Zainab Ahmed, Nigeria's Finance Minister

Ripples related to the lingering trade dispute between the United States and China, the spat over the United Kingdom leaving the European Union among other global conflagrations are sending shivers down the spine of the Federal Government even as the Buhari administration frantically shops for funds with which to prosecute the 2019 budget and other associated governmental objectives, Business Hallmark has learnt.

This is even as economists and policy watchers are counseling as to what the lingering US, China trade war and the equally threatening conflict with Iran could mean for the Nigerian economy.

With some analysts already calling time on the likelihood of the American economy itself spiraling into recessionary currents within the next one year if something urgent is not done to take it off its presently combustive trajectory, the prospects are seemingly bleak that a nation like Nigeria which has continued to be tied to the saddle strings of a single, dominant export product, would find variable elbow room with which to manouvre.

Given the inter-linked nature of the World economy and the continuing dependence on oil exports as the main revenue driver for the Nigerian economy, the fear is that a slump in the global economic arena then may have an effect on the nation’s fiscal reserves and possibly result in another bout of formal or informal devaluation of the naira and the onset of perhaps another recession in Nigeria.

With an estimated total revenue of N6.97 trillion and expenditure of N8.83 trillion, Nigeria’s 2019 budget definitely needs all the help it can get. This is more so when the government has presently set aside the princely sum of N305 billion ($1 billion) for fuel subsidies in 2019.
The 2019 budget had been drawn up on the assumption of an oil price benchmark of $60 per barrel; oil production estimate of 2.3 million barrels per day, an exchange rate of N305/$, real GDP growth of 3.01% and an inflation Rate of 9.98%.

With two thirds of the year already behind us, the practical reality is that the ‘Budget of Continuity’ still has to be tested on the field.
The N6.97 trillion revenue projections had been built on estimates of an oil revenue component of N3.73 trillion and a non-oil revenue component of N1.39 trillion.

On the tax side, projected revenue includes Companies Income Tax (CIT) of N799.52 billion, Value Added Tax (VAT) of N229.34 billion and Customs Duties of N302.55 billion. Independent Revenues come to N624.58 billion while other projected revenues include anticipated recoveries of N203.38 billion, N710 billion as proceeds from the restructuring of government’s equity in Joint Ventures and other sundry incomes of N104.11 billion.

Notably also, the N8.83 trillion expenditure estimated for 2019, includes the receipt of anticipated grants and donor funds of N209.92 billion, but also includes a built-in budget deficit of N1.86 trillion
Broken down, the plan was to incur Recurrent Costs of N4.04 trillion; Debt Service of N2.14 trillion and Statutory Transfers of about N492.36 billion while also providing for a Sinking Fund of N120 billion that would be explored in the retirement of maturing bond to local contractors. There is also a Capital Expenditure provision of N2.031 trillion.

With local and foreign debts rising to more than $73 billion as at June 2018, there has been concern as to whether the nation was not being over-leveraged. However, the Debt Management Office and the administration have continued to maintain that the nation was still within its projected debt-to-GDP band. In their response however, some analysts maintain that even if this is the case, when the rubber meets the road, it is actual national revenues and not nominal GDP figures that come up for reckoning.
Analysts therefore say that beyond its public face, the government is indeed under pressure to raise funds to meet its governance obligations and execute projects, predicting that there will be more and more forays to source funds for projects and running the nation.
This some say is part of why the Federal Inland Revenue, FIRS Chief, Mr. Babatunde Fowler was handed a damning query last month to explain what the presidency inferred was a case of the service under his watch, posting less than satisfactory tax revenues.

There has also been a close watch on the oil and gas sector. As at last Thursday, Nigeria’s crude oil was trading for 61 dollars per barrel, just one dollar above the budget benchmark. However, while this was basically comforting, it had actually dipped below the number now and again in the days before now. Linked to this in a close sequence is the issue of the imperative of meeting the 2.3m barrels per day production and export quota, what with reports of a fresh and rising wave of pipeline vandalism.

There is equally the shifting appetite by investors in the sector towards gas production to service the local market in areas like power generation and its possible effect on long-term capital generation for crude prospecting, which has not also been helped by continued political stalling on the reformative Petroleum Industry Bill, PIB.
Says Matthew Eribo, an Energy sector watcher:

‘At the moment, there is no controversy about this: gas is the preferred field to invest in the sector. There are too many issues in the crude oil arena. And so for investors with an eye to making profits from the system, gas is the place to go.’

Beyond local issues, there are also international dimensions related to the crude oil issue. One of these has to do with the continued threat posed by the continued search for, and exploration of non-fossil fuel options in the West and elsewhere. It is this stark reality that is making it imperative that the nation seek very many options to boost its revenue flow.

