Staring at the prospect of a recession for the first time in almost 30 years, Nigeria’s government is struggling to fund its budget, which it hoped would stimulate an economy that is reeling from the impact of low oil prices.
A funding shortfall has kickstarted a debate about the future of key state assets.
President Muhammadu Buhari has tabled a budget of N6.06 trillion (R260bn) for the 2016 fiscal year. The budget is partially funded by income from oil sales which have suffered since the beginning of the year following the return of attacks on oil facilities in the Niger Delta .
Petroleum minister Emmanuel Ibe Kachikwu says half of government’s expected income has been lost as a result of the disruption to oil production.
To get around the problem (at least in the short term), it has looked for alternative ways to raise funds. And in a surprise announcement, it says it will consider selling government assets such as oil and gas plants, refineries, airports, rail lines and even a stake in the African Finance Corp.
The announcement was met with resistance from the public and some analysts who argue that transferring ownership of public assets to companies amounts to short-changing the country.
Buhari’s government says the strategy will include buy-back options to allow for the repurchase of the assets in future.
But will the sale of state assets restore confidence in the battered economy and promote growth? Those in favour of the plan — such as Nigeria’s Central Bank governor Godwin Emefiele, Africa’s richest man Aliko Dangote, and chairman of Stanbic IBTC Nigeria (Standard Bank’s Nigeria subsidiary) Atedo Peterside — believe that there is much to be gained.
If the assets generate $10bn-$15bn, Nigeria’s foreign reserves (worth about $25bn today), will receive a boost, putting the country in a better position to manage its currency and economy.
They argue that the enhanced balance sheet will help stabilise the naira, which has depreciated precipitously since the beginning of the year. This is designed to appease foreign investors who have held back on new projects for fear of losing capital to the naira devaluation.
Opponents of the idea include the federal senate (though the senate president supports the idea) and Charles Soludo, an economics professor and former Central Bank governor. They say boosting foreign reserves with proceeds from the sale of assets will provide only short-term relief to the treasury.
They say the move will not make investors any more confident in the economy because it fails to address the real reasons for the lack of confidence, which is the absence of coherent economic policies.
Nigeria’s public finances remain hinged on oil, as non-oil revenue including tax-based income doesn’ t contribute enough to mitigate against shocks caused by oil price fluctuations.
There is no doubt that there will be some immediate benefit to the economy from the sale of assets. The much-needed funds will help to plug gaps in the budget. But government must also convince the public that the proposal is viable and it must ensure that it does not set a potentially damaging precedent. If the Buhari administration fails to address the underlying policy and public finance issues, future governments could resort to similar action in the face of economic weakness. This is unsustainable.
The administration has not said how its repurchase plan will work in practice. It will have to be more forthcoming and also allow for a rigorous public debate on the proposal. In this difficult debate on Nigeria’s future, supporters and opponents of the plan can agree: there will be no popular choices.