Thursday, December 24, 2015

The 2016 Nigerian Budget: Analysis and Concerns

Like many Nigerians, I watched President Muhammadu Buhari deliver his 2016 budget presentation to the Nigerian national Assembly on Tuesday, December 22, 2016. Like I always do with many of these budget speeches every year, I printed out the full text the following day, Wednesday 23rd, so I can read and fully digest the fine details.

First, an N6.08tr budget in a period where the price of oil is selling below $40 a barrel is a bit ambitious; especially given the dwindling foreign reserves, and the lack of economic diversification expected when the price of oil was above $100. Though the president outlined some measures to streamline revenue collection, plug leakages, invest in diversification programs, education, social insurance, and infrastructure development, I am afraid that at the end of 2016, it might fall short of its goals, even with a zero-based budget system, unless most – if not all – of the leakages are plugged.
One of the steps outlined by the president towards economic diversification is import substitution and export promotion.  Import substitution requires domestic production of comparable or similar products to the ones domestic consumers import, not only in quality, but in quantity and efficiency. Where these are absent, consumers will revert to importation.  Export promotion, also, can only be successful if your product is desired by the intended export market, and it depends on the product meeting expected quality standards the export market is used to.  Where the expected quality standards falls short, Nigerian manufacturers will lose that export market.

It is common knowledge that Nigerian products still fall far short of acceptable standards of the local consuming public, and this limits the market base of these products to a category of the population which live below or within the poverty line. For those above this line, their preference for foreign goods remains insatiable. Therefore, for this twin policy to succeed, government must set an internationally-accepted standard that exceeds that of not just the Nigerian market, but the African market. This standard must surpass those accepted by the Nigerian Diaspora market.

One other important point touched on by the president was the broadening of Nigerian tax base so as to increase non-oil revenue.  The first step towards achieving this objective is to know the closest estimation of the labor force in Nigeria both in the public and private sectors. This will require creation of a comprehensive database of all working age adult in the country; an odious task in a country where data collection and storage is still in its infancy. This is where the National Identity Management Commission, the INEC, the Federal Road Safety Commission, and the National Population Commission will play a major role in collecting sifting, and sharing data among themselves and with the Office of Budget and Management. It is only with such information that the government can estimate the nation’s active labor force and formulate a successful national tax collection policy.

A successful implementation of zero-based budgeting, where expenses for each new period must be justified, can only work if the discipline exists among the various government agencies and ministries. How many of these agencies and ministries will overtly comply with a request for a thorough analysis of its functions to ascertain its needs and costs. Previous governments with such lofty ideas have been roundly defeated by elements within these same agencies with ulterior motives. To go with a zero-based budgeting system and expanded tax base are:
1.     1.  Government Integrated Financial Management Information System – a system designed to improve financial management in large organizations and governments. Ironically, this same system has been in existence since 2012 and could not curtail, let alone stop, the level of financial recklessness Nigeria witnessed in the last three years. There is, therefore, no assurance that things will be any different in 2016 and beyond.
2.   2.    Integrated Personnel Payroll Information System – again, a comprehensive database of all working-age Nigerian will aid in the effective implementation of an IPPIS program.  Like the GIFMIS, this software, or something like it, is already being used by some state and federal agencies in Nigeria for some time now. With a comprehensive database, and all the ministries and agencies employees incorporated into this system, it will not only improve the accuracy and ease of tax collection, it will greatly contribute towards elimination of the ghost worker problems in Nigeria. However, there always exist the tendency for some to cause mischief; so, government must remain aware and alert to the likelihood that someone can create a backdoor to this software for the purpose of financial mischief.

A private sector-led job creation policy, as outlined by the president, involves tax reduction for small businesses and providing subsidized funding for investors in the agriculture and solid mineral sectors. This again is a tricky policy; previous governments have employed this policy – especially in the solid minerals sector where many collected federal subsidies on the pretext of investing in solid minerals exploration and development, with little results. However, to achieve a better outcome, government must first formulate a strict policy that will include setting of performance goals and insisting on refunds of subsidy amounts where such goals are not met.  Tax incentives work better to achieve government objectives where they are graduated over a period of specific number of years or performance level.

