After a series of delays and revised drafts, the Nigerian government finally released its 2009 budget earlier this month, in which it outlined plans to move forward with diversification and increase spending on a raft of new capital projects.
President Umaru Yar'Adua's 2009 draft budget, which is subject to amendment by the legislature, proposed over $21bn worth of expenditures for the coming fiscal year, an increase of 8.4% over 2008. In the wake of the drop in oil prices, the federal government has forecast a decline in revenues for the world's eighth largest oil-producer from $19bn to $13bn.
After a series of adjustments, the budget proposal has finally been crafted on a cautious oil revenue estimate, with the baseline crude price set at $45 - a significant change from the initial estimates of $62, and noticeably lower than the $59 used in the 2008 budget. The government's growth assumptions for 2009 are fairly robust, with expectations set at a promising 8.9%, a notable increase over the 6.5% of 2008.
The revised benchmark oil price underlines the judicious approach Nigeria is taking with revenue estimates, which in turn will help to buffer the budget against further turbulence in the international marketplace.
Since the oil boom of the 1970s, the hydrocarbon sector has emerged as Nigeria's largest source of revenues and exports. With proven oil reserves of over 36bn barrels and natural gas reserves estimated at over 100trn cubic feet, Nigeria is the largest oil producer in Africa and supplies 11% of US oil imports. The success of the oil and gas industries has led to a heavy dependence on upstream development for public spending; combined, the two sectors are responsible for nearly 90% of government revenues. As a result, the dramatic fluctuation in crude prices has left the Nigerian budget vulnerable to massive swings in revenues and expenditures. This has often been compounded by production drops in the Niger Delta as a result of political and regional instability. Over the past year, Nigeria's production has often dropped below its OPEC quota.
However, in a testament to the country's push for increased diversification, non-oil revenues have seen strong growth over the past 12 months, outperforming oil sector Gross Domestic Product (GDP) growth. During 2008, while oil sector GDP contracted by around 2.5% - partially due to the instability in the Niger Delta - non-oil sector growth has increased by about 9%, with the agricultural industry putting in a particularly robust performance.
Diversification away from hydrocarbons is one of the key pillars of Nigeria's development plan. In an acknowledgement that the country is over-dependent on the petroleum revenues, the government has announced it is planning on increasing remittances from public corporations and state-backed companies in 2009, while stringently enforcing tax and Customs collection and pushing the development of non-oil exports.
The 2009 budget also sets aside significant outlays for major projects in a variety of sectors, in an attempt to boost infrastructure development in key non-oil industries. The power generation and transmission sector is earmarked to receive over $610m worth of new projects, including a hydro-electric plant and the completion of a set of power projects in the Niger Delta. Similarly, several hundred million dollars are being earmarked for the construction and redevelopment of access roads, highways and bridges across the country, with additional funding being poured into port and railway upgrades. Not that the petroleum sector is being ignored - $5bn has also been slated for joint ventures with foreign oil companies.
While there is a host of industries that will benefit from the additional government spending - an enormous boon given the global liquidity crunch - the current proposal opens up a not-insignificant operating deficit. The $8.2bn 2009 budget deficit will be bridged over through a variety of means, including unspent funds from the current budget, privatisation proceeds and higher-than-expected oil revenues. The 2009 shortfall breaches a 2007 fiscal responsibility act that sets a goal of maintaining the federal budget deficit at or below 3%, meaning Yar'Adua will have to gain parliamentary approval before the budget can be finalised.
According to the government, only about 40% to 45% of the capital spending in the 2008 budget has been implemented, leaving significant balances available to pay off the 2009 deficit. Additional funds will come from $750m worth of privatisation receipts, as well as oil-signing deals and a $200m recall from the African Development Bank.