Nigeria's finance minister has tempered fears of a fiscal raid, but acknowledged spending pressures in the run-up to general elections next year.
“Touch wood, on the fiscal side, we have managed to keep things tight,” says Okonjo-Iweala in an interview with Euromoney. “And so far we have had very strong support from the president on this. To control something like this, political support is essential and we are lucky he has been very helpful in this regard.”
Elections in Nigeria have historically been accompanied with give-aways, particularly at the state level, but Okonjo-Iweala, who has an expansive mandate as co-ordinating minister for the economy, is keen to stress the virtues of fiscal prudence to her fellow federal and state officials.
State and local governments are constitutionally endowed with a large degree of fiscal autonomy, challenging Okonjo-Iweala's agenda.
“We are trying to keep spending under control, and guide the economy in a way as to not allow a lot of liquidity in and limit excessive spending, but the pressures are there, undoubtedly,” admits Okonjo-Iweala.
“When elections are on the way, politicians like to spend. We have to take things month by month. Now it’s October and we are managing to keep the fiscal deficit tight, but it’s not an easy feat, I can tell you.”
She adds candidly: “The biggest risk we have is if we yield to pressure. While we have resisted so far, towards the end of the year we may see some more spending. And there may be things we need to clean up towards the end of the year, so some more spending could be on the agenda.
“But it is remarkable, really, that we have been able to maintain our fiscal position so far."
Earlier this year, Nigeria became Africa’s largest economy after the country’s overdue rebasing exercise. GDP for 2013 reached N80.3 trillion ($510 billion) far exceeding expectations and outshining South Africa's GDP of $370.3 billion during the same period.
The economy has also proven to be far more diversified than originally believed. While the oil sector has dominated the economic composition of Nigeria for years, sectors including services, manufacturing and telecommunications were found to be much stronger.
“As it stands, non-oil revenue is 30%, but we want to get this increase to around two thirds of total revenue over the next ten years,” says Okonjo-Iweala. “This is a realistic goal because the rebasing of the economy showed that Nigeria is already much more diversified.”
However, Nigeria’s dependence on oil revenues has come under pressure and further threatens to derail fiscal stability. Oil has been trading below $90 per barrel in the international market in recent weeks, and the US – previously Nigeria's biggest oil importer – no longer imports crude from the west African country, due in part to the increase in shale oil production domestically.
|Demand for oil from India and China has offset any losses |
we have felt from the US, but … there is a vulnerability
Meanwhile, vast oil theft in the Niger Delta continues to weaken the sector. The International Energy Agency predicts Angola will soon overtake Nigeria as the continent's top oil producer: while Angola plans to increase oil production, Nigeria loses approximately 150,000 barrels of oil per day to theft – the equivalent of $5 billion a year.
Central-bank data shows that Nigerian oil output averaged 1.9 million barrels per day in the second quarter of this year, well below the government's output target of 2.38 million.
“Demand for oil from India and China has offset any losses we have felt from the US, but declining quantities and oil prices means there is a vulnerability,” says Okonjo-Iweala. "We recognize this and we are putting in place a contingency plan to deal with the effects.
“At the moment, we have a low tax-to-GDP ratio at around 12%. This is not acceptable and way below other middle-income countries. Rebasing has shown we have non-oil economy base to tax better, so we can plug these gaps. We have brought McKinsey in to help with tax administration and we are now looking to change tax policy.”
spreading their wings
According to Okonjo-Iweala, around 65% of registered companies in Nigeria have never filed taxes. New regulations around taxation have brought in $250 million in additional revenue in the last six months.
The ministry has set a target to raise $500 million in 12 months and plans to ramp this up to $1 billion for the 12 months after this.Okonjo-Iweala is also keen to stress Nigeria's elections will be accompanied by political stability.
Peaceful gubernatorial elections in Ekiti and Osun states were held this year in June and August respectively, with no disputes regarding the outcomes.
After the election in Ekiti state, the US Department of State commended all parties involved for the “credible and efficient” election and how “security forces collaborated effectively in providing a safe environment free of major incidents”.
Okonjo-Iweala adds: “Recent elections have encouraged Nigerians and the international community. Of course, there will be some noise, but, in general, we no longer have this apprehension surrounding elections.”