Along the same policy of job creation, the budget proposed the training and deployment of 500,000 teachers with university degrees and NCE certificates. This, at least, will ensure that primary and secondary school students are taught by qualified teachers. However, one cannot expect to produce qualified teachers from a rotten education system. Half of Nigeria’s universities are nothing to write home about, and most of the graduates are more of theory experts lacking any practice. Essential amenities, including teaching materials, are lacking in almost all the universities. So, for the government to train half a million qualified teachers, it must first fix the tertiary institutions from which they will graduate. One program that is badly needed, and which worked effectively in the past, is the cooperative societies program.  If the government can successfully bring it back before its exit in 2019, it would have taken a huge step in saving many small businesses and communities from economic oblivion.

Two programs of concern, though, necessary and overdue, are the free feeding at primary school level and the provision of social services to the elderly and disabled who could not adequately fend for themselves.  This is a program that should have been implemented when the nation was swimming in oil revenue, but was ignored; to attempt to, or propose to, implement these programs at a time when the nation is in dire financial straits is going to be difficult, if not impossible. More worrisome is the proposal to partner with state and local governments in implementing this policy; these two levels of governments, especially the local governments, have not been known to be people-friendly in terms of providing social services. While they may be useful in collecting data on the proposed beneficiaries, they cannot be relied upon to deliver the benefits. Any federal social service program involving the state and local governments will be fraught with execution problems, or serve as conduits for siphoning public funds; the SURE-P program, as commendable in its minimal success as it is, was used by party and government officials as conduits for embezzling public funds.  Though a simple process as allowing the state and local governments to select qualified beneficiaries will still be corrupted, direct payments of emoluments into the beneficiaries’ bank accounts will reduce the level of fraud likely to arise in the implementation of this program.

Though many may see the payment of N5000 to unemployed graduates as a waste of money, one must not lose sight of the fact that such monies will be recycled into the economy through spending; where the beneficiaries choose to save their monies in the banks, it will only make excess funds available to the banks for lending, and this will reduce the borrowing rates for businesses who will need the capital. So, anyhow one looks at it, the economy benefits. Provision of free food to primary school students has been long overdue in Nigeria. The agriculture ministry, in collaboration with major corporations in the sector, nutrition experts, state governments, and distribution agencies, can easily coordinate the efforts to ensure a successful outcome of this program. Again, though it will present opportunities for abuse, it is still worth attempting.

The proposed investment in revival of vocational and technical institutions is a good idea. In industrialized nations like Germany – especially Germany – and the United States, the academic shift is towards technical and science education, and the avenue is community colleges and vocational schools. Associate degree holders in technical and vocational skills are already making more money in earnings than those with 4-year degrees from universities. Germany is the leader in engineering today not because of the number of university degreed employees, but because of its technical and vocational workforce.  While a degree in in liberal arts studies is still useful, it must be acknowledged that the industrialized world and some emerging economies are already moving away from it.
Finally, increasing the capital expenditure allocation to 30% of the budget, though a departure from the previous years, still falls short of what Nigeria needs to invest on infrastructure. No nation ever develops without infrastructure and power; without drastically reducing the exorbitant cost of moving people and goods from point A to point B, Nigeria will never develop out of a Third world classification. One hopes that, as the president promised, the capital expenditure allocation will continue to increase, as more loopholes and seepage systems are plugged around our national treasury.

All in all, this is a budget of promise and hope: the government promising, and the people of Nigeria hoping. If the government exhibits tremendous effort in keeping its promise, even with a partial success, the people will continue to hope. Where that effort is lacking, the hope will wane and the people will – again – clamor for change.

