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.
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