As Budget Awaits Presidential Assent…

As 2017 Appropriation Bill awaits presidential assent, Vincent Obia looks at issues in its implementation

When on December 14 last year President Muhammadu Buhari presented the 2017 budget to the National Assembly, he tagged it a “budget of recovery and growth.” Buhari is profoundly interested in leading Nigeria out of recession, which the country slipped into about a year ago on his watch. The National Assembly, too, controlled by the president’s All Progressives Congress, is not aloof.

The National Assembly passed the 2017 Appropriation Bill on May 11, with Senate President Bukola Saraki highlighting “the level of consultations and the good working relationship and cooperation that exist between us and the executive for us to get to this point. 

This is a remarkable difference from what we saw in 2016 and it shows that the entire country is better for it.”  

The National Assembly raised the budget from N7.298 trillion proposed by Buhari last December, to N7.44 trillion. This represents 22.8% more than last year’s budget of N6.06 trillion.

Catch Up

Despite the improved legislative-executive cooperation that went into the passage of the 2017 Appropriation Bill, it is a budget that would be running behind schedule, like virtually all federal government budgets since the inception of the Fourth Republic in 1999.

By the provisions of the 2016 Appropriation Act, the 2016 budget expired on May 5, 2017, having been assented to by Buhari on May 6, 2016. The 2017 budget was passed five days after the expiration of the previous budget. Following Buhari’s medical leave, the acting president, Professor Yemi Osinbajo, has indicated a willingness to assent to the budget when it is received from the National Assembly by the Presidency. No matter how promptly this process is carried out, the government would need to work harder to make up for lost time in the implementation of the budget. It would also have to address the obvious infraction occasioned by the delayed budget.

Chairman of the Senate Committee on Appropriations, Danjuma Goje, was in March quoted as saying regarding the budget timeframe, “As far as the bill that was signed into law by Mr. President is concerned, there will be no mop up on 31st March 2017 since the validity period for the 2016 budget ends midnight May 5th, 2017…“If that is done, it will be a violation of the Act. We carefully created the clause that made provision for May 5, 2017. The Act says that the 2016 budget will run for 12 months starting from the date the bill was assented to and it was assented to on May 6th 2016.”

Chairman of the Senate Committee on Media and Public Affairs, and member of the appropriation committee, Aliyu Abdullahi, blames the delayed passage of the 2017 budget on its late submission by the executive.  Abdullahi says the Fiscal Responsibility Act provides that the budget should be presented to the National Assembly by September of the previous year at the latest. But the 2017 budget was presented by Buhari on December 14, 2016, just like the 2016 budget that was presented on December 22, 2015.

 

Uncertainty 

Experts say the lack of uncertainty regarding the timeframe of the country’s budgets is fraught with negative consequences for the economy. “It makes our economy to be unattractive to foreign investors. Foreign direct investors invest all over the world, and developing countries compete for these investments. 

The investors look at certain key parameters before they invest,” says chairman of Anchoria Investment and Securities Limited, Chief Olusola Dada. 

“In a country where things are not certain, you are discouraging foreign investors, even we, domestic investors. It doesn’t allow for proper planning, because the Nigerian economy is a government led economy. A lot of things depend on government because government is the highest spender.”

Dada, whose company is listed on the Nigerian Stock Exchange, explains, “If the expenditure and revenue cannot be determined in time, the private sector will be affected because, like I said, government is the highest spender and whatever we are doing relies on government, too. So the delay in the passage of the budget is very inimical to the economic progress of this country.”

Abdullahi also acknowledges, “Certainty is very critical for every economy. If you have a certain timeframe, and people know at this time, this would happen, people can use that provision to plan for their businesses.”

Former Deputy Governor of Central Bank of Nigeria, Dr. Obadiah Mailafia, says, “If the economy is to calculate the cost of delaying the budget, it comes to almost 30 per cent of GDP. If it continues to almost half of the year, there is a lot time wasted, and time is money.”

Funding Issues 

There are fears about the capacity of the government to finance the budget. Of the budget of N7. 44 trillion, statutory transfers are estimated to take N434.4 billion; debt service takes N1.84 trillion; recurrent expenditure N2.99 trillion; and capital expenditure N2.18 trillion (about 30% of the budget).

The approved budget is based on a benchmark crude oil price of US$44.5 per barrel (up from US$42.5 per barrel pegged by the president); crude oil production of 2.2 million barrels per day, and an exchange rate of N305 to a dollar.

While presenting the budget last December, Buhari said the aggregate revenue available to fund it was N4.94 trillion, 28% higher than the projections for 2016. Oil is projected to contribute N1.985 trillion of this N4.94 trillion.

Non-oil revenues, mainly Companies Income Tax, Value Added Tax, Customs and Excise duties, and Federation Account levies are estimated to contribute N1.373 trillion. Independent Revenues are expected to contribute N807.57 billion, while N565.1 billion is projected to come from recoveries as the government intensifies its anticorruption drive. Other revenue sources, including mining, would contribute N210.9 billion.

The projected deficit for the 2017 budget is N2.36 trillion (about 2.18% of GDP). Buhari stated in December, “The deficit will be financed mainly by borrowing which is projected to be about N2.32 trillion. Our intention is to source N1.067 trillion or about 46% of this borrowing from external sources while, N1.254 trillion will be borrowed from the domestic market.”

 Many believe the monetary additions to the budget by the National Assembly may create funding difficulties in the budget implementation.

The National Assembly increased its own budget by N10 billion, voted N10 billion for commencement of work on the second Abuja runway, and N4.5 billion for renovation work on the Abeokuta airport as an alternate airport to the Lagos airport.  It voted N13 billion to resolve financial obligations relating to the National Youth Service Corps, N5.1 billion to cover gaps in the Integrated Personnel Payroll Information System, and N25 billion as addition to the road sector.

