Friday, 13 January 2017

Will budget 2017 stimulate real sector?

President Muhammadu Buhari came across as an incurable optimist when he presented the 2017 budget proposal of N7.3 trillion to a joint session of the National Assembly on December 14, last year. Despite the growing anxiety, particularly among real sector operators over the direction of the recession-battered economy, he spoke glowingly of his administration’s commitment to “make Nigeria a new manufacturing hub.”

Perhaps, reading the doubts in the minds of operators and, indeed, Nigerians on his capacity to pull this through, Buhari while presenting the “Budget of Recovery and Growth,” backed his avowed commitment to turn the country into a manufacturing hub with a number of policy pronouncements. Hopes were raised that a new deal was perhaps, in the offing for the real sector, which comprises manufacturing and agriculture.

For instance, the president noted that because of the emphasis on industrialisation and supporting Small and Medium Enterprises (SMEs), the Federal Government  set aside N50 billion as contribution for the development of new Export Processing and Special Economic Zones. Old ones are to be expanded.

Before the budget presentation,  sources close to the Minister of Industry, Trade and Investment that the industrial sector would receive a major boost this year, as funding had been included in the budget to reflate the sector. The ministry was said to have secured funding in the budget for the development of six  Special Economic Zones (SEZs).

The SEZs, according to the sources, who declined to be mentioned because they were not authorised to speak, are expected to be launched this month, with Afrexim Bank and EXIM Bank of China committing $1 billion to the project. According to Buhari, the SEZs will be developed in partnership with the private sector, as the government continues to promote and protect Nigerian businesses.
Expectedly, the N50 billion earmarked in the budget for the SEZ project has earned Buhari the commendation of the Lagos Chamber of Commerce and Industry (LCCI).

Its Director-General, Mr. Muda Yusuf, said it will boost manufacturing and SMEs. The LCCI and indeed, other members of the Organised Private Sector (OPS) were no less gladdened by the N20 billion voted in the 2017 budget for the revival of the Export Expansion Grant (EEG) programme.
According to the president, as the benefits of agriculture and mining are  becoming visible, the EEG will be revived in the form of tax credits to companies. This, in his view, will further enhance the development of agriculture and mining, bringing in more investments and creating more jobs.

The Federal Government introduced the EEG in 1999 to encourage non-oil exports and cushion the effects of cost disadvantages faced by local exporters due to infrastructural deficits. The grant was disbursed in the form of the Negotiable Duty Credit Certificate (NDCC) and was utilised by beneficiaries for the payment of customs and excise duty on their export shipments.

However, the extant policy on EEG and the utilisation of NDCC was suspended in January 2014. Minister of Finance Kemi Adeosun recently cited abuse of the export grant as a reason. Since then, many exporters have been screaming blue murder that the suspension of the scheme impacted negatively on their non-oil export activities. They complained that the huge backlog of unutilised NDCCs amounting to over N300 billion, according to the Nigerian Export Promotion Council (NEPC), paralysed their operations.

They, therefore, intensified push for the return of EEG and settlement of backlog of unutilised NDCCs to drive the non-oil export sector.

The Executive Secretary, Organised Private Sector Exporters’ Association (OPEXA), Mr. Jaiyeola Olarewaju, said the only way out for Nigeria to disentangle itself from the shackles of mono-economy was for the government to diversify the country’s export sector.

This was why the inclusion of EEG and the NDCC in the 2017 budget proposal, with commitment that payment will resume soon, was music in the ears of OPS members including the  Manufacturers Association of Nigeria (MAN).

Its President, Dr. Frank Udemba Jacobs, has been in the forefront of the agitation for the review of the  policy on EEG and the utilisation of the NDCCs.

To unlock the huge, but largely untapped potential in the SME sector, this year’s budget proposal also sought to address the difficulties faced by SMEs in accessing longer term, more affordable credit. To address this situation, President Buhari said N15 billion has been provided for the recapitalisation of the Bank of Industry (BoI) and Bank of Agriculture (BoA).

He also said the Development Bank of Nigeria will soon start operations with $1.3 billion focused exclusively on SMEs. The president noted that agriculture remained at the heart of his administration’s efforts to diversify the economy. And to underscore this, he said the proposed allocation to the sector this year was N92 billion.

