Ohuabunwa: FG Should Adopt 3 Yearly Budget Cycle, With Annual Adjustments  

0

Mazi Sam Ohuabunwa is an entrepreneur, social worker, and author. A pharmacist by profession, Ohuabunwa was president of the West African Pharmaceutical Manufacturers Association, president of the Nigeria Employers Consultative Association, and chairman of the Nigerian Economic Summit Group. He was Chairman/Chief Executive Officer of Pfizer Products Limited. In 1997, he led the management buyout of Pfizer Inc. from the company, transforming it to Neimeth International Pharmaceutical Plc., and also becoming its President/Chief Executive Officer. Ohuabunwa bemoans the persistent problem of poor budget implementation in Nigeria and recommends as solution a change in the country’s budget cycle, from the current yearly cycle to a three or four yearly cycle. He says this would give the necessary time and opportunity for the execution of capital projects and ensure better budget performance. With hindsight, he also talks about ways to build a strong industrial base and grow the country’s economy. Ohuabunwa speaks with Vincent Obia. Excerpts:

President Muhammadu Buhari recently presented to the National Assembly the 2018 budget of N8.612 trillion, with 30.8 per cent of the budget earmarked for capital expenditure. Do you have much faith in this budget?

I think it is time for us to rethink our budget cycle, because it looks like this has become a mere ritual. Every year, the executive will write a budget, and then go and make a show and dance at the National Assembly. The National Assembly will say they are doing hearing. They go forward and backward. They argue on exchange rate, oil price, etc. Then there is an argument whether National Assembly has the right to increase the budget. Finally, the president is more or less blackmailed to assent to the budget with all the padding. But at the time he is assenting to the budget, he has made up his mind that nobody would fund all those things they added. So we start budget implementation sometimes middle of the year. After a few months, we are told the budget year has ended and all unspent monies must be returned. When you check, the best that would happen is a 50 per cent capital utilisation. Then we start another cycle. I say we should rethink it.

So you are not excited about the prospects of the growing capital budget?

The intentions are wonderful. N8.6 trillion budget is great, but how much are we going to spend producing real result? We have made budgets in the last 18 years, but how much result have we received. I believe we need to change this budgeting process if it will produce result. I’m no longer excited that x amount is allocated to capital projects, etc., because at the end of the day you find that what was allocated has no relationship with what was utilised. Usually, the cash backing is lagging behind the budget. It didn’t start today, but it is getting much more ludicrous.

What can be done to make the country’s budgets more viable?  

We should do a three to four year budget cycle, in which case government submits one budget in one year, maybe the year they came to power, and let it be a budget that would run for three or four years. Now, every year it is the same thing – budget of consolidation, budget of change – but nothing is changing. What we are saying is, write a three or four-year budget, broken into years with different assumptions and send to the National Assembly. The National Assembly approves it, and budget implementation starts and goes seamlessly one year after another. After each year, you do a kind of retouch based on changed assumptions or conditions. But let’s have budgets that would run seamlessly, so that we have three, four years to build roads, not the current situation where contractors mobilise and demobilise because money has stopped coming. Let money flow. Capital projects are not one year projects.

The National Assembly spends half of the year talking about budget. But if you do a three or four-year budget, it would give them more time for legislation and oversight, and even create opportunity for part-time legislature that is being recommended in an effort to save money for capital expenditure.

We are spending so much money to service bureaucracy at the three tiers of government. We are eating up our seed. If you eat up your seed, what do you have to plant? What is happening to us is not witchcraft or magic. They are consequences for the way we have organised our politics and the economy. If we do not change it, we frustrate ourselves and the government. It is as if government is doing nothing. But they are struggling to do something.

What would you say about the recent improvements in the economy?

Our economy is improving now, not because of what government is doing, largely, but because of oil prices that are rising again. More foreign exchange is made available; more goods are imported, etc. That is not the fundamental change in our economy.  We need to invest properly and create the appropriate infrastructure and invest in human capital development that would give us the competitive advantage. If you look at countries that transited from Third World to First Word, you would notice that they did four things. First, they invested a lot in human capital development. Second, they focused on attracting investment. Third, they had an open trade opportunity, where trade was emphasised and they removed obstacles to trade. Four, they ensured there was law and order, and protection of intellectual property, where people can spend their money and energy building businesses and they are certain that nobody would acquire those businesses or take them by force, if they bring money they can also take them out. So the ease of doing business affects the growth of an economy.

