By Kelechi Mgboji
and Ishaya Ibrahim
President Muhammadu Buhari on Monday December 7 approved a N6.04 trillion for 2016 with 30 per cent allocated to capital expenditure.
Crude oil price is benchmarked on $38 per barrel (pb) and 2.2 million barrel per day (mbpd) production.
The Federal Executive Council (FEC) also approved N500 billion for feeding primary school children and caring for the most vulnerable in the country.
Both the budget and Medium Term Expenditure Framework (MTEF) have generated comments regarding how the government will fund the huge budget at a time when the price of oil, which constitutes about 80 per cent of total revenue, shows no sign of recovery from the current drop of about 60 per cent.
There is no allocation for kerosene subsidy in the MTEF and Fiscal Strategy Paper (FSP), indicating that government may have tactically banned subsidy for kerosene.
Up to N1.835 trillion will be borrowed to fund the budget even though N350.33 billion has been recovered from misappropriated funds.
Domestic borrowing would amount to about to N1.20 trillion and foreign borrowing N635.88 billion.
On the heels of debate on whether the N6.04 trillion budget will further stoke inflation, Senator Ben Murray-Bruce and owner of Silverbird Entertainment, advised President Muhammadu Buhari to borrow any amount to develop the country “overnight”.
However, financial services experts from SIAO, a leading indigenous accounting and audit firm based in Lagos, said the budget is promising if followed through to the letter.
Obiorah Osokolo, who led a team from the firm on a visit to head office of TheNiche in Ikeja, Lagos, warned that “the economy is deflating and is almost in recession.
“Increasing the budget for inflation makes no sense. Buy if [the government] works on the issues on how to turn the economy around, it will get it right.
“So the government needs to apply a holistic approach, looking at it from end to end in managing the change so that a medium term goal starts from either the end of the goal or from the middle and then grow all the other ends to meet wherever you are starting from.”
Funding the budget
National Planning and Budget Minister, Udoma Udo Udoma, said the budget, which he described as expansionist, would be funded by increasing efficiency in income tax and borrowing.
“We are looking at increasing our non-oil revenue. We are looking at trying to get more money from various government agencies, policing their collection and trying to get more money from them,” he explained.
“We will also look at keeping down our recurrent budget. That means we are looking at savings that we can make from overheads.
“We will look at the efficiencies from our revenue collecting agencies like the FIRS, in terms of company income tax, in terms of VAT (value added tax), and then the difference, we will have to borrow.
“But the level of borrowing that we anticipate will be well within the maximum allowed, which is 3 per cent of the GDP (Gross Domestic Produce), because we want a prudent budget. We want a credible budget. So, we are working on that now.”
Udoma said the government is looking into subsidy removal in the budget but promised that salary will be cut.
Osokolo reacted as follows:
Turning economy around
States are instrumental to speeding up the momentum of the economy, which is curtailed by the fact that funds to drive economic activities are not being pumped in.
The opportunities are so many in the Nigerian economy for states to look at the way of solving problems for their people and creating the necessary avenues for increasing their internally generated revenue (IGR).
For the economy to boom states must explore available opportunities and do more than they are doing currently.
SIAO propositions
An exerpt of interview with Obiorah
Nigeria has found itself in a position where every state has to look at both comparative and competitive advantages and make the most out of these two situations.
You cannot have well educated people and not deploy them to under-provided states. If you have very well educated people and fail to deploy them, automatically it means you are not serious about creating employment.
There are no teachers in the North, and there are very important things that are missing in various states.
If you do a composite study and determine what the situation in Nigeria is and what relevant expertise is required by each state and what each state has, you could then find a way to create opportunities to move people from their states of origin to others where there is a lack.
Automatically you would have solved the basic problems of inadequate doctors, teachers, engineers, mechanics, others.
It therefore means that automatically, you have created employment for many jobless people.
States should remove nepotism, tribalism, ethnicity, indigenisation, religion, and other criteria because they don’t work. Instead, these things make for retardation.
It is disservice to a state if it cannot take advantage of what others have because of regressive policies that curtail growth. If you have the best brains in your state, what it means is that you can contribute meaningfully to the growth of others.
If you are a listening type, you must have advisory mechanism where people’s opinion are constantly collated and sifted so that you hear what the people need for appropriate decision making and implementation based on the people’s need.
Achieving sustainable development goals
The sustainable development goals planned by the government are such that if you are going to achieve them, you must have two things: a proper monitoring mechanism and an evaluation mechanism.
Monitoring means that what was inputted, what was outputted, and what the outcomes are. After that, you look at what the impacts are for evaluation.
First of all you mark the script and evaluate the impact.
Think as a student in school. The fact that the student comes out with a first class grade is not all there is. That is the outcome but you have to monitor his impact.
The impact of that student that comes out with a first class is that he should be able to contribute to the society. If he is not employable and is not able to contribute, the impact is zero. There is something wrong.
The fact that you are producing first class graduates that are unemployable does not mean you are doing well.
Every budget item must have a budgeting and monitoring provision. If, for instance, you budget N2 billion to improve agriculture in a particular state, that is good. But you also have to provide a monitoring budget of about N200 million for monitoring and evaluating the project.
