Budget 2020 and Nigeria’s 10 Year Headache, By Jeremiah Angai
Nigeria seems to be stuck in a rut of underperforming budgets. A nation permanently tethered to deficits and contumacious recurrent expenses. Freedom from this stasis will require bold, revolutionary ideas that entail mental reorientation, radical policies and a deliberate systemisation of the civil service.
For close to 10 years, Nigeria’s political landscape has witnessed a steady stream of political campaign slogans that seem to resonate with Nigerians. From ‘Transformation’, to ‘Change’ to ‘Next Level’, these political totems promise a movement of sorts for Nigerians. Although often vague on whether the movement will be for better or worse, the prospect of leaving the proverbial frying pan has often proved too alluring for Nigerians to resist. It matters little if the shift will be a backflip into an ever raging inferno.
Thus the country has found itself in a valley of inevitable change. The fault lines that have miraculously held for decades are threatening to unravel. Rising population, spiraling poverty and a multidimensional insecurity, which includes Boko Haram insurgency, killer herdsmen, banditry and kidnapping, seem to be coming to a head. Nevertheless, amidst the convergence of these centrifugal forces, one thing has remained constant – the budget.
On October 8, President Muhammadu Buhari, for the fifth time as president, presented his budget to a joint session of the National Assembly. The Buhari government intends to spend N10.33 trillion in the year 2020. This represents a 15.81 per cent increase on the 2019 budget of N8.92 trillion. While this is a significant improvement on government spending, historical antecedents suggest an increase in budget size is the only material change in Nigeria’s budget over the last 10 years. This is glaring in three major ways.
First is the ambitious revenue targets. Nigeria has over the last 10 years made oil revenue projections that are far above actual revenue earnings. In 2011, the variance between the projected and actual oil revenue was 72 per cent. The 2020 budget anticipates revenue generation of N8.15 trillion, derived mainly from the sale of crude oil and other sources, such as customs’ collections and taxes. The government projects an oil production volume of 2.18 barrels per day (bpd). Although this is a -5.22 per cent reduction on the 2.3 million bpd budgeted in 2019, current and historic data show the figures to be overly optimistic. According to OPEC’s Annual Statistical Bulletin, Nigeria produced only 1.8 million bpd in 2018, while average crude oil production between January 2002 and September 2019 has been 1.9 million bpd. Furthermore, recent data from the Central Bank of Nigeria shows that the country earned N333 billion in oil revenue for August 2019, as against revenue projections of N789 billion for that month.
The other revenue lines are not so different. The 2020 budget’s improved revenue target is premised on an increase in value added tax (VAT) from 5 per cent to 7.5 per cent. The new VAT change will still need legislative approval to become law. But beyond the VAT increase, a more critical issue is whether revenue collecting agencies such as the Nigeria Customs Service (NCS) and the Federal Inland Revenue Service (FIRS) will be able to meet their collection targets. In August this year, the Presidency queried the FIRS chairman on his consistent failure to meet revenue targets. It follows therefore that even with a VAT increase, the revenue expectations will remain unmet if nothing is done to ramp up collection by bringing more people into the tax net. This, added to traditionally low oil production output, means the 2020 budget will also not deliver on expected revenue.
The 2020 budget, like most of the budgets before it, earmarks a huge chunk to non-debt recurrent expenditure. N4.88 trillion out of the N10.33 trillion will go towards oiling a bureaucracy that, though considered overloaded, is still only about 5 per cent of the population.
Second is the expenditure. The 2020 budget, like most of the budgets before it, earmarks a huge chunk to non-debt recurrent expenditure. N4.88 trillion out of the N10.33 trillion will go towards oiling a bureaucracy that, though considered overloaded, is still only about 5 per cent of the population. The amount will go into paying salaries, allowances and other expenses of the public workforce. But perhaps the biggest disappointment is the capital expenditure. It should be easy to predict the priority or direction of a government’s developmental plans by its capital allocation.
In 2014, close to N1 trillion or 20 per cent of the budget was allocated to security. This was done ostensibly to curb the growing insecurity in the country at the time. However, in the 2020 budget, no sector received any significant allocation that gives an indication of the government’s priority development. Yet it is capital expenditure that can touch every Nigerian. Critical human development sectors, such as education and health, received allocations of 7 and 4 per cent respectively. These abysmally low allocations are in keeping with the budget patterns in Nigeria over the last 10 years. Indeed, there has never been a point where the allocation to education has reached the UNESCO recommended standard of 25 per cent.
Similarly, capital expenditure has hovered around 30 per cent of the budget, while releases at the end of the budget cycle averages 50 per cent. The capital budget for most ministries basically covers items like the construction of head office or some other office building, purchase of operational vehicles, purchase of computers and photocopiers. These items are constantly appearing in every budget cycle and constitute the bulk of the capital budget. Thus, even in the capital budget, a significant portion of the expenditure has no direct impact on the average Nigerian. Nevertheless, it must be emphasised that a budget where recurrent expenditure always trumps the capital allocation cannot deliver development to the people.
