Date Published: 01/05/10

Bayelsa: 2010 Budget and Foreign Direct Investment By Richard Omagbemi

There is a vast literature establishing the relationship between Foreign Direct Investment and economic growth especially in transitional societies. In a broad sense, Foreign Direct Investment (FDI) consists of a flow of capital, expertise, and technology into the host country or State. It also implies "an array of investments made to acquire lasting interest in enterprises operating outside the economy of the investor". Foreign Direct Investment is a form of lending or finance in the area of equity participation, which involves the transfer of resources, including capital, technology, management and marketing expertise . Because of the direct and spill-over benefits of FDI, developing nations have increasingly recognized the importance of foreign capital and investment to economic growth. Even the neoliberal economic paradigm galvanized by the mementa of privatization, liberalization, and globalization place great premium on cross-border investment as a sine qua non for growth.

Growth in a neoclassical sense results from increases in the quantity of factors of production and in the efficiency of their allocation especially in labour and capital. Even where domestic inputs in addition to labour, are readily available, increased production may be limited by scarcity of imported inputs upon which production processes in low-income countries are based. The world over, governments at all times and of all stripes have seen it as part of their social contract and political mandate to attract economic activities to their countries through FDI.

In the last few years, Nigeria has accorded serious attention to FDI in the country. This is in recognition of the its role as facilitator of economic growth and development, which is believed to lead to industrialization of the economy on the long run. Foreign Investment is known to play an important role in the future as a source of capital, managerial expertise and technology for both the developing economies.

In Nigeria, the factors influencing FDI include; inflation, exchange rate, uncertainty, credibility, government expenditures as well as institutional and political factors. Other factors include; return on investment in the rest of the world, domestic interest rates, debt service, per capita income ratio of world oil prices to world price of manufactured goods, credit rating and political stability. Nigeria is graciously blessed with enormous mineral and human resources yet the country is believed to be a high-risk market for investment. This negative economic index has been compounded by decades of bad governance characterized by corruption and primitive accumulation and bad corporate governance.

It is against this background that most states in Nigeria are striving to promote FDI to promote economic growth. Analysts and experts alike have given a thumb up for (FDI) as a veritable booster to kick-start the Nigerian economy. This is more so with the advent of democratic rule. In fact, one important economic consequence of globalisation for developing countries has been the massive and unprecedented inflow of foreign private capital by way of investments. Indeed during the last decade private capital in-flows have contributed to macro-economic stability. However, many factors affect the FDI profile of Nigeria. These factors include: availability of natural resources, infrastructure, market size, level of human capital development, distance from major markets and labour cost. Others are openness of the economy to international trade, exchange rate and fiscal regime, non-tax incentives, monetary policies and the extent of liberalization accelerated by information and communication technology. In Nigeria, the most critical challenges to attracting FDI are poor infrastructure in terms of road, industries power supply and militancy in the oil rich N/D Region.

In Bayelsa State, government is trying to use the 2010 budget to attract FDI to stimulate the real sectors of the economy. The budget is now regarded as the alter ego of all financial estimates that government intends to work with. First, the budget affects the lives of the citizens in a special way as it shows how their wealth is distributed and their finances expended in areas of priority. The budget estimates therefore, represent the needs of the government and the people and how such needs are met.

The 2010 Budget of Bayelsa State is guided by the philosophy of budget discipline and fiscal responsibility. Accordingly the underpinning principles of the 2010 seek to direct government resources at existing viable ongoing projects that are targeted at achieving the developmental priorities of the State Government and enlist the active participation of the private sector in the infrastructural development of the State particularly in Agriculture and real sectors of the economy. The budget also seeks public/private partnership (PPP) arrangements, as this initiative would have huge potentials for employment generation and boost the general standard of living of Bayelsa people.

The budget is also designed to enhance efficiency in public expenditure management by strengthening the capacity of government institutions responsible for driving efficient and effective macro-economic variables. The State is poised would to pursue investment in safe and highly rated instruments for reasonable economic returns; perform periodic budget monitoring exercises to assess the efficiency and effectiveness of implementation of budget and ensure the optimization of the State’s internally generated revenue. The budget further seeks to improve the State’s access to donor funds and determine the issue of actual quota of crude oil produced in Bayelsa State.

Basically, in Bayelsa State, the cost of starting a business as expressed in the percentage of income per capita is very high. This is due largely to infrastructural deficit hence the real sector of the State’s economy has not witnesses any astronomical growth. It was to overcome these challenges that prompted the State Government to consolidate on the gains made in 2009 and open windows for new economic initiatives that would promote growth on the long run. In 2009, the Bayelsa State Government strategically put in place 3 Special Purpose Vehicles (SPVs) for the establishment of 3 functional and result-oriented companies in the Ministry of Agriculture. These include: The Nigerdelta Seafoods Ltd, Bayelsa Farms Ltd and Bayelsa Oil Palm Ltd. These are areas with which Government intends to galvanize the economy of the State in terms of job/wealth creation and poverty reduction. The involvement of local and international partners in the agriculture sector would attract robust FDI.

