The COVID-19 pandemic appears to have worsened Nigeria’s economic woes and recession, which is now imminent, but not peculiar to the country, is giving the federal government serious concerns. The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, in this interview with Arise News Network, a sister broadcast station of THISDAY Newspapers, says the administration is working assiduously to mitigate the effects of the scourge and avert the recession. More importantly, Ahmed believes it is now expedient for relevant authorities to do whatever it takes to insulate the economy from external shocks. Bamidele Famoofo presents the excerpts
Crude oil price has dropped drastically in recent times due partly to the price war between Saudi Arabia and Nigeria. How much does that concern Nigeria?
It concerns us a great deal in the sense we had projected an oil price of $57 per barrel, now we have to work with an average of $30 per barrel. Now we have to adjust the budget to around $30. Besides, we must cut volume from 2.1million barrels per day to 1.7 million barrels per day. Why? Because the demand is very low. The market is not buying crude, Nigerian crude included. In the past couple of weeks, we have cargoes of crude that are not moving because Europe is literally shut down. That is where we have our biggest market and also India. So the demand is very low. We have seen countries planning to shut down production or at least part of their production. But we hope it does not get to that. But we are happy that the price has at least adjusted to about $30 per barrel now. In the last few days, price dropped to as low as something around $17.50 per barrel. What we are doing is that we sat back, we are reassessing our plans. We are deferring anything that is not vital. Things that are not vital will have to wait. We also need to make sure we redirect resources. First of all we need to take care of the health crisis before anything else. Meanwhile, the president has directed that we must handle the case of health challenges arising from the Covid-19. He directed that we must make sure we protect salaries and pension for people to have basic resources to survive the pandemic.
But for how long as nobody knows how long this pandemic will last?
Our plan is that we are to continue to do that through the course of 2020. We have reviewed the plans and we will be discussing this week with the National Assembly on the review before it is formally delivered to them.
Should African governments including Nigeria be mounting pressure on the G-7 for debt relief as suggested by a former Minister of Finance of Nigeria. I think you also mentioned that you are also seeking that?
Yes, we should and we are already doing that. We had the meeting of the African Minister of Finance I think sometimes last week with over 45 finance ministers in attendance. In that meeting, we agreed collectively with the multilaterals who are in the meeting as well that we have to ask for debt deferrals for 2020 and 2021. The essence for us is to ask as a group so the pressure will be less on us and the multilaterals. The indications are that they are actually considering it, because it is not debt forgiveness, it is either deferral (suspending repayments for a while) or elongating the tenure so that what we have to pay on a monthly basis will is reduced. That will create fiscal space, which is more preferable to us than taking on additional borrowings. We are however considering taking the opportunities open to us to access additional loan facilities.
On a personal level, this must be a tremendous challenging time for you. Isn’t it?
Yes, it is. It worries me that our economy is in crisis. It worries me that when we made our assessment and our own assessment showed that we could go into recession in 2020. The numbers we have from NBS shows something like -3.4 per cent and that disturbs me very much. The multilateral institutions place us on numbers that are even higher than that of the NBS. We therefore need to do something very radical and very bold and very different. It might even be something very unusual so we don’t slip into a recession.
The decisions you make will obviously go down in history because this is a very profound moment for you as the minister of finance, budget and national planning. Do you feel like the future of this country rests on your shoulder?
The ministry of finance, budget and national planning is not one person. I just want to remind you that there are two ministers in the ministry. We have two permanent secretaries working with us. We supervise about 18 agencies. In addition to that we have the Presidential Economic Council Advisory team. We also have the ministry of trade, the central bank. I’m a central part of that and l take full responsibility if we don’t do well, but the credit is to all of us, when we do it well.
In a recent media briefing you said the federal government is not stopping tax collection from some corporations to give a breathing space as a result of the impact of the Covid-19 Pandemic. Don’t you think it would be a prudent move on the part of government to consider giving them a breathing space?
On the contrary what l said is the opposite. I said when we did the Finance Act, we were thinking about how to strengthen the economy as we encourage the small and medium businesses. It is a provision that allows the small companies to pay zero tax. The medium sized businesses pay a reduced tax of 20 percent. This is something we have planned without knowing that there would be economic crisis. Then I said for the big corporations whose company income tax is as much as 30 percent, we are going to be looking at tax deferrals. We are encouraging them to provide support for Covid-19 in terms of donations that will be tax deductibles. It is also a kind of tax relief. And then we are encouraging the real sector of the economy to come up with suggestions of what they need to be able to perform better. So, reducing tax may not necessarily make the impact that is desired. For some it may be reducing import duties when they are bringing in new equipments they need for production etc. We are engaging them through the committee chaired by His Excellency, the vice president. We want to know what the different sectors of the economy need to thrive and make it available, so reducing tax may not achieve the overall goal of stimulating the economy as planned.