Third is the level of budget implementation. In the last 10 years, no budget has performed over 60 per cent. This is because while recurrent expenditure is usually 100 per cent spent, capital expenditure utilisation is abysmally low. There are two possible reasons for this. First is the usual delay in the passage of the budget. The 2013 budget was signed into law in May, while the 2016 budget was passed in March but signed into law in May. The 2017 and 2018 budgets were also passed in the second quarter of their respective years. Late passage of the budget leaves little time to spend appropriated funds. Second is the cash backing for the approved budget. Because projected revenue is never actualised, the allocation of funds for approved expenditure is often a delicate balancing act. Releases are tied to the priorities of the Presidency, the minister of Finance or, in some cases, the lobbying abilities of a Ministry, Department or Agency (MDA). All these factors have contributed to the low level of budget implementation over the years.
Nigeria seems to be stuck in a rut of underperforming budgets. A nation permanently tethered to deficits and contumacious recurrent expenses. Freedom from this stasis will require bold, revolutionary ideas that entail mental reorientation, radical policies and a deliberate systemisation of the civil service. To achieve this, the following steps should be taken:
…beyond a change in the budget calendar, genuine, realistic attempts must be made to increase revenue sources. This is not easy and there are no quick fixes. It would require strategic, long-term planning backed up with strong political will to succeed at all cost.
Change the narrative that Nigeria is a rich country. Government must tell itself, and indeed Nigerians, the truth: Nigeria is a poor nation. A country of about 200 million people that generates less than 10,000 megawatts of electricity and annually budgets only about $30 billion cannot call itself rich. South Africa’s 2019 budget is well over $120 billion! That is four times the budget of Nigeria! Yet in his budget speech, the South African Minister of Finance described the country as “a small open economy”. Nigeria, with its much smaller budget will flash its toga of “Africa’s largest economy” at every opportunity. Admitting that Nigeria is a poor country will help government set realistic targets and enable citizens manage expectations. Setting unrealistic crude oil output projections only serves to widen the budget deficit at the end of the day. There is no point in making a budget that will not be implemented up to 80 per cent every year. But admitting Nigeria is a poor country will come at a great cost to public office holders. Their appetite for strong display of opulence and grandeur will have to be curbed. It will be incongruous to claim poverty and ride in three-car conveys of Lexus Jeeps and BMWs. Citizens must also stop seeing public office as the route to “making it”. If this mindset is changed, leaders can be held to account at every level but most importantly, the budget will finally be a true reflection of the state of Nigeria.
Reduce taxes. As mentioned earlier, Government’s revenue is hardly enough to do anything else after salaries are paid. Therefore, government is unable to create jobs and develop infrastructure. Conversely, the private sector, which is supposed to be the key driver of growth and development is barely kicking. Therefore, rather than tax the few compliant businesses to death, government should consider reducing taxes. The Finance Bill that seeks to raise VAT by 2.5 per cent should be immediately withdrawn and amended to reduce the Company Income Tax from the current 30 per cent to about 20 per cent. A tax reduction will achieve two things. First it will encourage businesses to increase capacity and scale operations, thus creating more jobs. More jobs mean more Personal Income Tax for government. Second, it will broaden the tax base by bringing in new businesses. However, a tax reduction must be accompanied by an improved ease of doing business that will cut out interphase with multiple regulators and constant policy changes. A situation where the ease of doing business is felt more in global ratings than in the actual business environment has to change. This is the necessary nourishment needed to grow business and set the nation on the path to inclusive growth and development.
Systemise the civil service. The Integrated Payroll and Personnel Information System or IPPIS is a great example of an initiative to systemise the civil service. The IPPIS should immediately be followed with a central procurement portal that will be accessible to all MDAs. A central procurement portal will help manage the recurrent and capital items from government agencies. It will bring about transparency and also leave an audit trail of purchases. It could also bring down the cost of procurement. For example, if on the portal MDAs make requisitions for any number of Hilux, Prado and Corolla vehicles, government is able to go into direct negotiations with Toyota for the proposed number of cars. It will not only guarantee quality, but will ensure the vehicles are brought in through legal ports and appropriate tariffs collected. Government will also have a reliable inventory of vehicles. The central procurement system has worked well in Singapore, India and even Mauritius on the African continent. It would certainly be worth exploring if government is to get out of this whirlpool of runaway non-debt recurrent expenditure.
Finally, a defined budgetary time horizon. It appears there are ongoing moves to return the country to a January to December budget cycle from 2020. If successful, it would be the first time in the last 10 years. This should be commended. A defined budgetary time horizon will bring about greater certainty and make for effective planning. It would also help in tracking capital expenditure, which is usually released late in the year and carried forward to the following year. But beyond a change in the budget calendar, genuine, realistic attempts must be made to increase revenue sources. This is not easy and there are no quick fixes. It would require strategic, long-term planning backed up with strong political will to succeed at all cost. But after this rigour, Nigerians can be sure of finally seeing the kind of transformation in livelihood they have always craved.
Jeremiah Angai, a Policy and Public Affairs Analyst, wrote from Abuja.