In the health sector, the State Government is concessioning the Chief Melford Okilo Hospital and the Prof. Diete Koki Diete Koki hospital to foreign medical experts. These would be transformed into centres of excellence and encourage medical tourism in the State. While adhering to the neoliberal concept that private sector involvement results in efficiency, government has not lost sight of the social contract of ensuring the protection of the healthcare of Bayelsans and to create more robust access of healthcare delivery in the State. The concessioning of these health facilities to expatriates would yield higher growth through higher efficiency in human capital, transition and diffusing technology as well as the introduction of alternative management practices, organizational arrangement, and improved entrepreneurial skills.

The hospitality industry is another sector where the budget has set out to attract FDI. In the 2010 budget, the State over the medium term has pledged to intensify the completion of existing projects nearing completion and existing projects with high commercial viability for private sector participation. In this regard, the Senatorial roads, Cargo Airport, Tower Hotel and Conference Centre will be accorded priority. Other projects include the construction of Yenagoa Gateway Guardian Angel Project, the works yard in Yenagoa and the maintenance of public buildings in the State.

In the same vein, the government will partner with Federal Mortgage Bank (FMBN) and other private sector investors to develop about 1,300 housing units for the State. Furthermore, government will continue the infrastructural development at the housing units at Ekeki phase 1, Okaka Housing estate and low cost housing scheme at Ewoama. Adequate housing creates an enabling atmosphere for industrialization. This conducive environment will support the proposed plastic industry, which would be operational by May 2010. The plastic industry is expected to generate employment and boost the economy of Bayelsa State.

Capital receipts shall be driven largely by the receipts from our bond issuance program of N50 billion, divestment and counterpart funding from various programmes in agriculture, education, infrastructure, water resources and industrialization. Accordingly, the total expenditure for 2010 is estimated at N178.52 billion comprising of N116.47 billion or 65.2% for recurrent expenditure made up of N18.17 billion for personnel costs, N78.83billion for consolidated revenue fund charges and N19.47 billion for overhead costs. The capital expenditure for 2010 has been estimated at N62.05 billion or 34.8% of total expenditure. When this is added to anticipated FDI benefits, Bayelsa would have a robust investment profile capable of jump-starting the much-needed economic development.

There is also a critical need for boosting Foreign Direct Investment (FDI), which would attract foreign partners to develop the economy. By encouraging FDI, the administration would have garnered enormous goodwill from major global financial institutions to catalyze the local economy and increase her competitive edge in capital investments. This is feasible because, already, government has concluded arrangements with the World Bank to provide support in planning critical sectors of the economy as well as educate principal officers on financial management based on well tested participatory, bottom-up and all-inclusive principles.

This writer suggests that as part of the post-amnesty programme, the Federal Government should complement the State Government’s efforts by establishing cottage industries through public-private partnership to mop up the middle-level manpower existing in the State. Specifically, the Federal Government can build an ICT Park in Bayelsa State as part of strategies for engaging the youths in productive activities to complement the 3E programme of the Sylva administration. The nation’s aspirations to achieve the Millennium Development Goals in 2015 and Vision 2020 would remain a pipe-dream without boosting the ICT Sub-sector. There is no gain saying the fact that the 2010 budget has been designed to sow bountifully in the real sectors, such as the provision of physical infrastructure and human capital development to unleash the economic potentials of the people.

The 2010 Budget for the State has been christened a Budget of Impact because it is focused on delivering the objectives of the administration by enhancing investment in human development, critical infrastructures that will directly impact on the wellbeing of Bayelsa people. It is indeed a realist budge that would yield dividends for the people. The implementation template shows that the budget will improve the general macroeconomic and institutional frameworks, including stable and high economic growth rate of the State.

In the words of Eleanor Roosevelt "It is better to light a candle than to curse the darkness." The 2010 budget of Bayelsa State is intended to illuminate the hitherto moribund economic potentials of the State and revive the creativity of the people for optimum results. It is a budget that seeks to reduce public debt, moderate the arrogance of public officers, reduce spending and consolidate on the existing institutional mechanisms of transparency and accountability. Now, Bayelsans have a budget that encourages hard work and adds value to good governance as a demonstration of the fact that Bayelsa State is working.

Richard Omagbemi, a Policy Analyst, wrote from Warri