Other interventions made by the National Assembly include financial allocations to the Amnesty Programme and for continuation of work on the abandoned Bwari-Aladja rail line.

But Mailafia says, “It is the executive that knows how much it is able to spend, and anything involving adding by the National Assembly gets me very worried.”

Besides, the $305 to a dollar exchange rate seems way off the mark, with the recent parallel market exchange rates of between N370 and N380 to a dollar. Most Nigerians buy foreign currencies from the parallel market.

 “I believe in a market determined exchange rate. It’s a bit of an exercise in self-delusion because what is happening in the market out there is different from what we are setting as an assumption,” says the former CBN deputy governor.

Analysts say the allocation of 37% of total projected revenue, and 24% of the total budget to debt servicing also looks quite unhealthy for economic growth.   

 

Tax Base

 To effectively finance the budget, the government needs to expand its extractive capacity. The country needs a much more diversified revenue base. More people need to be made to pay tax and leakages need to be blocked.

Dada says, “Government has a very good opportunity to make the budget realisable. The loopholes should be blocked. There are many people that are supposed to be paying tax that are not paying. There are many areas government is supposed to collect revenue for services, but they are not paying. There are too many loopholes in Nigeria.”

But the reliance on manual tax processes, as against automated tax processes, at all levels of government in the country, and the lack of proper coordination through a national biometric database remain a big challenge.

Former Chairman of the Federal Inland Revenue Service and Chairman of Lagos State Employment Trust Fund, Mrs. Ifueko Omoigui-Okauru, says, “The more manual your system is, the more the level of leakage. And the less connected we are as government, the less taxes we can collect.”

 

PPP

 With a deficit ratio of 2.18% to GDP in the 2017 budget, Nigeria remains bankable in terms of access to loans. But many believe the government can free itself from the heavy debt burden that comes with borrowing by going into public private partnerships in the execution of infrastructural projects.

Nigeria is cash-strapped and certainly needs a lot of private sector involvement to be able to finance its budgets. Even with the additions made to the 2017 budget by the National Assembly, it is still hard to see how the budget can be adequately financed. In the area of works, for instance, there is an outstanding debt of N600 billion owed contractors. This makes the capital allocation to the Federal Ministry of Power, Works and Housing only a drop in the ocean, despite the N25 billion addition by the National Assembly.

   

Expansion

 But regardless of the delayed budget and the challenges of implementation, the economy has shown signs of recovery. The Purchasing Managers’ Index for April published by the Central Bank of Nigeria increased marginally to 51.1%, from 47.7% in March. CBN says the increase implies an expansion in manufacturing sector activities after three months of contraction. Ten of the 16 sub-sectors reported growth in the  review  month  in  the  following order: appliances  and  components;  food,    beverage    and    tobacco   products;    textile,    apparel,    leather    and    footwear;    chemical  and  pharmaceutical   products;   cement;   non-metallic   mineral  products;   printing   and   related   support  activities;  furniture  and related  products;  electrical  equipment  and  plastics  and  rubber products. The paper  products;  primary  metal;  computer  and electronic  products;  fabricated  metal  products;  petroleum  and coal  products  and  transportation  equipment sub-sectors reported decline.

The PMI is computed from the result of a monthly survey of purchasing and supply executives of manufacturing and non-manufacturing organisations in 13 locations in Nigeria – two states in each of the six geopolitical zones, and Abuja.

The Manufacturers Association of Nigeria has also reported an increased production capacity to more than 50 per cent, from about 35 per cent in 2016.

Economic experts believe the positive signs indicate that the 2016 budget was well-designed.

“Going into 2017,” says Chief Executive Officer, Fortune & Class Limited, Niyi Akinsiju, “I am hopeful that we have an anchor in the performance of 2016.”

 

Business Environment 

Many believe that the current improvements would be sustained in the short-to-medium-term if the government pursues policies that increase access to credit and create an enabling environment for business. The executive and legislature are working hard to improve the country’s awful 169th position (out of 190 countries) on the World Bank Ease of Doing Business index for 2017. The Ease of Doing Business Council anchored by the Presidency, and the National Assembly Business Environment Roundtable are trying to change Nigerian business environment narrative.  

NASSBER, in partnership with the Nigeria Economic Summit Group, is pursuing strategic engagements between the legislature and the private sector on critical laws and public policies that would improve the economic environment.  

The National Assembly has of late prioritised the enactment and review of critical bills that would help the economic recovery process and improve Nigeria’s doing business ranking. The Senate has given attention to key bills designed to reposition the economy. They include the Company and Allied Matters Act (CAMA) amendment bill, which seeks the establishment of State Corporate Affairs Commissions, to register businesses at the state level; the Nigerian Ports and Harbour Bill, 2017, which seeks to improve efficiency, transparency and accountability in ports across the country; the Petroleum Industry Bill; and Public Procurement Act Amendment bill.

Others being pursued for enactment or amendment are the National Development Bank of Nigeria (Establishment Bill); Nigerian Roads Fund (Establishment Bill); National Transportation Commission Act; Investments and Securities Act; Warehouse Receipts Act; Federal Competition Bill; National Road Authority Bill; and Customs and Excise Management Act.

As part of efforts to encourage local manufacturers, the National Assembly has amended the Procurement Act to provide that all ministries, departments, and agencies of government must give the right of first refusal to Nigerian products. 

If this amendment is signed into law and becomes operational, it is only when required products are not available locally that the MDAs can consider importation. Abdullahi says the Procurement Act amendment bill would soon be sent to the president for assent.

There are indications that the economy is on an upswing. But the country still needs to do a lot more to make the economic environment more attractive, accommodating, and reliable in order to achieve the recovery anticipated in the 2017 budget.