Nigeria: Abacha Announces 1995 Budget (fwd)
ogu...@edison.usask.ca
Date: Mon, 16 Jan 1995 13:00:02 -0500 (CDT)
From: BA...@Acd.Tusk.Edu
Subject: 1995 Budget News
Nigeria's budget reforms seen as half-hearted
By Tunde Obadina
LAGOS, Jan 15 (Reuter) - The Nigerian military government's
1995 budget decision only party to deregulate the economy is
unlikely to aid economic recovery or impress foreign creditors,
analysts said on Sunday.
``It will not work. We were looking forward to complete
deregulation,'' Oladapo Fafowora, economic analyst and former
head of the Manufacturers' Association of Nigeria, told Reuters.
Military ruler General Sani Abacha in his budget speech on
Saturday for calendar 1995 said the autonomous foreign exchange
market -- among banks and bureaux de change -- had been unbanned
and two laws that hindered foreign investment were repealed.
But his government retained an official exchange of 22 naira
to the dollar, a fraction of the free market rate, and kept a 21
percent ceiling on bank interest rates.
Abacha, who introduced economic controls in last year's
budget shortly after seizing power in November 1993, had been
faced with conflicting demands from those seeking free market
reforms and those who opposed them.
Local business groups, foreign creditors and international
finance agencies like the International Monetary Fund and World
Bank, called for deregulation.
They wanted this to include devaluation of the official naira
rates to close the gap with those in the black market. This, they
said, would revive the legal flow of foreign exchange into the
import-dependent economy, which in 1994 was stifled by an acute
shortage of hard currency.
But opponents of free market reforms for Africa's most
populous nation, including powerful trade unions and political
opponents of the government, said such a move would worsen the
plight of ordinary Nigerians.
Akintola Bello, a financial consultant, said the budget was a
failed attempt to accommodate the two sides.
``The government has one leg on regulation and one leg on
deregulation. It is not decided on what to do. It is confused,''
he said in a budget debate on television on Saturday night.
``There is a lot of policy blunders. You cannot liberalise
and at the same time control,'' he added.
Nigeria has tried several foreign exchange systems since 1986
when the previous military government began IMF-backed reforms of
an economy crippled by low productivity, over-dependence on oil
sales and stifling bureaucracy.
But with each system the government was reluctant to let the
naira float, apparently because it believed the exchange rate was
seen as a measure of the success of its economic management.
Abacha's budget speech left many questions unanswered,
including how the state would deal with the wide gap between the
official and current free market foreign exchange rates.
Fafowora said the danger of two exchange rates was profit-
making by those with access to hard currency at official rates
buying to resell at higher rates in the autonomous market.
``There will be round-tripping and this will not help the
economy,'' he said. ``The priority should be to remove all
shackles on foreign exchange.''
Economist Akmed Abdullahi said however that the government's
decision to repeal two laws that restricted foreign investment in
Nigeria, and its promise to axe or relax other such laws, was a
bold step.
``The scrapping of the Exchange Control Act of 1962 is
fundamental because that will permit the free flow of foreign
exchange into the country and also allow Nigerians to invest
abroad,'' he said in the television budget debate.
``The scrapping of the Enterprises Promotion Decree 1989
means foreigners can invest freely without having to look for
Nigerian partners. They also don't have to get bogged down in
bureaucratic applications,'' he added.
But Fafowora said it would take more than the removal of
legal restrictions to attract foreign investors to Nigeria, which
last year suffered months of upheaval in strikes and
pro-democracy demonstrations..
``The overall political climate is not conducive to foreign
investment, so merely repealing the two acts is not going to make
a great deal of difference,'' he said.
REUTER
Nigerian experts hail budget but wary on go-ahead
(Adds reaction)
By James Jukwey
ABUJA, Jan 16 (Reuter) - Nigerian financial experts on Monday
welcomed the country's 1995 budget which cautiously restored free
market reforms after a year of political and economic turmoil but
reserved judgment on how successfully it could be implemented.
``The policies seem well-intentioned,'' said Pascal Dozie,
President of the Nigerian Stock Exchange and executive chairman
of Diamond Merchant Bank. ``It is now a question of
implementation.''
Under the system unveiled by military ruler General Sani
Abacha on Saturday, the government retained its fixed exchange
rate of 22 naira to the dollar. But it also allowed the reopening
of the autonomous market -- among banks and exchange bureaux --
which was banned last year.
The rate of the naira in that parallel market is currently
about four times lower.
Central Bank governor Paul Ogwuma told reporters and
businessmen on Monday at a briefing on the budget that the
government was using the official rate for accounting purposes.
``The rate that will prevail in 1995 will be the autonomous
market rate,'' he said, adding: ``That is the rate at which
everyone will do business.''
Several businessmen in Abuja at the briefing given by acting
finance minister Anthony Ani said implementing budget policies
has always been the problem of the west African nation.
But Ani countered that the government had the political will
to implement this year's budget.
``I think we are heading for a new era,'' he said.
The 1995 budget has generally thrown open the economy, the
biggest in sub-Saharan Africa, through the repeal of laws which
restricted foreign investment in Nigerian securities.
``It seems the government wants to attract foreign funds for
emerging markets which other west African countries like Ghana
are now getting,'' said Chike Nwanze, a capital market operator.
``That can happen if the budget is faithfully implemented,''
he said.
The government's key targets are foreign oil firms, which
dominate the business sector.
Ani, however, said oil firms would not be allowed to operate
their own forex market and that this would be done by only the
banks and exchange bureaux.
``The Central Bank of Nigeria shall hold the official foreign
exchange, and from time to time, intervene in the autonomous
market,'' he said.
``A major policy goal for 1995 is the deliberate build-up and
strengthening of external reserves to enhance confidence in the
Nigerian economy, strengthen the naira and pave the way for its
ultimate convertibility,'' he said.
Abacha seized power in November 1993 following a political
impasse precipitated by the annulment of a presidential election
widely believed to have been won by businessman Moshood Abiola.
Pro-democracy strikes and riots last year paralysed the
economy for more than two months and most policy targets were not
met. Inflation mounted to 70 percent, hitting millions of
impoverished Nigerians.
Ani said measures in the 1995 budget to attract foreign
investments and buoy agriculture should lead to a growth rate of
4.16 percent compared to virtual negative growth in 1994.
He announced a series of tax incentives for industry as well
as individuals to spur productivity.
The government would also contract-lease many of its
enterprises, including oil refineries, in 1995 to enhance their
operational efficiency, he said.
Ani said foreign exchange receipts for 1995 were estimated at
$10.697 billion, out of which $2 billion would go for servicing
Nigeria's mounting foreign debt and $3.9 billion would be for
domestic use.
More than $500 million would be used to build up foreign
reserves and $3.44 billion set aside to meet cash calls to joint
venture partners in the oil sector, Nigeria's economic mainstay.
``It all sounds encouraging on paper,'' commented a western
diplomat, who attended the briefing, adding, ``What is critically
missing is a definite statement on when an elected government
will be in place.''
REUTER