrels of crude oil are stolen every day, meaning that at least 4 million barrels of oil are stolen monthly. The scale of the theft may suggest the direct or tacit involvement of government agencies, as it is impossible to consistently move such large volumes otherwise.”

• Notadeepdive (March 2022)

The National Assembly’s response to our oil production problems has been to reduce the projected oil production volumes by 283,000 barrels daily. It means that while the National Assembly is aware of the problem of oil theft, it will not hold the executive to account to prevent it. Instead, it has chosen to write off 283,000 barrels to oil thieves every day. If you’re Tony Elumelu, this is a worrying sign. 

Beyond Elumelu, Nigeria’s petrol subsidy remains the elephant in the room. Projected to gulp ₦4 Trillion in 2022 alone, petrol subsidy has become a metaphor for everything that is wrong with the Buhari administration. For a scheme that has been shown to enrich a small group of people at the expense of the country’s fiscal health, it is surprising that the government of the day didn’t find the mettle to put an end to it in two terms. 

A lesser problem is Nigeria’s subsidy on electricity tariff, which the World Bank has advised the government to put an end to in two different reports. Between 2015 and 2020, the shortfall in electricity tariffs, which are paid by the government, stood at about ₦2.4 trillion, averaging ₦200 billion annually. 

There’s no better place to bring this to a close than this quote by Nigeria’s finance minister, Zainab Ahmed acknowledging the problem in March: “We are cleaning up our subsidies. We had a setback, we were to remove the fuel subsidy by July this year but there was a lot of pushback from the polity. We have elections coming and also because of the hardship that companies and citizens went through during the COVID-19 pandemic, we just felt that the time was not right, so we pulled back on that.”

July has now come and gone, and with higher oil prices, missed opportunities to remove subsidies and poor economic thinking all-around, Nigeria is back to a familiar spot. The answer will be something Buhari has resorted to several times during his time as President: borrowing.