Nigeria’s 2018 Budget hopes lifted as Oil price nears $70

London Brent touched $68.03 in early trading in Tokyo on the 3rd of January as the prospects for the 2018 budget improves. On November 7 2017, the President had submitted an 8.61trillion naira appropriation bill to a joint session of the National assembly with a $45 oil benchmark. The budget estimates a 2.8trillion naira revenue generation from oil receipts, with a 2.1trillion naira deficit in estimated revenues. Nigeria currently produces 2.53 million barrels per day with the hopes that the reforms in the Petroleum Industry Bill (PIB) passed last year by a joint session of the National Assembly (that transfers the collection of revenues to the Federal Inland Revenue Service), will be able to police the system and ensure that oil theft is reduced, fraud is clamped down on and tax evasion is eliminated.

Section 313 of the Petroleum Industry Bill Act Reforms of 2016 from the earlier version of 1969 establishes comprehensive reforms for the Oil & Gas Industry in Nigeria, it mandates that the one tier tax system is revoked and a two tier tax system that requires all companies that engage in upstream and downstream activities be taxed through the provisions of the Petroleum Profit Tax Act for Exploration (PPTA) & Production Companies, and the Corporate Income Tax Act (CITA) for processing and distribution companies.

The Nigerian Government has hopes that if current production levels are maintained at 2.53m per day, OPEC sustains its current production levels at 39.3m barrels per day with the support of Saudi Arabia & Russia, it can effectively fund the revenue side of the budget of 2.8 trillion naira, with substantial sums in its Excess Crude Account (ECA) that could be used as a supplementary funding tool in case there is lack of sufficient funds to implement the budget.

Lawmakers at the National Assembly last year November 7 through Senator Rose Okoh kicked against the continued existence of the ECA and the importance of converting its use to the consolidated revenue fund when it moved a motion for the abolishment of the ECA, saying its status is unconstitutional and only provides for reckless spending of money by the executive arm, of funds that are not appropriated by the National Assembly.

Fitch & Moody’s successively in November & December 2017 cautioned the Government with a downgrade by Moody’s to BB- as well as to Banks substantially exposed to government securities, against relying on oil revenues as tool to fund the budget. It warned the government about the importance of widening the tax brackets, stopping tax waivers and concessions to companies that are established and broadening the scope for credit to unlock growth that will have a ripple effect on the economy.

Kelvin Emmanuel

About Kelvin Emmanuel

The Oil producing Angola in the Southern part of Africa faces what Nigeria faced 12months ago; a distortion in its exchange rate with a difference between the official markets and the parallel black markets. One dollar through the official window buys you 166 kwanza, while one dollar through the black market buys you 400 kwanza. Nigeria faced the same challenge 12months ago, when the distortion between the official and black markets was as much as the official markets trading at 306 with the parallel market ranging from 450 through to 510. The Central Bank Governor of Angola, Jose de Massano Junior announced in Luanda “We will stop having a fixed foreign exchange, we will adopt a floating regime of foreign exchange”. Angola faces exactly the same challenges and has been applying the exact same responses to an exchange rate crisis like using its foreign reserves that was sitting at $26bn to defend the currency kwanza, with no success so far, even though the external reserves has dropped to $14bn. Angola relies on Oil receipts for 80% of its government revenue, 90% of its inflow and 50% of its GDP. Angola is a $194bn economy that has been growing at an average of 10% on the back of rising oil prices since 2002 when its 27 year old civil war that started in 1975 ended. The state national oil company Sonangol reports that it produces up to 1.8m barrels of crude oil daily, however the government that until now has being led by the family dynasty Jose Eduardo dos Santos until recently when succession saw power transferred to Joao Lourenco, reports that the oil price rout in 2015/2016 that saw prices drop to as low as $28 per barrel caused ripples across the economic structures of the government, upsetting government revenues, its ability to fund its budget, capital project funding, foreign direct investments into the economy as a result of a currency crisis that was driven by the widening of gap between the official and street window of the kwanza, that until now has been pegged in a fixed exchange rate regime to the US Dollar.