KEY ASSUMPTIONS AND FEATURES OF 2014 BUDGET AND ITS IMPLICATIONS ON JOB

CREATION AND INCLUSIVE GROWTH

By

Ndubisi. I. Nwokoma, FCS1

1Professor and Head, Department of Economics, University of Lagos, Nigeria.Fellow, Chartered Institute of Stockbrokers

OUTLINEThe paper is structured into seven sections.

Section I - Global Economic Review Section II - Key Assumptions of 2014 Budget Section III - Issues in Job Creation Section IV - Concept of Inclusive Growth Section V - Review of 2014 Budget Assumptions Section VI - Budget 2014 Assumptions, Job Creation

& Inclusive Growth Section VII - Concluding Remarks

GLOBAL ECONOMIC REVIEW -I The world economy is currently coming out of the

2007/2008 recession Global growth remains in low gear, averaging only 2½

percent during the first half of 2013, which is about the same pace as in the second half of 2012.

The advanced economies have recently gained some speed, while the emerging market economies have slowed.

The emerging market economies, however, continue to account for the bulk of global growth. Within each group, there are still broad differences in growth and position in the cycle.

The impulse to global growth is expected to come mainly from the United States where activity will move up as fiscal consolidation eases and monetary conditions are supportive.

GLOBAL ECONOMIC REVIEW -2 The reasons for the weaker growth differ across emerging

market and developing economies and may include tightening capacity constraints, stabilizing or falling commodity prices, less policy support, and slowing credit after a period of rapid financial deepening.

Some signs of below-trend but rising growth in emerging market economies.

Fiscal policy is expected to tighten less in the advanced economies in 2014 and broadly neutral in emerging and developing economies

In emerging and developing economies, exports growing, driven by stronger advanced economy growth

GLOBAL ECONOMIC REVIEW -3 The forecast for real GDP growth for China reduced to about 7½

percent for 2013–14. For Sub-Saharan Africa, commodity-related projects are expected to

support higher growth. For Nigeria, Oil market expected to be relatively stable in the short

term given little progress in search for alternatives. Cases of reported oil theft in Nigeria of up to 300,000 bpd

worrisome Continued rise in non OPEC crude production and supplies was also

key to decline in prices, over time. Capital flows, -Remittances & worrisome Illicit capital outflows are

on the increase. Over the past decade, a noticeable growth in “South-South FDI” is

quite evident.

KEY ASSUMPTIONS OF 2014 BUDGET -1 According to the Federal Government, the 2014

Federal Budget builds on the pillars of (1) macroeconomic stability, (2) structural reforms, (3) governance and institutions, and (4) investing in priority sectors upon which the 2012 and 2013 Budgets were founded.

The primary goal, while responding to the fast changing economic world, remains the restructuring and development of the economy and the progressive building of a shared future which all Nigerians can all be proud of.

KEY ASSUMPTIONS OF 2014 BUDGET -2 Accordingly, the 2014 Budget builds on the

goals of the 2013 Budget with a focus on creating Jobs and Inclusive Growth. Key parameters include:

Oil production of 2.3883 million barrels per day (compared to 2.526 million barrels per day in 2013.)

Benchmark oil price of $77.5 per barrel. Projected real GDP growth rate of 6.75 per cent. Projected Inflation rate of 9.5 per cent Average Exchange Rate of N160/$.

KEY ASSUMPTIONS OF 2014 BUDGET -3

The other general features of the 2014 budget (based on these assumptions) include:

Revenue projections A net federally collectible revenue of N7.50

trillion is envisaged. Of this, N3.73 trillion is projected to fund the Federal Government’s Budget representing about 9% reduction from the N4.1 trillion for 2013.

KEY ASSUMPTIONS OF 2014 BUDGET -4

Expenditure provision A total aggregate expenditure of

N4,695,190,000,000 - representing a decline by about 5.8% from the 2013 Budget level of N4.987 trillion. This is made up of:

Statutory Transfers -N408,687,801,891Debt Service - N712 billionRecurrent (non-debt) expenditure,

- N2,454,887,566,702 andCapital expenditure - N1,119,614,631,407.

KEY ASSUMPTIONS -5 (SECTORAL ALLOCATIONS1)S/N MINISTRY/DEPARTMENT ALLOCATION

1 Ministry of Education, UBEC and TETFUND N655.47 billion;

2 Defence N340.33 billion;

3 Police Affairs, Police Formations and Command, & Police Service Commission N301.42 billion;

4 Health N262.74 billion;

5 Works N128.65 billion;

6 Power N102.45 billion;

7 Agriculture & Rural Development N66.64 billion.

8 Foreign Affairs N62.68 billion

9 Niger Delta Affairs N49.19 billion

10 Water Resources N38.38 billion

11 Transport N37.50 billion

12 FCTA N30.41 billion

13 Communication Technology – N14.65 billion N14.65 billion

14 MDG j t N120 billi

KEY ASSUMPTIONS – 5 (SECTORAL ALLOCATIONS2)

The 2014 SURE-P Budget sum is N268.37 billion -made up of the Federal Government’s share of the savings from the partial removal of subsidy on fuel of N180 billion, augmented by the 2013 projected unspent balances of about N88.37 billion

The amount is targeted at the provision of social safety net schemes and the development of critical infrastructure projects.

KEY ASSUMPTIONS -6 (SECTORAL ALLOCATIONS3)

KEY ASSUMPTIONS -7 According to the Budget, the fiscal deficit is

projected to rise marginally to about 1.9% of GDP in the 2014 Budget compared to 1.85% in 2013 ( within the 3% of GDP threshold stipulated in the Fiscal Responsibility Act, 2007)

In appraising the 2014 Federal Government Budget, the relevant issues in the core focus of JOB CREATION and INCLUSIVE GROWTH are henceforth articulated.

