BudgIT will come up with its comprehensive brief for the incoming government of General Buhari but I have some personal thoughts, which I hope, are obvious enough. The new government will ride on the low tide of oil price less than $60 per barrel, a foreign reserve account below $30bn, near empty Excess Crude Account and non-oil revenue put at less than 4.5% of GDP. The first challenge will be to find money and truly cut waste in governance. The incoming government needs actual revenue to meet the scale of promises that citizens are counting with so much tenacity. Here are my few thoughts before the long letter of BudgIT:
The Budget as a Policy Document
The Budget itself doses not align with any vision statement and with the envelope-based structure, it has always been a case of ministries filling the gap on an annual basis. The budget is placed under the Ministry of Finance and I think we need a “Ministry of Budget and Economic Planning”, borrowing from the Lagos example. The current model has turned the Budget Office to a cash allocation terminal. This needs to be considered as budgeting needs to be well layered with the governing policy.
An understated Budget
To be very sincere the budget presented by the President is not that wholesome as there are huge extra-budgetary activities that citizens don’t see. This starts with a bunch of 601 revenue generating agencies that gather up to N16tn annually but remit less than N300bn to the Federal treasury. The new administration needs to consider this, cancel the term “Operating Surplus” in the Fiscal Responsibility Act, which has become a fodder for wasteful expense by Federal Government agencies. Treasury Single Account, which sweeps all government revenue to a single basket, needs to be expanded to all government agencies. Hon. Solomon Olamilekan that heads the House of Representatives Public Accounts Committee stated that the Nigerian budget is higher than N16tn. I strongly believe him as these agencies have turned into patronage buckets for the political class.
The Non-Oil Revenue
A very critical question is how does a $520bn economy do less than $10bn in non-oil revenue on an annual basis. While Nigerian non-oil revenue is put at 4.5% of the entire non-oil GDP, the IMF estimates that other emerging countries do around 10-15% of GDP. The fact is that the economy is diversified but the routine monthly FAAC allocation of oil receipts has not liberated our minds for other revenues. The new leadership must understand the non-oil revenue growth is tied to competitiveness and strategic planning of opening up non-oil sectors. Nigeria can’t be struggling to hold down 3,000MW as power output and expect huge taxes from non-oil sector to rapidly increase. Nigeria needs to check it competitiveness structure and the way to begin to find out the main indicators as defined the Global Competitiveness Report and craft the right strategy.
Now it is the time to truly go hard on the tax exemptions and waivers granted to companies that do not merit them or whose operations have outlived that. With oil revenue dwindling, there is no other time to truly revisit all the exemptions and tax waivers. The current Minister of Finance tried to clean up the import waiver system and it is important that the work must fully continue. The reason why this government is labeled CHANGE is that it must fearlessly “shine light in corners less understood”. This is important for a swell in the Company Income Tax and we also need to have conversations on the exemptions in the VAT regime. Nigeria does one of the least VAT rates in the world at 5%, with 85% going to the states and local government. The new government also needs to consider distribution formula and possibly double the VAT rates.
The Oil Sector
The oil sector will need its share of reform most especially metering, payments, allocation of acreages, fiscal terms, domestic gas obligations, gas flaring as well as the intricate review of the operations of state oil company – NNPC. Personally, if we really think hard about the dwindling oil prices and the non-renewable status of the crude product, oil revenues are meant to be saved for the future generations in terms of Sovereign Wealth Fund (SWF) and infrastructure that can span decades. It is very unfortunate that the wealth derived from the sub-soil of the Niger Delta has been used for consumption purposes – salaries, allowances and running statutory agencies. The legislation guiding the oil sector needs to a thorough review and for want of space, BudgIT effectively highlighted that here.
The APC billboards that lit up everywhere promising “3 million jobs” annually is very scary. Nigeria must have a jobs strategy and it must be a sustainable one. This will not the kind of job plan adding more the nation’s recurrent bill, over 70% of government actual revenues. APC manifesto includes a promise to pay allowances to NYSC graduates with no jobs for a period of one year and thats another N60bn expense. The Federal Government currently has the YOUWIN programme which is credible in terms of support for entrepreneurs but needs to be improved for those who need funds for scaling their enterprise. If the APC government is planning to unleash another set of low-paying jobs to young people like OYES and YESO, that will be another failed plan in the long run.
These are my initial thoughts for a government that wants to work and the huge plan also needs to be well measured with the appropriate costs applied. I honestly feel the fuel subsidy has to go but the downstream industry still needs strong regulation lest we end up with a cartel. If I were President-elect Buhari, I will focus on doubling the Nigerian power output, ensure a more secure Nigeria, encourage Dangote to finish the 650,000 refinery, create an environment for sustainable jobs and work towards a more diversified government revenue and economy.