“This sum will complement the existing efforts by the Federal Ministry of Agriculture and Central Bank of Nigeria (CBN) to boost agricultural productivity through increased intervention funding at single digit interest rate under the Anchor Borrowers Programme, commercial agricultural credit scheme and the Nigeria Incentive-Based Risk-Sharing System for Agricultural Lending,” Buhari said.

He explained that, his administration’s agricultural policy will focus on the integrated development of the agricultural sector by facilitating access to inputs, improving market access, providing equipment and storage as well as supporting the development of commodity exchanges.

Buhari also noted that achieving this goal required improving the skills of the labour force, especially young people. He, therefore, said government has made provision to establish and operate model technical and vocational education institutes, working with the private sector and state governments.

His emphasis on local content and encouraging patronage of locally produced goods rather than imports was also seen as shot in the arm of real sector operators. In doing so, he regretted that Nigeria wasted her large foreign exchange reserves to import nearly everything it consumed.

He said this was why low oil prices in the past 18 months saw the nation’s foreign exchange earnings cut by about 60 per cent, and her reserves eroded. Consumption also declined, as Nigeria could not import to meet her needs.

“By importing nearly everything, we provide jobs for young men and women in the countries that produce what we import, while our own young people wander around jobless. By preferring imported goods, we ensure steady jobs for the nationals of other countries, while our own farmers, manufacturers, engineers, and marketers, remain jobless,” Buhari stated.

He therefore maintained that under his watch, the old Nigeria will disappear and a new era will rise in which “we grow what we eat and consume what we make. We will increasingly grow and process our own food…we will buy ‘Made-in-Nigeria’ goods… We will patronise local entrepreneurs.

“We will promote the manufacturing powerhouses in Aba, Calabar, Kaduna, Kano, Lagos, Nnewi, Onitsha, and Ota. From light manufacturing to cement production and petrochemicals, our objective is to make Nigeria a new manufacturing hub,” he declared.

Infrastructure is game changer
The role of infrastructure in creating inclusive growth was not lost on the president. This was why he said this year, government will focus on the rapid development of infrastructure, especially rail, roads and power.

He added that efforts to fast-track the modernisation of railway system are priorities. He specifically announced the allocation of N213.14 billion as counterpart funding for the Lagos-Kano, Calabar-Lagos, Ajaokuta-Itakpe-Warri railway, and Kaduna-Abuja railway projects.

According to development experts and operators in various sectors of the economy, massive infrastructure deficit remained one of the stumbling blocks to Nigeria’s road to economic growth and development.

They argue that reducing the country’s huge infrastructure deficit estimated at $350 billion will be a game changer to unlock productivity, improve business competitiveness and create employment.

In tackling the infrastructure deficit, The Nation learnt that government plans to actively partner the private sector by using new funding platforms including the Road Trust Fund, which will develop potentially tollable roads, and the Family Homes Fund, which is an on-going Public Private Partnership (PPP) initiative for funding of affordable housing.

Budget size
Under the proposed N7.3 trillion budget for 2017, N2.24 trillion, representing 30.7 per cent of the budget, would be committed to capital expenditure aimed at pulling the economy out of recession.
Capital expenditure was increased from N1.8 trillion in 2016 to N2.24 trillion in 2017 and N2.98 trillion as recurrent expenditure for the 2017 fiscal year.

While the 2016 Budget was predicated on a benchmark oil price of $38 per barrel, oil production of 2.2 million barrels per day and an exchange rate of N197 to the dollar, the 2017 budget moved higher, proposing an oil price benchmark of $42.5 per barrel as well as using a more realistic exchange rate of N305 to the dollar.

Experts say apart from the fact that the 2017 oil price benchmark of $42.5 per barrel was achievable, given the Organisation of Petroleum Exporting Countries (OPEC’s) agreements on production cuts, its output projection of 2.2 million bpd was also realistic.

They hinge their position on the fact that the Federal Government had since stepped up efforts at addressing the restiveness and agitations in the oil-rich Niger Delta, where activities of militants and pipeline vandals have seen crude oil production reducing to almost half.

Other initiatives
Apart from announcing that the Ministry of Industry, Trade and Investment will get N81 billion, Buhari also established the Presidential Enabling Business Council (PEBEC) to be chaired by Vice President Yemi Osinbajo.

PEBEC will have the mandate to make doing business in Nigeria Buhari said that with the council, which has Industry Minister Okechukwu Enelamah as vice-chairman, getting approvals for business and procurements will be simplified and made faster.

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