- Nigeria Returns to Crude Oil to Fund Budget as Non-oil Revenue Falters
Following the dismal performance of non–oil mineral revenue in 2016, Nigeria has again turned attention to crude oil to fund the 2017 fiscal plan, as can be gleaned from the proposed plan before the National Assembly, where oil mineral resources are projected to provide the bulk of the revenue.
They have now moved from the 19 per cent they were projected to fund the plan, to 40 per cent, and non-oil revenue, which this year was projected to play the lead role, is now to take the back seat.
The projection for its revenue has cascaded down, with expectation from independently generated revenue cut down from N1.506 trillion in 2016, to N808 billion; taxes from companies income taxes from N867 billion to N808 billion, while only Value Added Tax (VAT), which is a consumption tax, has been slightly moved up from N198 billion to N242 billion.
Accordingly, the 2017 proposal based on the key assumptions and budgetary reform initiatives now envisages the total Federal Government revenue of N4.94 trillion, which will exceed the 2016 projection by 28 per cent.
In the projected revenue, receipt from oil now is N1.985 trillion and that of non-oil is N1.373 trillion. The contribution of oil revenue is 40.2 per cent compared to 19 per cent in 2016, driven mainly by JVC cost reduction, higher price, exchange rate and additional oil-related revenues.
The implication of a resort to the dependency on crude oil by the Nigerian economy is that the GDP will continue to contract as oil mineral resources contribute a negligible percentage to the country’s growth, both in terms of inclusiveness, revenue earnings, employment and local self–sufficiency in most of the items the country spends billion of dollars importing from other countries.
Late last year, as part of a deliberate policy of diversifying the country’s sources of revenue, and insulating the economy from depending largely on crude oil, which fortune is uncertain due to price volatility and quantity shock, managers of the country’s economy toyed with the idea of largely depending on non-oil revenues, largely from non–oil taxes and customs duties as the focal point of dependency to finance the 2016 plan.
Unfortunately, this hope has come crashing as the experiment with non-oil resources as a major funding source of this year’s budget has left a sour taste in the mouth of both policy makers and citizens alike, following the gross underperformance of the non–oil revenue stream of income.
A recent report of the revenue performance by the Minister of Budget and National Planning, Senator Udoma Udo Udoma, said the non–oil revenue stream of income left much to be desired and negatively affected the 2016 budget implementation.
According to him: “The projected independent revenue was N1.1 trillion as against N0.2 trillion realised during the period. The projected revenue from the Nigeria Customs Service was N0.3 trillion as against N0.2 trillion realised, while the projected non-oil tax receipts for the first quarter of 2016 was N0.8 trillion as against N0.5 trillion realised during the period.”
The information above shows that the N500 billion revenue generated by the FIRS from taxes in nine months is nowhere near the N4.9 trillion promised by the helmsman of the tax agency, Mr. Babatunde Fowler, and may eventually turn out to be the worst collection figure in six to seven years.
Mr. Fowler, who made the promise at different fora after assumption of duties including at the opening of the 134th Joint Tax Board meeting in Kano had gone ahead to promise that 80 per cent of the targeted amount would be collected before the end of 2016.
The annual summary of tax collection from year 2000 to last year indicates that the highest collection was recorded during the tenure of Ifueko Omoigui Okauru, with N5.007 trillion in year 2012, following hi-tech and revolutionary reforms introduced by her administration.
The Drop in US Crude Oil Inventories Boosted Oil Prices on Wednesday
Crude oil prices rose on Wednesday following a decline in US crude inventories last week.
The American Petroleum Institute (API) had reported that United States crude oil inventories declined by 5.3 million barrels in the week ended January 22, 2021, more than a reduction of 430,000 barrels predicted by a Reuters poll.
The unexpected decline, coupled with slowing new COVID-19 cases in China, the world’s largest importer of crude oil, boosted oil prices on Wednesday.
Brent crude, against which Nigerian crude oil is measured, rose by 41 cents or 0.7 percent to $56.32 per barrel.
The U.S. West Texas Intermediate (WTI) crude oil also gained 56 cents or 1 percent to $53.17 a barrel.
“WTI is slightly firmer on the back of a larger-than-expected draw in US crude inventories reported by the API, which is offset by builds in gasoline and distillates,” said Vandana Hari, oil market analyst at Vanda Insights.
The data, however, showed petrol inventories grew by 3.1 million barrels in the week, more than experts projected.
Similarly, API data revealed that distillate fuel inventories that include diesel and heating oil, jumped by 1.4 million barrels, far higher than the 361,000 barrels decline predicted. However, refinery runs declined by 76,000 barrels per day.
“Market participants are now in ‘wait and see’ mode, wanting to see how lockdowns evolve in the coming weeks and months, and how successful countries are in rolling out Covid-19 vaccines,” ING economics said in a note.
COVID-19 Plunges Nigeria’s Oil Revenue by 41% in the First Nine Months of 2020
Nigeria’s oil revenue declined by 41.44 percent in the first nine months of 2020 to $2.033 billion, according to the latest data from the Nigerian National Petroleum Corporation, NNPC.
This represents a decline of 41.44 percent from $3.47 billion filed in the same period of 2019 when there was no COVID-19.
In the September 2020 edition of NNPC’s Monthly Financial and Operations Report (MFOR), revenue from oil and gas rose by 16 percent to $120.49 million in the month of September, a 66 percent or $234.81 million drop from $355.3 million posted in the same month of 2019.
The global lockdowns caused by the COVID-19 pandemic plunged Nigeria’s crude oil sales and global demand for the commodity. This was further compounded by Nigeria’s high cost of production compared to Saudi Arabia, Russia and others that were offering discounts to boost sales during one of the most challenging periods in human history.
Experts like Prof. Yinka Omorogbe, President of Nigeria Association of Energy Economics, NAEE, were not surprised with the drop in earnings given the effect of COVID-19 on the world’s economy.
She, however, called for the revamp of the nation’s petroleum sector laws and diversification of the economy away from oil revenue dependence. She said “Covid-19 made 2020 a very hot year and it battered the oil industry internationally and we are not an exception; so we could not have been unaffected”.
She also said the effect of the fall “is definitely a wake-up call; we have to diversify, strengthen our other resources and capabilities”.
Omorogbe, a former NNPC Board Secretary, urged the government and the operators in the sector to look inward and think strategically, stating: “think medium term, think of where they want to be and the government, above all, must think of how best we can utilize our resources, so that we can achieve our objectives once we know and define them.
“It is a clear wake-up call, if not we will just sit here and find that we have become one of the poorest nations in the world”, she noted.
Crude Oil, Other Commodities Closing Price for Monday
Brent crude oil, Nigeria’s crude oil benchmark, gained 47 cents to $55.88 per barrel on Monday, while the US crude oil expanded by 50 cents to $52.77 per barrel.
Gold for February delivery fell $1 to $1,855.20 an ounce. Silver for March delivery fell 7 cents to $25.48 an ounce and March copper was little changed at $3.63 a pound.
The dollar fell to 103.80 Japanese yen from 103.83 yen. The euro fell to $1.2139 from $1.2167.
Wholesale gasoline for February delivery rose 1 cent to $1.56 a gallon. February heating oil rose 2 cents to $1.59 a gallon. February natural gas rose 16 cents to $2.60 per 1,000 cubic feet.
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