Do you really think the budgeting cycle you are recommending is feasible under Nigeria’s political circumstances – just like many other developing countries?

When last did you hear that the American president was submitting or defending budget in their Congress? You can’t hear this song and dance we do here in Nigeria. In the developed countries, they make lump sum budgets, which are revalidated every year. In the U.S., for instance, they have approved their budget for another 10 years. Even though other developing countries are not doing it, why can’t we do it? Nigeria started the Medium Term Expenditure Framework, which is exactly what I am recommending. But all they do in the MTEF is to make assumptions; they don’t build up a budget. They make assumptions and send to the National Assembly, and those assumptions are mainly what they bring to the national budget. In fact, I suggest that you send your budget to the National Assembly electronically. We don’t have to go to the National Assembly carrying bags to make a show and then, create high expectations that are dashed in the end. It has a negative effect on the people, government, and the economy. We can prepare one budget with clearly established principle and direction, which can be adjusted yearly in line with changing assumptions.  

This yearly trips to the National Assembly by the executive to defend budgets promote corruption and inefficiency. You are doing something that is not producing good result, why should you continue doing it? Why don’t you develop the MTEF, which is a three-year plan, as a budget and stop this every year circus? Convert the MTEF to full budget. In any case, the assumptions don’t really change, except when oil prices drop.

 How economically sustainable is the current practice of basing the budget on oil money?

I have proposed that oil money should be put out of our budget. The finance minister, Kemi Adeosun, says we are not an oil economy, but the day we put oil out of our budget is when I will believe her. In Norway, for instance, they invest their oil money in a sovereign wealth and take the income yields or dividends and put in the budget. You can say that is not an oil economy. But ours is an oil economy pure and pure. Oil is giving us more than 90 per cent of foreign exchange, even though its contribution to GDP has declined to about 10 per cent. It means the other sectors that contribute 90 per cent of GDP give us 10 per cent of foreign exchange. We can make those contributing 90 per cent of GDP to generate their own foreign exchange. In developed countries, businesses generate their foreign exchange. They are not in this business of allocating foreign exchange. The key things we are supposed to pay attention to, we are not sufficiently paying attention to them.

But are there areas the current government is doing well economically? 

Of course, there are a few things going on, I must admit. In the area of ease of doing business, which is one of the things that drive investment and global competitiveness, we have seen government make effort, and we must acknowledge that. For once, we are looking at the issues holding us down and we are beginning to address them. But all of us know that what needs to be done is a lot more than what we are doing. And the question is, these things we have done, are they sustainable, knowing the motivation of our public service? I admit that government is making some effort, but that effort would be undermined by this inability to implement budgets successfully.

 Why is Nigeria not attracting sufficient foreign investment, especially, foreign direct investment?

There are a couple of reasons. The first is the image of our country. We still present the image of a people who are laidback as a government. We are not seen as aggressively competing, because foreign direct investment is like water. It goes down the hill, it follows gravity.  It follows the least line of resistance. Where it is easy to go, where there is no much resistance, it goes. Where it is better rewarded, it goes. FDI is cowardly, immediately you frighten it, it runs away. So countries that have understood that go out of their way to court FDI. The same way people come to sell Coca Cola, that is the way countries sell themselves. What do they sell? They sell their potentials as a nation, how you can make a lot of money if you invest in their nation. They tell you that you can bring your money and go out with it, there is no restriction. They tell you that there is intellectual protection. They tell you that their legal system works. If somebody monkeys with you, you can take him to court and in a very short while, you will get a resolution. They will tell you that your life and property are safe. They show you infrastructure, they have power. They will tell you they have good roads and those things that would reduce your cost and make your work pleasurable. They will tell you that corruption is not high, that this is a nation where you come to do business and people treat you well. That is what people who are looking for FDI do.

