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Govt to borrow for projects, struggles to sell crude oil


khafji-oilfield• CBN unveils 1m graduates employment scheme in 2016
• Lagos plans N25b enterprises fund at 3%

FACED with reduced revenue following crude oil price crash, the Federal Government has decided to borrow money to fund its capital projects and meet other obligations next year.

As the government yesterday unveiled ambitious developmental plans, the country struggles to sell its once-highly-in-demand crude oil, the price of which hit a 10-year low in November.

The country’s crude oil production declined by 205,300 barrels per day in November, according to the latest report of the Organisation of Petroleum Exporting Countries (OPEC), and other members of the cartel produced beyond their respective quotas during the month.

While the Federal Government has indicated plans to raise its debt obligation to fund capital and other development projects, the financial sector is rolling out initiatives and incentives to drive employment for at least, one million graduates, through small business support and ownership.

According to the Minister of Finance, Mrs. Kemi Adeosun, who spoke at the Seventh Yearly Bankers Committee Retreat, in Lagos, yesterday, the country has a Debt-to-Gross Domestic Product which is as low as 12 per cent to hold on to “and that gives us some space to manage our deficit budget, which is aimed at stimulating growth.

“To do that, we need some fiscal house-keeping. We need to borrow, but it must be with the objective of investment in infrastructure and capital projects.

“To achieve this, we still need to look at our budget. If we continue along the trajectory of the recurrent and capital expenditure, together with the supplementary budget just passed, we may end up borrowing for recurrent expenditure. We need the fiscal housekeeping to ensure that our revenue comes in and that expenditure goes out as well.

“We have a sense of where we are going with our Medium Term Expenditure Framework being articulated already, but it is important that you as bankers know because we are coming to you principally to raise money. I need to give you the assurance that we will be raising money, but we are going to do everything possible to ensure that the institutional borrowing goes into detailed expenditures that will produce dividends to the economy.

“Nigeria can overcome the challenges. I am not here to whitewash the situation or paint a picture of how tough it is going to be, but how we are going to make decisions that will provide a way out.

“We must share ideas of how we will deliver the growth needed in the economy and the growth is there in the Small and Medium Enterprises (SMEs) sector. Fifty per cent of our GDP is SMEs, so if we solve the problem of SME, we will actually generate the wealth we need in the economy,” she added.

According to the Lagos State Governor, Akinwunmi Ambode, who was at the event, it is no longer in doubt that SMEs hold the key to realising the country’s full potential of growth and development.

For him, the history of Asian Tigers is well known and it is also a fact that while most big business operations started as SMEs, developing economies give special attention to the survival of SMEs in various sectors of their economies.

“As a government, we are committing N25 billion in the next three years to Employment Trust Fund. We will soon complete the legislative process of inaugurating the fund and board of trustees, through which our youths and entrepreneurs, particularly in the social enterprise sector, will be supported with start-up fund.

“This is an intervention fund and we strongly believe that the interest we are going to charge will not be more than three per cent. We therefore, request banks’ partnership, as we frontally mitigate the negative effect of our surging youth population. It can swing anywhere. Two-thirds of the people living in Lagos are actually below 35 years,” he said.

The governor, who noted that there was still a long way to go to maximise the potential of SMEs as contributors to economic growth, said that beside infrastructure deficit, lack of access to capital remained the most daunting.

“The banking sector needs to do much more than they are currently doing in terms of giving special attention to the capital requirements of SMEs. It will be difficult, if not impossible, to achieve our diversification goal if we do not give proper attention to adequate financing of SMES, including fiscal incentives, among others.”

Meanwhile, the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, said with the economy’s entry into a challenging phase, SMEs must be given a priority for the growth of the economy.

The apex bank boss who lamented that the industry had not played an active part in the support of SMEs, although not without reason, said banks must now work to help the country out of its challenges and cooperate in other efforts.

He said that the CBN was already concluding plans for a programme that would support SMEs, particularly, lending money at “concessionary and ridiculously concessionary pricing, to our young graduates in 2016.

“We have so many graduates, who don’t have jobs. We need to get more people engaged. For banks, there is the need to find out how to give support to the young graduates.

“In the course of the next few weeks, we would be unfolding the plan of support by CBN to create employment for at least, one million graduates in Nigeria in 2016.

“We must trust them. We must give them a chance, because they can do it. The details, I repeat, of the programme we are planning now, mean that if you (banks) refuse to support, their money that we would have released through the Cash Reserve Requirement, will be taken and lent through any channel that will give these young graduates jobs.

“We all need to think together and act in one purpose. There is no need to release the money and all you do is to buy treasury bills. We cannot continue this way. We must diversify this country away from oil and the time is now,” he said.

According to Emefiele, the CBN has come out strongly to ensure that whoever borrows must pay, otherwise that person would be blacklisted to the point that no one would allow the person access to loans in the industry again.

He said that the need to diversify the economy from oil and move away from the problem of external shock that the country was facing meant that SMEs, as the drivers of both the private sector and economic growth, must be supported.

He said the programme would entail support from both the banks and development institutions to create cheap and concessionary loans and channel them to MSMEs to be developed by the targeted group.

“In Germany, they represent 99 per cent of all the companies there today; 68 per cent of labour; and 37 per cent of corporate turnover.

“Nigeria has 37 million Micro Small and Medium Enterprises, but can we answer the same questions? Do the small businesses represent 99 per cent of companies in the country today? We need to learn from some of the examples of countries like Germany,” he added.

The OPEC report said Nigeria’s crude oil production declined from the 1.812 million barrels per day (mbp) it recorded in October to 1.607mpd in November.

Though the Federal Government pegged the benchmark oil price for the 2016 budget at $38 per barrel with an estimated daily output of 2.2 million barrels, the country’s crude oil production had been on the decline since January.

OPEC has attributed the inability of the country to find a trader for its crude oil due to supply glut and low global refinery demand. Already, OPEC said in its December oil market report released yesterday, that the December official selling prices for Nigeria’s crudes hit their lowest level in more than 10 years during the month under review.

It added that towards the end of the month, a larger-than-usual purchase from India’s IOC supported West African crude oil, but a nagging backlog of cargoes kept a lid on any movement in differentials.

The cartel noted that North Sea oil was also competing with light sweet Nigerian crude, which has a big overhang of cargoes available for export.

The report disclosed that the West African crude oil price differentials remained under pressure as weaker refining margins in Europe weighed on demand for the substantial November-loading surplus.

According to the report, with more than 40 million barrels of Mediterranean and North Sea crudes seeking buyers, the prospects were not good for West Africa crude oil differentials.

OPEC stated that crude oil futures weakened significantly in November; this was not only due to oversupply, it was linked to physical demand and storage issues as well.

It explained that oil markets had been dogged by oversupply, with an estimated 1.8 mbpd above demand being produced. The cartel also hinted that crude futures prices were also pressured as the dollar rallied to record highs and concerns faded that escalating tension in the Middle East could disrupt supply.

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