As oil prices dip below $30 and institutions like Goldman Sachs, Bank of America, Citigroup and Morgan Stanley now predicting that prices could drop to $20 or even as low as $10 a barrel, it is no longer a question of if but when. With Iran’s oil coming on stream with the lifting of economic sanctions, $20 is becoming more realistic in the first half of 2016. With tumbling oil prices and a collapsing naira, it will be irresponsible for the government not to revise the 2016 budget proposals to reflect current realities. It will be equally irresponsible for the National Assembly to debate a budget that is predicated on fantasy oil price of $38 and an exchange rate of N200 to the dollar, when naira is trading at over N300 to the dollar. Obviously, we need to go back to the drawing board – these are urgent matters which require speed, and “go slow” is not an option.
The government must now explore raising additional revenue from the non-oil sector. We do not need the International Monetary Fund’s Christine Lagarde to tell us that our VAT rate is one of the lowest in the world. Because we have been spoilt by the free rent from oil, we tend to think in Nigeria that we can get something for nothing. Roads will not build themselves, neither will hospitals equip themselves. Even ancient Rome, some 2000 years ago, was built on taxes not “hope”. We must expand our tax base to capture more taxpayers. The government must pursue with vigour tax evaders, especially rich people in Nigeria who habitually do not pay their fair share of taxes. Compliance should be made easier and penalties for evasion stiffer to serve as deterrent.
There are still huge efficiencies to be made in the MDAs’ operating expenditure to fund the current budget gap. Ministers must not allow themselves to be hoodwinked by civil servants into believing that the MDA budget proposals were based on zero-based budgeting. They cannot be; this process takes time. There is a need for government to reduce duplication in functions, rationalise accommodation, address inefficiencies in current organisational structures, and automate work practices to bring the public sector into the 21st Century. It is critical for success that those employed in the new Efficiency Unit have requisite experience in similar roles in the private/public sector – not arm chair theorists clad in PhDs – “nemo dat quod non habet” – you cannot give what you don’t have. This unit must not become another non- performing, resource consuming, agency of government.
Notwithstanding the funding challenges, the success of this budget and government’s plan to create jobs will hinge on the performance of two key ministries: the Ministry of Works, Power and Housing and the Ministry of Transportation. These two ministries have quite rightly received the largest increases in budget allocation. Power, housing, railways, roads and other transport infrastructure are critical to Nigeria’s development and industrialisation. The Ministry of Works, Power and Housing is proposing a budget of N467bn of which the capital element is N433bn. This represents an increase of about 650 per cent on 2015 budget. About N200bn of the N215.8bn budget proposed for Transport is in respect of capital – an increase of N203.8bn on 2015. Although key ministries like Education and Health have fared worse compared to 2015, almost all the MDAs including Education and Health have seen some increase in their capital budget, funded in part by large reductions in recurrent expenditure.
The big challenge for government is how to make the MDAs deliver on their budgets. The history of capital implementation in Nigeria has been abysmal, with good intentions thwarted by corruption, non-payment of contractors and poor monitoring and control. It is critical that lessons are learned from past experiences, including the ignominious roles played by corrupt civil servants and politicians.
We need to revisit the way we plan and monitor budget implementation in Nigeria and the roles played by all the stakeholders. For a start, the government should consider adopting and enforcing a stricter four-weekly budget monitoring regime where budget holders are compelled to report budget performance to ministers on a four-weekly cycle. This will ensure that corrective action is taken early to address poor performance before the end of the year. The over-centralised process of budget monitoring in the public sector is resource consuming, unwieldy, and needs to change to make the process more effective.
Given the history of corruption and poor budget performance in Nigeria, the government will do well to consider adopting a “follow the money” policy for all projects so that citizens can hold public officials accountable for the use of public funds. This would require the MDAs to publish the list of all their projects on a common portal in the web and provide quarterly update on progress in delivering each project. So, at any point in time, citizens should be able to go on the website and see how a project has progressed against set performance targets.
With plunging oil prices and Nigeria’s infrastructure gap estimated at over $2tn, ministers will need to explore innovative partnerships with the private sector to build our roads, railways, schools, hospitals, power and other infrastructure. These should be the priority for economic development and job creation, not a national airline, as being banded by ministers. Apart from perhaps a few airlines like Ethiopian Airlines, most national carriers are failing.
To address the critical issue of unemployment, the government should consider embarking on a massive social housing building programme, unprecedented in Nigeria. This will involve building estates like Victoria Island’s “1004 Estate” across the country; comprising flats, maisonettes and studio apartments for at least one million families. We need to turn our cities into building sites, like Dubai. This will create massive employment across all professions. The programme will pay back itself from the sale of units to owner-occupiers and from future rental income. European governments employed this policy successfully to kick-start their economies after the 2nd World War.
The government will do well to tread carefully on the planned N5,000 welfare benefits. Nigeria cannot afford such a scheme at this time. In the UK, for instance, they have an array of revenue sources to fund welfare packages, such as the National Insurance scheme where people in work and employers make payments towards welfare benefits (up to 10.4 per cent of earnings). This is in addition to a host of other taxes – VAT (20 per cent); personal income tax (45 per cent for high income earners); even the petrol we subsidise in Nigeria is taxed at 60 per cent; plus a host of other taxes. The government must be careful not to create a culture where able-bodied people are paid for doing no work when they can be engaged building schools, hospitals and roads or working in farms.
Although our budget challenges are daunting, they are nonetheless surmountable with the right people round the table. The falling oil prices might well be the jolt we need as a people to do the right thing. This might be the year we start building a more resilient economy that is not dependent on fossils dug up from the ground. The government must now revise the 2016 budget proposals based on more realistic estimates.
PUNCH
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