Washington DC — By next week, precisely on Tuesday 6th November, America will decide who wins its presidential election which is keenly contested between Democratic Party candidate Barack Obama and his Republican challenger Mitt Romney here in the US. The result of the election, head or tail, will certainly have impacts on the world economy and specifically that of Nigeria in the long run.
This is because both candidates in the election have talked about economic policies that have relevance to the reality in Nigeria especially as they relate to the 2013 budget and beyond. In recent debates, both candidates have laid plan on how to reduce fiscal deficit in the American economy which reached about 9.5% of GDP last year. The interest of both candidates in this regard is to put America back on the path of full economic growth after the cash crunch and depression of 2008-9. They both need to do this possibly to bring back the glory of America to her age long number one world engine of growth that has now been taken over by China. Although this ambition looks high to achieve in the light of slow growth of American economy at about 1.7% compared to that of China of about 7.3%, according to the World Bank statics of 2011. Notwithstanding, the message is loud and clear and that is American economy must curtail deficits and not looking at China’s slush fund in borrowing any more. Not even at a time when the European economy is comatose and that of Greece and now Spain are particularly in deep trouble.
In demonstrating this commitment, President Obama advocates for a higher tax rates for the upper income payers while Romney advocates cutting entitlements and lower individual and corporate tax while broadening the tax base. Romney also believes that cutting non-security discretionary budget by 5% will stimulate the economy.
This means therefore that both candidates have a consensus on the matter and will definitely focus on economic growth contrary to Nigeria’s plan to increase domestic borrowings to finance an extremely high recurrent expenditure in 2013.
The American thinking in this regard should interest Nigeria for many reasons. One, is the fact that they produce about 1/5 of the global output and thereby possessing tremendous capacity to influence the world economy. Two, the American currency, the US dollar is the key denominator of our own currency, the Naira. Three, and more importantly, America singlehandedly consumed about 40% of Nigerian crude oil production for sometimes now.
Indeed, if a cut in American internal control of government deficits will not have direct effect on the Nigeria economy, their plan to look inward in energy consumption will definitely do. Both Obama and Romney have strong views on this. They both believe that they need to look inward in the exploration of alternative sources of energy to run their huge economy. While Obama is more eager to develop fossil fuels and alternative energy like solar and wind, Romney is calling for new oil and gas offshore lease instead of direct crude import from abroad. The implementation of this policy by the duo will certainly impact on crude importation from Nigeria by the US. This is apart from the fact that American has started getting uncomfortable with the increased level of corruption in the Nigeria oil industry and now looking towards Angola as alternative source of crude oil importation.
In a recent report by The Economist, a weekly international financial magazine, on the oil industry in Nigeria, the prospect of continuous exploration and selling crude oil by Nigeria abroad is deeming. The Magazine cast doubt on the claim of 2.7m barrels per day production that the Nigerian government has recently been claiming – citing massive corruption, direct stealing of crude oil and lack of total accountability in the downstream as reasons for anyone not to believe these figures. The magazine stated in the report and I quote that “the fast changing nature of the industry, the emergence of shale oil in America and gas booms in places such as Qatar and Australia are putting Nigeria behind the times” in oil trade market.
Therefore Nigeria is definitely going to lose a big market share from a major consumer like America perhaps far worse than is happening now.
Already government officials in Nigeria are worried about this development. Mrs Ngozi Okonjo-Iweala, Nigeria’s Supervising Minister for Finance recently made this known when she lamented the stealing of about 400,000 barrels per day from our shores and the decline in crude oil demand by the US.
How can anyone reconcile the scenario playing out between a possible of lost in revenue to the desire of Nigerian government to spend so hugely on recurrent expenditures -which is to be financed by domestic debts in the 2013? In the said budget, the underlying assumption by the Executive arm in the international price of oil is a benchmark of $72 per barrel. This has already pitched the presidency against the lawmakers (the Senate and the House of Representatives) that thought a benchmark of $78 and $80 respectively are more appropriate to free money from subsidy payments into recurrent expenditures spending – instead of raising domestic debt for same. The belief of the lawmakers in this regard is that, if there must be borrowings at all, it must be by the private sector in order to stimulate the economy – instead of government using it to finance an over-bloated recurrent expenditure.
The irony therefore is that when other countries in the world including the largest growing economies of today Brazil, Russia, India, and China (BRICs) are being prudent in their spending, Nigeria with an infrastructural deficit in trillions of Naira is planning a huge budget deficit to finance recurrent expenditures.
One good news though is that there was a recent listing of Nigeria government bond in the emerging markets government bond index by J. P Morgan, beginning from the month of October 2012 which is hoped to stabilize the economy. Analysts have said that this as a good development and could stimulate the financial market in the light of good management and frugality. They said the development is capable of injecting about $1b dollars fund in to the Nigeria financial sector and thus stabilize the market. Whether or not this is the bailout will remain to be seen.