Friday, December 11, 2015

Effects of Migrant Workers on the Local Labor Market & Economy

The frustration on the face of the site supervisor is palpable; the project is running behind schedule and over-budget. His problem is the work ethics of the local labor force. To create temporary employment for the local youth population, the Ahoada local government in Rivers State had instructed the contractor handling a hospital project to employ auxiliary and non-technical labor from this specific pool. Therefore, daily labor like masonry, block molding, foundation work, and site clearing jobs were assigned to the local, mostly inexperienced, youths.
Miles away from Ahoada, at the construction site of a mini shopping mall in Ojodu at Ikeja, Lagos state, work is going on at a breakneck speed; temporary day laborers are dashing up and down the makeshift wooden stairs moving mixed concrete and cement up the second level for the decking, and the foreman can be heard from a quarter mile away bellowing orders and threats of dismissal to the panting mix of muscular and skeletal staff.
At a farmland in Arochukwu, Abia state three young men in their mid-twenties are gathering and setting fire to brushes as fast as possible, discussing among themselves in a dialect alien to the indigenous owner, though in Igbo language.  At a corner of the farm, an elderly woman is busy preparing meals for the young men. A couple of hundred yards  from the farm is another, much bigger, piece of farmland where an elderly couple, four young men and a girl, are busy doing the same things as the young men in the first farmland, except that the pace is much slower and the level of urgency was evident in its absence. The male adult spends much of his time sighing and urging the young men to pick up the pace.
At a soak-away construction site behind a newly-finished single family home at Afugiri village in Umuahia, two young men covered waist-high in red mud huddled in deep conversation; a third is on the phone while leaning on a shovel, while another walks to and fro a nearby stream fetching and emptying buckets of water into a drum. It is 11:00AM in the morning, and the freshly mixed cement and stone is beginning to cake under the hot sun; a half case of Gulder beer sits under a large mango tree, and  three empty bottles litter the work area, along with cigarette butts, while three other half-empty bottles sit in close proximity to the young laborers.
What is wrong with the different scenarios described, and how can they be explained? This is the question this commentary will attempt to address in an effort to explain the effects of migrant and transient workforce on the local labor markets and economies.

Decision-Making Powers & Flexibility
In the Ahoada example, contractual restrictions limited the recruitment of casual labor to a specific pool – the local unemployed youths; this reduced the power and flexibility of the contractor to source for cheaper and more qualified labor elsewhere, thereby creating a laisse-faire environment at the site. This attitude resulted in delays and cost overruns. The indigenous staff, immune from severe discipline – including termination –was lax in their work ethics. Oblivious, or in spite of, cost overruns, they view any delays in completing the project positively as extra paid workdays for them; so, there is no incentive to put in their best efforts since they cannot be replaced with outside labor.
Contrast this with the scenario at mini mall construction site in Ikeja where the contractor is under no such restrictions; majority of the day laborer are transported daily from outside communities as far as Surulere and Oshodi, and have no ties to the local community. Daily pay rates and targets are pre-negotiated, and expectations are communicated to everyone prior to arriving at the site. Therefore, desirous of a good day’s wage, and protective of their good work ethic, the laborers have no alternative than to put in their best efforts.
There exists a relationship between the two scenarios above and the two farmlands at Arochukwu. The young farmers at the first site are seasonal migrants from Afikpo in Ebony State who migrate in the local communities/villages during the farming season, with a long history of farming. They have no strong communal ties beyond their farming services for a moderate fee. To continuously attract job offers, they must offer their best services to their clients. The situation at the second farm, where a detectable level of laxity exists, is due to the close personal relationship between the owners and the workers. So, even though these men are contracted at the same going daily rate of N1000, their output is less than those of their counterparts from Afikpo; unfortunately, unlike in the first farm, the owners of the second farm are hesitant to exercise any form of discipline due to familial and communal ties to the workers.
What is going on at the single-family soak-away construction site is akin to the situation at the second farmland; the owner is closely related to the man filling the drums with water who serves as the project supervisor, and he has recruited his friends to construct the soak-away. This close relationship with the laborers erodes his authority to hire and fire; therefore, the project is expected to suffer delays and cost overruns. Preference for a migrant workforce in the community, which is in abundance from as far away as the Southwest and as close as South-south states of the federation, would have resulted in meeting project deadline and cost-savings.
Beyond the exemplary difference in work ethics between indigenous and migrant workers, there are several other effects migrant workers – transient and resident – have on their host communities. 