It appears Nigeria does not have a plan to handle a situation such as we have now when the whole world is challenged by a novel pandemic. Is that right ?
Nobody plans for an extreme crisis. But as a country you are supposed to have fiscal buffers so that you can respond as required. But our fiscal buffers are low. We have said that over and over again. The fiscal space is tight and the growth that we have been attaining before this crisis has been consistent but we kept saying it is still not a strong growth because with any external shock, there will be an impact, and that is what has happened. We need to find ways to increase productivity in the country to make sure that our growth is not centered on one or two revenue streams. That we grow small businesses because any country that will grow in a manner that is sustainable must have strong small and medium enterprises. Those are the segment of the economy that employs large number of people. It is not government or the large corporations that employ the most employees. That is why we came up with the Finance Act. We did several things in the Act, making sure that apart from exempting them from some taxes, we made sure that the VAT was adjustments favoured the small businesses. We want to grow in a manner that is inclusive not just growth that is driven by one or two revenue streams or by the activities of one or two large corporate. We need to grow the small businesses.
The last GDP forecast in the 2020 budget was 2.93%. Following your downward review of the budget in line with the new crude benchmark, have you reviewed your GDP forecast for 2020?
We are looking at -3.4 percent, just for the numbers. That is what will happen without any of those stimuli that we are introducing. But we are reviewing the likely impact with the stimulus that we are injecting to boost the economy. The idea for us is that we don’t get into recession. The whole world is going into a recession, but we don’t want to get into a deep recession because the deeper you go the more difficult for you to get out of it. The depth of the recession depends on how long all this last and also what actions you take to protect the local economy.
But no matter what actions you take it can’t exceed the limit of your resources…
Yes. But you can maximise the use of your resources depending on how you choose to use them.
Are you talking to the private sector because taking South Africa for example, one of those things that there president has done was to ask for tremendous support from that sector. Is that what Nigeria is doing?
I just said the committee under His Excellency the Vice President is going to have meeting with sectors within the economy. We had a meeting last week and we are going to have another one tomorrow. We are meeting with different sectors. We need to engage these sectors to know what really they need to be better.
No. I’m not talking about what the sectors need but what they are willing to do for Nigeria. Nigeria has some of the richest people in the continent. What Cyril Ramaphosa of South Africa has done is to bring these people together to access the huge money at their disposals.
Laughs… You know what? There is already a good level of support from the private sector. A lot of donations have been realised so far and I am sure you are aware of them. So far there is up to about N32billion that has come in from different corporate and high net worth individuals. But beyond aid (donation) we also want to make sure that the businesses don’t collapse, that they are sustained. We want them to grow so that they can employ people. Remember that the commitment that the President Muhammadu Buhari made to Nigerians in June 2019 was to lift 100million people out of poverty and unemployment. You can only do that by making sure that the productive sector is active and actually producing because that is where you get the employment. It is not about just giving stipends as we are doing. No. it is putting people to work.
Forgive my ignorance. But I try to understand how you deal with issues like this in Nigeria. There is little statistics in this country that capture the level of poverty. How difficult does that make your job?
You know what; we are actually doing a disservice to the National Bureau of Statistics, NBS that has been globally recognised as one of the most efficient statistics bureau in Africa today. We need to do a census, and that is done by the National Population Commission, NPC. But the NBS does an assessment on unemployment data. There is currently a survey going on household consumption that will tell you the level of poverty that is within the country. It will tell us the number of the small traders or enterprises that we have. We are doing this with the limited resources that we have. If the NBS has more resources, they can churn out more. The figures they churn out are not inaccurate as you allege. The ones we are able to do are very good service and very accurate and reliable. I can tell you that the multilaterals actually depend on the NBS. They do surveys for the World Bank, IMF and the Multilaterals and we sit back and say we don’t have data. We do have data and l want to urge people to visit the website of the National Bureau of Statistics to see the array of data that we have there. What we don’t have is a current census. That is the responsibility of the NPC. A census is a very large exercise. Towards the end of last year and this year, we have been engaging with the NPC. The President has directed us to work together to see what they require for a census. And we have got that requirement. Unfortunately the budget had been passed before we were through and that could not go into it. It is a very large size of money and an exercise that is over a period of three years. The population commission has been doing what they call delineation i.e. earmarking the census areas, putting down addresses. They have been doing that for a while and so we have to provide more resources. It is only when the country is fully delineated that they would actually do the census. So, census is coming as well but l must say that the challenge we have right now is resources. We were planning to fund them this year so they can carry on with the exercise, but the challenge that we are having now is impeding that process. But we are planning to have the census before the expiration of this administration.
