Rising oil theft, the insurgency in the North and fuel subsidy fraud make it hard for the government to survive unless it agrees to hard-hitting reforms.

So far, those blocking reform are winning hands down in the running battles with reformers in the government. Yet their victory could prove to be a hollow one if they bankrupt the Treasury in the process. As President Goodluck Jonathan prepares to read the 2013 budget in the National Assembly on 11 October, which estimates state spending of 4,929 billion naira (US$31.11 bn.), some economists in Nigeria question whether its targets are achievable without massive foreign borrowing.

Others take issue with the statistical basis for the economic projections. In an ill-tempered hearing in the Assembly on 4 October, the Governor of the Central Bank of Nigeria (CBN), Lamido Sanusi, repeated his view that the economy was hobbled by massive organised oil theft. Nigeria belongs to the Extractive Industries Transparency Initiative, but there was no reliable auditing of crude oil production, still less of how sales revenue was managed. The Nigerian National Petroleum Corporation claims oil production is up to 2.7 million barrels a day: Sanusi asked how the NNPC would know that, given its record on data gathering.

Assembly members saw the reference to the NNPC's tenuous grip on financial realities as signalling a wider rift in government between the economically literate officials in the CBN and Finance Ministry, and the top officials in the Petroleum Ministry, led by Minister Diezani Allison-Madueke, who have proved adept at deflecting outside efforts to impose some accountability on their fiefdom. Sanusi also complained that the Assembly's frequent demands that he appear at hearings were disrupting his work programme. Many in the Assembly have not forgiven his questioning of the costs of the federal legislature, especially salaries. Senators earn over $1mn. a year before generous allowances for houses in the capital and their constituencies and travel budgets.The government's arithmetic is coming under increasing strain.

Reformers outmanoeuvred

Economists and bankers in Lagos, the commercial capital, say that the financial status quo is not sustainable. Yet they see little prospect of the government tackling the roots of the crisis because its main reformers - Sanusi and the Coordinating Minister for the Economy, Ngozi Okonjo-Iweala - are outmanoeuvred by defenders of that status quo. There are three pressures overwhelming the economy:

oil theft (bunkering) has increased in the Niger Delta to over 450,000 barrels per day from the NNPC's claimed production of 2.7 mn. bpd, which would mean annual revenue losses of over $10 bn.;
the cost of the insurgency in the north is hitting home, firstly with a security vote of over $5 bn. in the 2012 budget, which crowded out investment in agriculture, health and education; and secondly, with the destruction of the northern economy and a growing north-south migration which is distorting national development plans;
the costs of the fuel subsidy have spiralled out of control; the backlog of subsidy payments due from 2011 could amount to $18 bn. That's well over half the total $28 bn. national budget for 2012. The government's decision to halve the petroleum subsidy this year, after its failed attempt to abolish it in January, will more than halve the costs this year, along with much tougher checks on fraud. However, the government is left with accumulated obligations of several billion dollars to the fuel traders that it will be unable to finance without recourse to more borrowing.

A successful $20 bn. debt reduction deal with bilateral and multilateral creditors a decade ago (largely thanks to the effort of Okonjo-Iweala, then Finance Minister), cut foreign debt to under $8 bn. The figure has crept up again. This week, Abraham Nwankwo, Director General of the CBN's Debt Management Office, forecast that Nigeria would owe about $25 bn. By 2015, $16.75 bn. to foreign creditors and $8.44 bn. to domestic ones.

Bankers in Lagos think this may be an underestimate. They point out that the NNPC already owes about $8 bn. to foreign banks to finance continuing commitments on its fuel subsidy scheme, while domestic debt is already over $8 bn. All these shenanigans in fuel trading have pushed up the cost of living. Olusoji Akinola, a banker turned consultant, said the government had failed to introduce any palliative measures after cutting the subsidy. He pointed to increases in electricity tariffs and higher duties on imported wheat (pushing up the price of bread by 4.5%) and on rice.

At the same time, unemployment is growing and the Trade Union Congress of Nigeria is calling loudly for a national job-creation plan. Herbert Ajayi, President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, said 800 companies had folded and economic growth was slowing. Provisional data from the National Bureau of Statistics indicated that gross domestic product in the first quarter of 2012 grew by 6.2%, down from 7.1% in the same period last year. Real GDP growth for fiscal year 2012 is projected at 6.5%, down from 7.5% in the fiscal year 2011.

As economic conditions get tougher, there could be a resumption of January's mass demonstrations against government attempts to cut the fuel subsidy. The protests forced the government into a partial retraction of its policy and prompted the National Assembly to set up a probe into corruption around fuel subsidy claims made by the big trading companies. However, none of the well connected companies accused of fraud have been prosecuted and even cases against the more obscure companies are proceeding painfully slowly.

The government may be playing for time. Perhaps it hopes that its investments and semi-privatisation of the power sector will be seen to pay off in the next year. It has announced five of its preferred bidders for the six power generating companies and 23 bidders for the eleven power distribution companies. Just as this goes through, the old national grid has boosted power output to over 4,000 megawatts for the past month, providing one of the longest periods of semi-continuous power in the south-west for several decades. It is a crude calculation but if Jonathan's government is seen to have fixed Nigeria's chronically dysfunctional electricity industry, then almost any other sins may be quickly forgiven.

Source: allAfrica