Effects on Labor Supply & wage Costs
1.       The availability of non-specialized migrant workers in any community results in an increase in available workforce in the local labor market, or increase in the supply of labor; this excess supply causes a depression or downward trend in the cost for labor, thereby creating a favorable buyers’ market. In the example of the Ahoada hospital, if the contractor had the flexibility to hire from outside the indigenous pool, he could have recruited from the migrant pool at a very low daily rate; thereby not only saving labor costs, but completing the project on time. The same applies to the second farm and the soak-away projects. The possible savings from labor costs could be re-invested in other construction materials, or in hiring additional labor.
2.       Apart from forcing a depression in labor costs, Migrant workers introduce new skills and innovative technology into the local labor force that may have been previously lacking; new blocking molding technology that could either doubles production quantity or uses less combination of cement and sand mix while retaining desired quality. New power tools that enhances speed and efficiency cutting, drilling, or scooping, leading to reduction in completion time and project costs.
3.       One major disadvantage of migrant workers in the community is the increase in unemployment among the local workforce. Migrant workers undercut the bargaining power of the local pool, and force them to accept the same daily wage as their guests, which is usually much lower than what they usually get without competition. This “encroachment”, initially, causes resentment towards the migrants and, in most cases, resulting in invasion and blockade of construction sites for extended periods of time. On the positive side, the presence of migrant workers could force a change in work ethics of the local labor force, and result in a healthy competition with the migrant workers. Therefore, it is safe to speculate that though in the short term, presence of migrant workers could have a negative impact on the local labor force; in the long run, their presences does effect a positive change in the work ethics of the local labor force, and the host community is the main beneficiary.

Social & Economic Impact
Migrant workers also introduce their cultures, customs, traditions, and habits into their host communities, resulting in a rise in new businesses catering specifically to these needs, either short or long-term. For example, a migrant Yoruba or Idoma community in faraway Okigwe, Ahoada, or Kazaure will have to source for their unique needs within the host business community; this desire to satisfy a need results in establishment of new businesses, or extension of existing ones, to accommodate these needs.  The increase in business activities results in increased tax revenue over time which is applied to improving social services like road, school and hospital repairs, culminating in the creation of more employment opportunities not only for the duration of the work season but, in most cases, for the long term. For example, the influx of Akwa-Ibom house helps to the Port Harcourt and Lagos metro areas led to an increase in the string of businesses catering to their specific needs - especially consumer goods - and forcing existing ones to diversify their product and service offerings. Altogether, the creation of new business and expansion of existing ones created more employment opportunities within and around impacted communities. This multiplier effect is recreated in many communities where large migrant workers exist.
Because most migrant workers are transient and leave their families behind in their native communities, they remit most of their earnings back home; therefore, they are not able to make substantial capital investments in the economies of their host communities. Their major investment is in consumer goods like food, clothing, daily hygiene needs, and rental accommodation which account for between 25 – 50% of their earnings. Depending on the type and extent of the economic activity – road and housing construction, farming, and/or harvesting – which could last anywhere from 3 to 18 months, most beneficiaries of migrant labor investments are landlords, restaurant and saloon owners, food vendors (or mama put), tailors, cobblers, and the local churches. Other beneficiaries include the local consumer markets, local clinics and pharmacy and, where available, prostitutes.

Cultural Benefits
For the few among the migrant workforce who have no family ties – wives and children – in their native towns, opportunities exist for inter-marriage and blending of different cultures and customs. This new relationship results not only in an increase in the local population over time, but also in making substantial investments in capital goods and property in the communities due to a reduction or outright elimination of remitted earnings.  Small, low capital businesses, like bicycle repair, vulcanizing, technology products repair services, cyber cafĂ©, carpentry services, and provision stores, are some of the favorite businesses of migrant workers. These small businesses create apprenticeship opportunities for the locals, and the competition with existing like businesses create a downward trend in cost thereby favoring the consuming public.
 Apart from the few listed benefits – low labor cost, improved work ethics, and introduction of new technology, improved efficiency, and increased business activities - of migrant workforce in host communities, they change the social, economic, and cultural dynamics of host communities, especially through inter-marriages and cultural affiliations. Though in the short-run, migrant workers face hostilities and suspicion from their host communities; eventually, with continued interactions, they are accepted and gradually assimilated in the community and this result in a mutually beneficial relationship in the long term.

Felix Oti

Arlington, Texas