What lessons are there for Nigeria in this oil price crash knowing that it will happen to the country every time it occurs?
The lesson there for Nigeria is what has always been with us. It is that we must have a Nigeria that is not depending on oil. We must drive the non-oil sector of the economy. Not only that we must walk the talk about using and consuming made in Nigeria goods. For example we are looking at a position where we do a policy that says that our roads will be constructed locally. To stop importing bitumen and constructing roads with cement or materials that are almost 100 percent available. So, we have to take that decision to say if we build social houses, all the materials must be sourced locally. We must use made in Nigeria, consume made in Nigeria and stop depending on imports.
We hear these glowing words from people in government that we must source for things locally. We must develop the local industry. But there appears to be a massive disconnect between the things that are said and the things that actually happens. We look at cars for example, there are made in Nigeria cars. But government officials who including you and the President don’t make use of them.
This pandemic and economic downturn is a good wake up call for all of us as Nigerians. We now have to actually walk that talk. Now it is a matter of survival. We have to protect the local industries; we have to consume what we produce. We have to stop imports …anything that is not absolutely necessary so that we can protect the local economy. That is the only way we can become insulated from external shocks.
If Nigeria stops spending its oil money today and saves all of it, would it survive as a nation?
That’s an interesting one and that is what we are willing to make analysis and see how that works because like l said, the oil revenue has been a significant component of our budget at both the states and the federal levels. At the federal level, the contribution of the oil revenue to the budget is about 40-45 per cent. In 2015 it was an average of 50 per cent. We are working gradually towards reducing that dependence, but it is like the process is slow and this has to be ramped up. If there is anything that has happened, it is this pandemic providing us an opportunity or compelling us to do things differently. Now, we have to depend on non-oil revenue and l see this as an opportunity that we must not waste. We must take advantage of it and we must do things differently.
With all the donations that are coming in and the tax deductibles, does it not mean a reduction to the revenue that is accruable to the Nigerian government?
Yes, it is. But also if corporates are using their resources to build health infrastructure which government should ordinarily do, it is nothing wrong. The benefit is that we get things done quickly and efficiently by the private sector, and the private sector gets some relief for that spend in form of deduction from their taxes. But by the way, that is not finalised. The next stage of stimulus we are working on is to see how we can use tax to provide stimulus to businesses.
Is it fair to say that the economic survival of Nigeria is tied to the meeting between OPEC, Russia and Saudi Arabia and other parties in the global oil market?
Let me say we are waiting for positive news from that meeting. If it turns out the way we hope, then the price war would ease off and production will go back gradually to normal; and then also, prices of crude oil in the international market will begin to stabilise. But we don’t see a very quick hike in price as a result of the outcome of the meeting and that is why we are planning around $30 average per barrel for the year.
What about the subsidy on petroleum which is believed to sap a lot of money out of the purse of government. Is this a time to stop subsidising petroleum products?
We have stopped subsidising petroleum products in Nigeria. The announcement that has been made of price modulation is actually suggesting a full deregulation. Government is not fixing prices but going to allow the marketers to fix the prices. Then, regulators would do their work to make sure the consumers are not exploited. But in the adjustments to the budget that we are making, there is no provision for subsidy.
Let’s talk about the $30 per barrel benchmark for the 2020 budget vis-à-vis cost of production. Has cost of production not consumed the projected benchmark?
Cost of production varies from oil well to oil well. On the average, it is about $25 per barrel at the moment. There are some wells at are at $30 while some are at $15.Globally, each production depends on the location of the well. In our environment, security cost is a major factor and that is why it is relatively high when compared to others. It would have been lower than the $25 average that we have now. But having said that, even though the $30 is very near to our cost of production, we are just trying to be realistic because we are not in full control of the dynamics of the pricing mechanisms in the market. And because of that reason we also have dropped the production numbers. The margin is very thin, but also this is temporary. But we hope that before end of 2020 the prices would pick up. But before then, we are still with the lower numbers though optimistic.