Mazi Sam Ohuabunwa, Chairman of the Nigerian Economic Summit Group and President of Neimeth Pharmaceuticals Plc, takes critical look at 2011 budget. The Chairman of Nigerian Employers Consultative Assembly (NECA) discloses that the nations economy has great potential of growth with current variables on ground.Whats your assessment of the 2011 budgetI THINK that the budget is very expansionary, especially when you look at the size. However, we in the business sector are worried about the ratio between capitals and recurrent (expenditures). We have seen a deterioration in the ratio between capital and recurrent from the year 2000 when it was about 60:40that is 60 capital and 40 recurrentto the point where by 2010 it was about 70:30. It has even worsened in 2011. But, when we look through the budget, we are able to see part of the reasons for the high level of recurrent expenditure this year. These include the provision for salary and wage increase as demanded by the Nigerian Labour Congress. We also noted the N50 billion provisions for job creation, which is also part of the recurrent expenditure, as a factor responsible high level of recurrent. But, I believe that it is imperative that the government restructures its spending so that we do not put too much money in recurrent. There is, indeed, nothing wrong in putting much money on recurrent. It is just that at a particular stage in your development, you think you need more capital investment so that you can guarantee production in the future.We believe that N1.5 trillion capital expenditure in the budget is a lot of money to spend. Our worry is whether we have the capacity to absorb N1.5 trillion capital expenditure in one year, given especially the due process of procurement and contracting. It will be miraculous if we are able to consume N1.5 trillion. Still, I think that if the country is able to effectively utilise this money, it will show a major impact in terms of improving on our infratsructure, power supply, transportation and all those key areas.Also, there is a reduction in deficit in this years budget, because in 2010 there was a higher level of deficit. This time around, the government tried to bring it down. The other concern I have about the budget is that I would have preferred that we kept the oil price benchmark at the figure from the executive rather than the more optimist $75 per barrel benchmark, which the National Assembly has taken. That for me is a little bit risky because I think the oil market is volatile, and it is safer for us to be more pessimistic about pricing rather than being optimistic.What are the implications of a higher level of recurrent over capital expenditureThere are two major implications. One is that if you have too much recurrent expenditure it means that you are eating up your seed, so to say. Every farmer knows that he has to preserve his seed so that he can replant it to guarantee many more years of planting and reaping. But, if you eat up your seed, then you will have nothing to replant. With a larger dose of recurrent expenditure it is like we are eating up our seed. We are impairing the future.The second issue is the impact on inflation, because recurrent expenditure is more or less consumption. Therefore, the money goes into the system. From a positive point, consumer purchasing power will rise with higher recurrent expenditure, and as a manufacturer, this is positive for me. It means that more money will be available to buy goods and services. But, from an economic point of view, you also run the danger of inflation. However, right now, when we have too many goods waiting to be purchased, I probably think that the fear of inflation may not be there. We have a lot of unsold goods in the market and anything that can put more money in the hands of the consumers will be helpful.Looking at the budget, is there hope for a turn around in the manufacturing sector, considering that the sector has been on the decline for many years nowThere is hope because if look again into the budget, you find that there is a lot of provision for infrastructure and for us as manufacturers, one major issue that is causing us not to be globally competitive is our level of infrastructure. I think there is a focus on infrastructure in the budget and that is positive to manufacturing.Secondly, we also have seen the additional investment in education. This should create better manpower, which is also one of the needs of manufacturing. We need better quality human resource.Thirdly, is the current special provision made for manufacturing in the area of providing special funds through the Bank of Industry (BOI) for refinancing debts and for opening up new investments There are also funds now being made available to textile manufacturers and money for SMEs (Small and Medium Enterprises) and other members of the real sector. These are positive development.The area where we have challenges as manufacturers relating to the budget is the lifting of the ban on certain items. That is contentious, because we think that it is like giving you something with one hand and taking it away with another. Governments point, however, are that certain things have to give for others. You cannot keep going in one direction. You do a little bit to the left and a little bit to the right to maintain a global acceptability of your policies. That is what we seem to hear.What is the current state of manufacturing, in terms of capacity utilisation and contribution to national gross domestic productThe current state of manufacturing, I can say, is that the degradation and the decline in the sector are in the process of being halted. The decline was consistent both in GDP contribution and in capacity utilisation. At the last count, the GDP contribution was about four per cent. Capacity utilisation has come down to about 27 per cent. And that was a decline.I want to believe that from what I have seen happen in the last six months to one year, that decline has been arrested, if you look at all the sectors and if you look at all the money that has come into manufacturing through SMEs and through the different sectors or groups. Whether the growth has started, I cannot say. But, when you arrest a decline, the next phase is for growth. I believe that growth will come by a sustained activity. The palliatives that government has made must be sustained, if not the decline will come back.If you ask me about the forecast, I think it is positive. And I can say so because even as a manufacturer I am noticing even from our own industry, the pharmaceuticals, and higher level of activities in the last six months. Some companies that stopped their expansion programmes have resumed them. Here at Neimeth, we were at a limbo what to do at a time, but we are now beginning to re-start some of our expansion programmes. We are returning to the market soon to seek additional funding through a rights issue.The general outlook for the manufacturing sector is that of growth. For my company, for example, our capacity has crossed 40 per cent from a low of between 20 and 29 per cent in previous years. We are hoping this trend will continue and if it continues, then of course, GDP will rise.What is the current experience of the manufacturing industry with respect to power supply There is a belief that there has been some improvement overall even though some people still complain that they have not seen the improvement. Some people say it is even worse. But in a country as large as ours we have to deal with averages. The overall average response is that there has been an improvement. I want to corroborate that with government saying that they have stabilised supply around 4,000 megawatts of electricity instead of the 2,500 or 3,000 megawatts we are used to.Secondly, I am aware truly that a lot of money has been put into power through the NIPP and many of those plants are now coming to maturity and many more will be coming into the grid. I believe that the swing is up. We had opportunity to interact with private sector people who are now advising government in the power area, including people like Prof. Barth Nnaji. They give the impression that there is a sustained investment and that sustained investment can only yield more power.The operational environment has not improved sufficiently to make any significant change. And there are factors for this. First is that the security situation has not shown improvement in the last couple of years. The election problems had complicated it. Whereas we were beginning to see an improvement with the partial resolution of the Niger Delta crisis, we now went into the issue of kidnapping and ransom seeking that became evident in the South East and South South, and was beginning to be exported to other parts of the country. While we were trying to grapple with that, the ethnic cum religious issues, the Boko Haram, began to take centre stage in some states in the North. Security is a critical factor to building an investment climate.Secondly, we are in an election year and the perception of any country that is in an election, especially developing countries, is a let us wait attitude. Elections are critical, and if we are able to elect our leaders successfully, then it will accelerate the return to the kind of perception in the environment that we seek. Hopefully, the work on security will see it improve. Infrastructural investment would begin to yield, a reformation of our law and order and the dispensation of justice would hopefully be strengthened, and then if we maintain that again with credible banking system, making our country a place that investment can come and go with greater ease, investment climate would improve and that would yield more investment.
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