ISSUES IN JOB CREATION -1 From the Nigerian labour data, in 2006, out of a

population of 140.4 million, 78.9 million were economically active; with 58 million in the labour force and 50.3 million employed and 7.1 million unemployed.

The absorption from the labour force remains marginal from 2008 – 2011

In 2011, unemployment rate for ages 15-24, 25-44 and 45-59 was 37.7 per cent 22.4 per cent and 18.0 per cent respectfully.

Nigeria: Labour Market Indicators, 2006 – 2011 (Million)

Item 2006 2007 2008 2009 2010 2011

Nigeria

Population

140.4 145.0 150.0 154.3 159.2 164.3

Economicall

y Active

78.9 81.4 84.1 86.7 89.5 92.4

Labour

Force

57.5 59.3 61.2 63.1 65.1 67.2

Employed 50.3 51.7 52.0 50.7 51.2 51.1

Unemployed 7.1 7.5 9.1 12.4 13.9 16.1

Newly

Unemployed

- 0.46 1.6 3.3 1.5 2.1

Source: National Bureau of Statistics: 2011 Annual Socio-Economic Report, Abuja

Poverty In Nigeria, 1980 – 2010Year Poverty

Incidence (%) (Head count)

Estimated population(millions)

Population in poverty(millions)

Non-poor Moderately poor

Extremely poor

1980 27.2 65.0 17.1 72.8 21.0 6.2

1985 46.3 75.0 34.7 53.7 34.2 12.1

1992 42.7 91.5 39.2 57.3 28.9 13.9

1996 65.6 102.3 67.1 34.4 36.3 29.3

2004 54.4 126.3 68.7 43.3 32.4 22.0

2010 69.0 163.0 112.47 31.0 30.3 38.7From the statistics, it follows that in 2010, 112.47 million Nigerians were in poverty; out of this number, 38.7 per cent were extremely poor while 30.3 per cent were moderately poor.

CONCEPT OF INCLUSIVE GROWTH -1 In the early 2005 a group of economists, mainly from the

Bretton Woods Institutions introduced the concept of Inclusive Growth to replace the erstwhile notion of Growth and Development. This scenario occurred during periods of sustained adherence to the market, as the mechanism for allocating resources. There had been increased economic growth and widening inequality.

Rather than address the fundamental problems such as the structural rigidities in African economies, this new concept was conceptualized

It is defined as rapid, sustained growth that is inclusive of a large portion of a country’s labour force. - stressing productive employment rather than income redistribution.

CONCEPT OF INCLUSIVE GROWTH -2 Inclusive Growth does not have specific targets such as

employment generation or income distribution – these are potential outcomes, not specific goals.

IG is heavily driven by markets-type sources of growth with government playing a facilitating role.

Rather than the government addressing the questions: What is happening to unemployment?, education?, food and water?, etc, these burning issues have been left to the market as per the inclusive growth approach to development. This methodology is a modified version of the trickle-down effect of economic growth

REVIEW OF 2014 BUDGET ASSUMPTIONS -1 Majority of the Assumptions appear realistic with a few

comments Given the oil discoveries/reserves in other countries

(South Sudan, West Africa etc) as well as increasing demand for oil in China and Asia, a $77.5 benchmark price per barrel and the 2.3883 million barrels per day appear realistic. But the growing incidence of oil theft of about 300,000 bpd was not addressed in the budget. Need to boost non-oil revenue –oil discoveries elsewhere

Though GDP growth rate has averaged about 7% for many years recently, the recent re-basing of the country’s GDP could make the growth rate unrealistic

REVIEW OF 2014 BUDGET ASSUMPTIONS -2

Expenditure programmes need to be well managed, since this is an election year, and the need to maintain inflation at the projected 9.5%. This could be a herculean task.

Focus should be on leveraging on global economic trends –e.g. harnessing growing trend of Remittances and worrisome illicit capital outflows.

Need for increased infrastructural development – by all tiers of government

Cost of governance (largely due structure of government and corruption) still high. Proper structuring & harmonisation of payment systems for government programmes & projects necessary.

BUDGET 2014 ASSUMPTIONS, JOB CREATION & INCLUSIVE GROWTH -1

Anchor of job creation should be expanded beyond agriculture, manufacturing, construction & housing to power generation & SMEs

The 2013 job creation record (Agric -250,000; Manuf -30,000; SURE-P -120,000; YOUWIN -18,000) is good but can be better. Government direct investment in key sectors necessary.

However, the N160/$ ave exchange rate, though realistic, should not be held sacrosanct, to avoid frivolous demand for foreign goods, which works against domestic production and job creation

BUDGET 2014 ASSUMPTIONS, JOB CREATION & INCLUSIVE GROWTH -2

The current proportion of recurrent expenditure to the aggregate vis-à-vis that of capital expenditure appear unhealthy for job creation. However, pressure from Labour unions for more wages may continually grow recurrent expenditure

Promotion of inclusive growth better through enhanced public participation in the labour force than by expansion of social safety nets.

Implementation is the key to attaining the stated goals of job creation and inclusive growth. In 2013, the implementation rate is about 64%. The visible link between budget pronouncement and outcomes is minimal

CONCLUSION The 2014 Budget which appear tight, with less capital

project allocation, need greater focus on implementation

Trends on global capital flows should be incorporated in future budgets – by actively engaging the Diaspora

Enhancing inclusive growth and job creation implies increasing economic opportunities and more government participation in promoting development. Government needs to sustain the empowerment of SMEs to enhance mass participation in the economy.

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THANKS AND GOD

BLESS !