For each stage of the implementation of the project, there will be a monitoring mechanism for ensuring that it is being followed and a report is coming up, and is being assessed. The evaluation stage is supposed to drive the new policy going forward.
Consider the Osun State Youth Employment Scheme and free meal for primary school children. It is easy to say that they were too busy feeding the school children, the parents did not bother. It is easy to say, put your children in school and they will be fed.
They did not feel the impact of not being paid salary for 10 months because the government was feeding their children. But the fundamental thing is that one meal a day does not mean that the children were properly nourished.
What we had were well fed children who were probably undernourished because it was only one meal per day which could have not made any meaningful impact.
So, the parents could have struggled on their own and so things went out of hand.
But if there was a proper process, such that before you implement the programme, you take steps to first of all grow the economy, the agric sector, grow the supply chain, everything so that it will be resilient and self funding.
Then if you have this free meal for children, it will work and you free up funds for every other thing, and everyone will be happy.
Holistic approach
So, the government needs to apply a holistic approach, looking at it from end to end in managing the change so that a medium term goal is to start from either the end of the goal or from the middle and then grow all the other ends to meet wherever you are starting from.
No need for budgetary intervention
I am not a believer in budgetary intervention. You have already made a budget, and zero-based budget means you will justify every line item in the budget; you build it from the scratch.
So you don’t just say last year we spent N20 billion but this year because of inflation, we are going to spend N25 billion. It will not work any more under the zero-based budget.
The question again is what do you need N25 billion for? The Nigerian economy is deflating; it is almost in recession and you are increasing for inflation. It makes no sense.
So, if you work on the issues you get it right. For instance, what do we need to produce cassava? We need farm hands. Where do we get the land to cultivate? How do we acquire it?
When we have asked those questions, then the line item for the acquisition of the land comes in. You know that this is what you need to acquire land, this is what you need to compensate the owners of the land, and this is what it will require to get the land properly secured, and ready for farming, and this is what it will cost to clear the grass, till the land, et cetera.
This is what is called zero-based budget, you think of it from zero to end.
The next question is what do we do with the harvest? You are producing cassava, so where do they consume cassava? So if you produce a million tonnes of cassava and there are no roads to evacuate it, it will rot away.
N500 billion budgeted for feeding primary school pupils and paying unemployment benefit
I don’t think so. The comfort we have is that I think Buhari has some of the best hands. I will suspect that he has very good people looking at managing the economy. And N500 billion to spend will mean that you will have a source for the N500 billion. That is the essence for your zero base budget. You must determine where that money is going to come from for you to be able to spend it.
Every revenue should have a related expenditure tied to it. That is the expectation. Yes, N500 billion is something that a state could spend in one year; N500 billion is what the federal government spend on regular basis.
Spending that N500 billion and giving it to youths and feeding children means you are doing monetary type policy where you are pumping money directly into the system.
What you want is to get this money to the grassroots and grow the economy. What you need to do is go to this very same people these children buy rice from. When they are going to school, their parents give them money to buy rice and puff puff.
Get those people, put them together in some form of cooperative, make them understand that they must be properly constituted into a formal body known to the government.
Then give them the minimum standard. The health inspector of the local government and the health inspector of the state can actually oversee the food quality. And then the federal ministry of health, there must be a structure.
There are already people who are there. Don’t create new structures. Don’t create new jobs. The jobs are already there. Make the government workers useful.
When you spend this money, you give it to people who are on the street, who sell akara (bean balls).
All we want fundamentally is to create employment.
This akara seller, just by giving this person money, and this person doing business, you will be able to determine fundamentally what you could never have determined.
That this akara seller makes so much by feeding these school children daily, you know how much this person is generating. And from that generation, the state can get its tax revenue.
Organising economic activities
That is the first thing. And disburse the funds through already existing structures.
If you are going to call for bids and all sorts of people to set up business and begin to feed school children, in fact you have killed it. All these structures will collect this money and it will never reach the grassroots.
Ensure the grassroots get this money and there is income because of the multiplier effect. It is only when the money gets to the grassroots and it is being spent that you can grow the economy.
Revenue generation
The simple answer is diversification. But again, how? What the government has to look at is where they are. Today we have so many.
We are exporting brain power, we are exporting professionals to support a lot of countries. Those countries are using Nigeria free of charge. Then again, these countries have something Nigeria needs.
We have moved people to Somalia. To Mozambique. I know there was a time we sent medical doctors to Mozambique.
Now you want to raise money. You already have an existing partnership with this people. There is nothing that says you do not create.
For example, today you have the joint task force destroying private refineries in the South South. We don’t have fuel in this country. People are refining fuel creatively, and you spend so much money fighting them. That means you know this people. And this people are jobless.
If you bring them together and put them in a cooperative, and find the funding they need, you will have small refineries everywhere. Formalise them, let them invest in the proper equipment and you will have refineries everywhere.
And they will finance everything. Once you give them a 15-year loan that is all they need. This country will be awash with fuel. They will buy officially. You have created jobs for people that never had jobs.