In all of these, analysts say there would therefore continue to be a push for offshore funding and investments in the Nigerian economy. In fact, one such move saw President Buhari spending virtually the whole of the last week in Japan where he participated at the Japan Africa Trade Forum. Though Japan is not one of the core investment partners for Africa at the moment as its $17bn trade figure is much lower than the $61bn, $65bn, $220bn and $300bn posted annually by the likes of the United States, India, China and the European Union respectively, it is still generally speaking a friend to be courted overall in the search for Foreign Direct Investments, FDI, and notably too in this season of the African Continental Free Agreement, AfCFTA where more ambitious economic development projects and agendum are being thrown onto the table by competing African economies.

Only last year for example, Nigeria dropped behind Ghana in foreign investments as the country could only net $2.2bn with the West African neighbor attracting a far more princely 3.3b dollars.

It is against this backdrop then that President Muhammadu Buhari last Friday reportedly ‘toasted’ the Japan Bank for International Cooperation, the Toyota Group and other Japanese companies to continue to be involved in Nigeria.
The investment talks which took place on the sidelines of the Seventh Tokyo International Conference on African Development (TICAD 7) also featured a bilateral meeting with Toyota Tsusho, a part of the Toyota conglomerate, in which the President/CEO of the group, Ichiro Kashitani, indicated interest in sectors like energy, healthcare and automobiles. In particular, he told the Nigerian President that Toyota Tsusho wishes to also build an advanced medical diagnostics centre, which will foreclose need for foreign travel to obtain cutting edge medical diagnosis.

And with Toyota and several other competing global brands already opening assembly plants all over the continent, President Buhari also specifically requested the group to equally consider setting up a car assembly plant in Nigeria itself.
Other than car manufacturing, Buhari also asked for help from Japan’s Prime Minister Shinto Abe in combating piracy and illegal fishing in the Gulf of Guinea
Responding Abe thanked Buhari for his participation at TICAD7 and also for signing of the African Continental Free Trade Agreement. He then pledged a $300,000 support for the Nigerian Defence College and 12 million Yen for the West African nation’s public health sector.

Out of Japan however, two other potentially troubling areas that Nigeria has to keep a watch on, analysts say have to do with the ongoing US tariff wars and Brexit.
At the moment, IMF estimates are that the US trade wars could wipe out some $455 billion off the global GDP by 2020. This is even as the World Bank has already cut the 2019 growth forecast for Africa to 2.8 percent.

According to the Nigeria-born President of the African Development Bank (AfDB), Mr. Akinwunmi Adesina, the US-China trade war and uncertainty over Brexit pose risks to Africa’s economic prospects and he is very troubled.

For Nigeria, the continent’s largest economy by GDP size, part of the challenge is that though not the direct target of the US-China trade war, tariff battles and other incidence of economic contraction involving major players on the world stage have led to falling commodity prices, a run on the local currency and the withdrawal of foreign investors from the Nigerian Stock Exchange. Indeed, AfDB figures are that the trade conflicts could result in as much as a 2.5 percent reduction in the GDP of resource-exporting African countries. For a nation with a current GDP of just about two percent, this simply translates to making something like the first prospective call for an imminent return to the traumatizing days and month of recession that it had only just emerged from!

Other than the US, at the other end of the equation, the tariff wars would very likely dampen China’s composite demand for resources
Notes the banker, Oluwole Erijo:
‘The trade war would definitely affect world trade and notably the prices of goods all over the world. As for Nigeria, the fact of our being an import-dependent country that is then being pitted against two very strong global players makes our case even more precarious as we would be hit from both ends. The effect on us therefore could be most significant.

It will be recalled that the current situation had begun early August, when US President, Donald Trump, tweeted his decision to impose a 10 percent tariff on Chinese goods worth $300 billion. These included consumer electronic goods like smartphones.

For companies like Apple Inc who operate a sizeable chunk of their manufacturing from China, the stock fell close to 10% in the first three trading days following the announcement and again on August 14. It lost about 4.5% of its value in August 2019.

On its part, China had equally made an announcement to the effect that it was also planning to impose tariffs on $75 billion of U.S. imports.
Also troubling for Nigeria is the Brexit scare. With incumbent Prime Minister Boris Johnson having pushed the ball to overdrive at the moment, it is almost getting clearer and clearer by the day that a post-Brexit era may presently be upon us. For a former colony with noticeably fairly large economic dealings with the United Kingdom, certain economic adjustments would definitely come into play in the months ahead.

Analysts say that even beyond the mere incidence of the tariff wars and Brexit, the greater challenges for Nigeria remain the uncompetitive mono-economy, the poor infrastructural capacity, low level manpower and high cost of doing business relative to its neighbor African states. They say that it is indeed these factors that make it difficult for adjusting firms and nations to shift business very easily Nigeria’s way even as new global economic realities hit the table.