Though Nigeria will choose her leaders in the next few days and will possibly see a change in leadership, or a continuum of the ruling party, certain issues relating to the revenue position of this country are like air; ever present, and unlikely to disappear. Unless current conditions are drastically altered.
The Federal Government might run a deficit up to N2tn and already currently runs on almost-empty Excess Crude Account savings. Most Nigerian States are currently facing colossal financial challenges, owing over three-month salaries due to struggling workers. Most politicians are also glossing over the problem, trying hard not to offend the electorate by ringing the alarm, rather waiting for the security of re-election before they inflict the inevitable hard options. One wonders: if States cannot meet salary payments as at when due, what happens to capital expenditure in those States? The signs are as obvious as the proverbial wisp of smoke, determined to escape despite attempts by the palms of a hand to cover it – the FG’s capital budget has already declined from N1.5tn to N387bn.
An over-reliance on Crude over periods of Oil price boom proves consequential to this current challenge. Yes, the Nigerian economy is somewhat diversified (though the manufacturing sector accounts for a shameful 6.8% of our entire GDP), but the Nigerian government (Federal, States and Local tiers) has failed to fully diversify its finances. A whopping 68.5% of the Federal Government’s actual revenue of N3.5tn in 2013 is directly linked to Oil, through statutory payments and Excess Crude Account deductions. Most State governments are also guilty of poor diversification, merely literally sitting and waiting for the next FAAC distribution to enable them meet their obligations to citizens. The States may not be directly in line to bear the immediate brunt, but for the FG, which badly needs funds to shore up her crumbling revenue from falling Oil prices, it is pertinent that some options must now be considered:
Independent Revenue Agencies
The existence of independent revenue agencies of government, which generate huge revenue and in turn spend the entire funds on themselves, remitting too little to government, needs an iron-fist approach. The Federal Government currently has over 300 revenue-generating agencies. However, despite having Internally Generated Revenue of over N6tn (according to a NABRO Research) , they bring in less than N300bn into the Federal treasury. Days ago, BudgIT’s Research Lead (Atiku Samuel) and I were analyzing the financial statements of the National Pension Commission. This Commission recorded a healthy N5.3bn in revenue in 2014 but spent nearly the full amount, remitting a measly N192m into government coffers. Most agencies plough back too little, as these extra-ministerial agencies and those who head them live above the means of the government they serve. This brings the Nigerian budget figures into disrepute, as they are not a total representation of the fiscal strength of our economy. There will be a need to review the Fiscal Responsibility Act (especially the OPERATING SURPLUS section) and compel government agencies to sweep in all funds into a single account, with a mandate on clearer vetting procedures regarding the size of their expenditure. It takes a government with a strong, brand-new or renewed will to do this, as it is common knowledge that leadership positions in these revenue-generating agencies are usually reserved as kickbacks for faithful political party members.
The Twin Revenue Hoses
I have mostly maintained that the biggest challenge Nigeria has is not its expenditure lines, despite being wasteful on occasions such as maintaining 10 Presidential jets and spending N150bn annually on its National Assembly. There are bigger challenges with the country’s revenue streams. For starters, Nigeria’s government revenue to GDP is put at 4.8%, and this is abysmally low – the average revenue to GDP of most developing economies is put at 15%. Imagine a tripling of government revenue, with revenue to GDP reaching 15%, a tighter grip on tax collection, with serious reforms of the NNPC, DPR and other oil and gas related industries thrown in the mix? Just think. about a 5% sales tax on all agricultural products we bring to the formal market? There is a large gap between the diversification of the economy and the state of government finances, and this is majorly brought on by gross inefficiency and the unreadiness to take on or see through bold reforms. Will the Federal Government keep seeking quick-fix gains through currency devaluation and wrong expenses from ecological and special accounts, whilst leaving the obvious reforms too late? The Petroleum Industry Bill has been stuck in the National Assembly, and we have a National Petroleum Company that has failed to reach the enviable heights of its global peers. Nigeria has invested in the NLNG through the NNPC but the contribution of gas sales and other expected dividends to the Nigerian State cannot be seen in the government books. To put the horse before the cart, the government’s books are hardly seen, or made open to public scrutiny. Expecting to routinely see details of the dividends of the country’s investments made using oil revenue will be a stretch.
In the past weeks, the Federal Government has been roving, like a broke, frantic individual rifling through pockets for loose change to get by. Debts, deductions from ecological funds and other special accounts, and most currently the exchange rate gain based on devaluation are being used to bolster her revenue. These are temporary attempts to plug holes that are sure to end up as gaping gullies, because the fact remains that without the drive to truly raise Nigeria’s revenue profile, we will be postponing the dreaded days when we will be without the inability to massively scale our infrastructure to the level needed for growth. The current administration has shown promise, with the introduction of a Treasury Single Account and the Government Integrated Financial Management Information System (GIFMIS) which are tools to safeguard funds at Ministries, Departments and Agencies. However, the scale of deployment has been slow, when this is actually the time to be in haste with implementing this, and other initiatives such as the IPPIS (government payroll reform tool).
If we don’t seize the moment and reform the NNPC, empower the FIRS to efficiently collect taxes and put intense scrutiny on independent revenue-generating agencies, then the implosion of our economy – and by extension the very fabric of this country – is imminent. Political will is the first ingredient needed to ensure Nigeria emerges from the consequences of years of hemorrhaging revenue at source. As Africa’s most populous nation shuts down its borders ahead of elections, a question hangs in the air. Pundits like to think this question is: “who will emerge winner in the 2015 elections?” But to call that the ultimate question is to miss a salient point. Because whoever emerges winner in these elections has a fresh, four-year mandate at his behest. The question is: will the new Nigerian leader possess the political will to ensure our country emerges from this rapidly-tightening fiscal net that may well become a noose?
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Oluseun Onigbinde works at BudgIT.
Co-Founder, BudgIT & Knight International Innovation Fellow
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