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Nigeria's financial fault lines: Jonathan helpless as corrupt interests outwits reformist

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The government's arithmetic is under strain amid a paralyzing rift between the reformers in the CBN and Finance Ministry, and top Petroleum Ministry officials, led by Minister Diezani Allison-Madueke, who have proved adept at deflecting outside efforts to

impose accountability on the oil sector.
President Goodluck Jonathan's mantra of being a transformational president seems to have hit the rocks as indicators emerge that reformers in his cabinet, including the Central Bank of Nigeria (CBN) Governor Lamido Sanusi and the coordinating Economy Minister, Ngozi Okonjo-Iweala are losing the battle for reforms against defenders of the status quo led by the all-powerful Petroleum Minister, Diezani Allison-Madueke. Sanusi is arguing that rising oil theft, the Boko Haram insurgency in the North and fuel subsidy fraud makes it hard for the government to survive unless it agrees to hard-hitting reforms.

A helpless and hapless President Jonathan has decided to play for time; hoping that investments and semi-privatization of the power sector will pay off next year. So far, those blocking reform are winning hands down in the running battles with reformers in the government. Yet their victory could prove to be a hollow one if they bankrupt the Treasury in the process. As President Goodluck Jonathan prepares to read the 2013 budget in the National Assembly next Thursday, which estimates state spending of 4,929 billion naira (US$31.11 bn.), economists are questioning whether its targets are achievable without massive foreign borrowing.

In an ill-tempered hearing in the Assembly last October 4, Lamido Sanusi repeated his view that the economy was hobbled by massive organized oil theft. Economists and bankers say the financial status quo is not sustainable. Yet there are little prospects of Jonathan tackling the roots of the crisis because of his failure to stand with the main reformers - Sanusi and Okonjo-Iweala. There are three pressures overwhelming the Nigerian economy:

• oil theft (bunkering) has increased in the Niger Delta to over 450,000 barrels per day from the NNPC's claimed production of 2.7 million bpd, which would mean annual revenue losses of over $10 bn.;

• the cost of the insurgency in the north is hitting home, firstly with a security vote of over $5 bn. in the 2012 budget, which crowded out investment in agriculture, health and education; and secondly, with the destruction of the northern economy and a growing north-south migration which is distorting national development plans;

• the costs of the fuel subsidy have spiraled out of control; the backlog of subsidy payments due from 2011 could amount to $18 bn. That's well over half the total $28 bn. national budget for 2012. The government's decision to halve the petroleum subsidy this year, after its failed attempt to abolish it in January, will more than halve the costs this year, along with much tougher checks on fraud. However, the government is left with accumulated obligations of several billion dollars to the fuel traders that it will be unable to finance without recourse to more borrowing.

The Nigerian National Petroleum Corporation (NNPC) claims oil production is up to 2.7 million bpd. But Sanusi wondered how the NNPC got that figure, given its record on data gathering, with no reliable auditing of crude oil production, still less of how sales revenue was managed. Sanusi's reference to the NNPC's tenuous grip on financial realities signaled a wider rift in government between the economically literate officials in the CBN and Finance Ministry, and the top officials in the Petroleum Ministry, led by Minister Allison-Madueke, who have proved adept at deflecting outside efforts to impose some accountability on their fiefdom. Sanusi also complained that the Assembly's frequent demands that he appear at hearings were disrupting his work. Many in the Assembly have not forgiven his questioning of the costs of the federal legislature, especially salaries. Senators earn over $1million a year before generous allowances for houses in the capital and their constituencies and travel budgets. understands that after a successful $20 bn. debt reduction deal with bilateral and multilateral creditors a decade ago (largely thanks to the effort of Okonjo-Iweala, then Finance Minister), cut foreign debt to under $8 billion; the figure has crept up again. Abraham Nwankwo, Director General of the CBN's Debt Management Office, forecast that Nigeria would owe about $25 bn. By 2015, $16.75 bn. to foreign creditors and $8.44 bn. to domestic ones.

Bankers dismissed this as a conservative estimate. A CBN official told that the NNPC alone already owes about $8 billion to foreign banks to finance continuing commitments on its fuel subsidy scheme, while domestic debt is already over $8 billion. All these shenanigans in fuel trading have pushed up the cost of living; compounded by the government's failure to introduce palliative measures after cutting fuel subsidy. The subsequent electricity tariffs hikes and higher duties on imported wheat (pushed up the price of bread by 4.5%) and on rice.

At the same time, unemployment is growing and the Trade Union Congress of Nigeria is calling loudly for a national job-creation plan. Herbert Ajayi, President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, said 800 companies had folded and economic growth was slowing. Provisional data from the National Bureau of Statistics indicated that Gross Domestic Product (GDP) in the first quarter of 2012 grew by 6.2%, down from 7.1% in the same period last year. Real GDP growth for fiscal year 2012 is projected at 6.5%, down from 7.5% in the fiscal year 2011.

As economic conditions get tougher, Jonathan should be bracing for a resumption of January's mass demonstrations against government attempts to cut the fuel subsidy. The protests forced the government into a partial retraction of its policy and prompted the National Assembly to set up a probe into corruption around fuel subsidy claims made by the big trading companies. However, none of the well-connected companies accused of fraud have been prosecuted and even cases against the more obscure companies are proceeding painfully slowly.