“This will be the high point of my day, it’s all downhill from here” – Lester Burnham, American Beauty
Given that when it comes to government revenues, we are an oil based economy, what kind of times do we live in? The numbers suggest we are in an economic boom, regardless of what the reality ‘on ground’ might be.
I thought to do a comparison of Obasanjo’s first term in office and GEJ’s first 4 years in office viz oil prices and government revenues:
1999 – 2003
The dates I used are from May 29th, 1999 to May 28th, 2003. In June ’99, oil prices touched $15.86 while the highest point was September 2000 when prices hit $33.15. As is evident from the chart, prices fluctuated quite a lot in those 4 years – indeed the high and low points happened within almost a year of each other.
Think of it another way – oil prices closed at $21 at the end of 1999 so if legislators were going to budget based on that for 2000, it would have been a bit of a mess because within 5 months (May ’00) prices had dropped below that high point. Perhaps this uncertainty is what caused that government to save money like it did and not really spend on big infrastructure projects.
2010 – 2014
The dates used here are from May 6th, 2010 when GEJ officially took over and July 31st, 2014. The lowest point of the period was in that same May when prices were $70 per barrel i.e. since GEJ came to office, prices have never been lower than he met them. The high point was in March 2012 when they hit $125. Other than that, from the graph you can see that prices have been fairly consistent around the $100/barrel mark.
I am not sure any Nigerian leader has enjoyed this kind of boom before. As an example, the chart below is for the IBB years – August 1985 to August 1993:
1985 – 1993
Can you guess what that sharp rise in 1990 one is? (Hint: Pius Okigbo report). In October 1988, oil prices hit a low of $12 and in October 1990, they hit a high of $36.
Barring a miracle, GEJ will be re-elected as President in February 2015. It’s worth thinking about what his second term might look like just in case his oil price luck
runs out changes. It’s possible for things to get even better than they currently are. The chart below is for Obasanjo’s 2nd term as President:
2003 – 2007
The direction of travel is unmistakable – the lowest point of $26 was in May 2003 and the highest point was in July 2006 at $74.
With all that mind, here are some random thoughts:
1. Can you name any major project being carried out by this government that is not being funded by a loan or grant? From 2nd Niger Bridge to all the various airports being built. This is a genuine question as I am sure there are some big projects funded with oil revenues but which aren’t so obvious.
I tried to use a FoI request to work out how much foreign aid and loans were being used to fund the budget but so far there’s been no response.
2. In March 2011, GEJ signed the new minimum wage of N18,000 per month into law, up from N11,000 per month. What is often not understood is that organised labour got the government to maintain the difference between the bands after the new minimum wage came into effect. The effect of this was to almost double all salaries.
This partly explains why the Finance Minister was complaining recently that the FG’s wage bill had risen from N857bn in 2009 to N1.8trn this year – the bulk of that increase would have happened post the new minimum wage. She says the wage bill is for 1.2 million workers but the workers themselves say there are only 870,000 of them in the work force. But note that they do not dispute the N1.8trn being spent only on who it is being spent on. Whatever the truth may be as to the actual number of workers – we are spending around 38% of the budget on less than 1% of the population.
3. Bear in mind that the planned budget deficit for this year is almost N1trn (it could be more, it could be less) and there was only one surplus month between May 2013 and June 2014 i.e. a month where the government spent less than it earned.
4. Given that the bulk of government’s revenues still come from oil revenues and its finances are at full pelt at the moment, what do you think might happen if oil prices were to fall to say, $75 for around 6 months? Or what if we cant sell as much crude as we normally would? Certainly not that far-fetched – it’s getting harder to sell our crude quickly on the international market (partly due to the Americans not buying as much as they used to). By the 3rd week of July, around one-third of the August cargoes remained unsold.
As a business owner, will you be willing to pay more taxes to support the ‘Transformation Agenda’ if oil prices start to drop? Definitely worth thinking about.
A couple of people have taken me to task about comparing 1999 – 2003 dollars with 2014 dollars without using a base year. So I have inflated the 1999 – 2003 numbers to 2014 dollars. For example, $1 in 1999 would be worth $1.42 today, $1 in 2000 would be worth $1.38 today and so on.
So taking that into account to update the numbers, you get a chart like the one below:
Apologies for the dodgy looking chart but you get the gist – the low point of June 1999 which was $15.86 back then would be worth $23 today, around a quarter of current prices while the high point of September 2000 which was $33.15 back then would be worth $46 today, around half of today’s prices. In other words, comparing the first 4 years of both terms means that the current government is doubling the best revenues that the Obasanjo government ever managed.