The question of political stability…

Their politics is stable.  They don’t change policies anyhow. They don’t cancel contracts, as we saw with Intels recently. Somebody just sat down, he has never built a kiosk before, he doesn’t know what it means to borrow money from a bank to build a business. He just wrote that this contract is cancelled. A contract that has been on for over 20 years!  I was reading in the papers recently about how many other firms were pulling out of Onne. Onne has become a major export hub for oil and gas. Onne is declining. It doesn’t matter what it costs the economy, as long as we achieve our political objective of getting back at somebody. This kind of nation is not serious. We are not a serious nation when it comes to attracting foreign investment.

Foreign investors look at political stability. They look at how you integrate politics into your economy. If politics thrives above economy, they are afraid because policies can change tomorrow. It has happened severally in Nigeria. In fact, it is so bad that you cannot even predict continuity within a given party. One president comes, he jettisons what the previous president from his own party has done. It is worse when they are from different parties. So we have not matured. Public sector is domineering in the economic sphere. There must be separation between the levers of politics and the levers of economy.

But beyond politics, Nigeria has a lot of innate potential.

We have fundamentally attractive things. First, we have the population. If not for the drop in oil price and the delay by this government in responding to the situation, which brought us into recession, Nigeria was beginning to grow into a middle income country. The number of middle income earners was growing; many companies were coming into our country to sell their products. The market is one of the things that attract investment.

We have a good climate. We have a stable earth crust. We don’t have earthquakes and some of these violent earth issues.

Besides, we are significant in Africa. We always tell our foreign partners, if you want to play in Africa, then you can’t run away from Nigeria. South Africa and Nigeria are the most significant countries in Africa. That geopolitical position puts us in a good place. But when they look at us and dig through, they discover an uninspiring leadership, a leadership that doesn’t have a proper vision. If we don’t have a vision, it means we can move forward and backward. If we are all focused on going somewhere, then the world can see us moving in that direction.

We should have an enlightened government and build a national vision.

 Small and medium enterprises have proved to be a veritable engine of growth in many developing countries, but in Nigeria, SMEs are hampered by the high cost of funds. What can government do to solve this problem?

For me, there are two solutions. The short term solution is the type of development funding that the Central Bank of Nigeria seems to be championing. The CBN is championing the creation of development funds, which help to reduce interest rate. The Bank of Industry, a new development bank being set up, etc. That is the way to go. But right now, we are scratching the surface.  We will begin to have impact if we can deepen it in quantity and quality. But the government development funding is not sustainable. What is sustainable is support for big investments. For example, if by the grace of God Dangote refinery starts, 90 per cent of those who would supply input to the refinery are the SMEs. In those countries where SMEs became critical in the development equation, there were big companies that gave them the opportunity to grow. Related to that is a deliberate easing of the limitations. I believe that is what government is trying to do through the easing of doing business initiative. But the ease of doing business initiative is still at the symbolic level, it hasn’t gone deep at all. If this goes deep, and we combine it with government development funding, and interest rate remains single-digit, the process and procedure are simplified. Our experience so far is that less than two per cent of SMEs actually get the development funds.

If you were a governor, what would you do to help SMEs or attract SMEs to your state?

I would look at the issues for SMEs today. One is land. Land is very expensive, N100 million, N200 million. Except you want to go to the bush to buy land, I don’t know where you can get it cheaper. Two, power. You buy generator and fuel. By the time you add up your cost, you are operating at a loss from the beginning. Even when you borrow money, you cannot pay back. That is why you have a high level of default. Now to solve the problem, there is land that government can acquire everywhere in this country. 

Today they are acquiring land and using it for largely housing. Housing is okay, but if you build your houses on an economy that is unsustainable, sooner or later, the houses would not attract the right return on the investment. 

So I would focus on industrialisation. I would acquire land, but instead of dividing it into residential plots, I would divide it into industrial and commercial plots. Then I invite businessmen to come. I give you a piece of land, build roads, and service the estates. If I cannot get reliable power from the national grid, I can buy a chain of generators. 

I will assess how much power they need and then buy generators. 

A country like Gambia, for instance, didn’t have power from the national grid for a long time. They were using generators. For a city, a set of generators would fire till night, they go to rest, and another set would take from night till morning. If you are in a hotel in Gambia, your light would not go off.

If somebody wants to do business, and you give him land, electricity, water, have you not halved his problem? Some of my South-east governors say, come home and invest, this is the way to bring people home. 

And I assure you all these I’m saying won’t be equal to the annual security vote of a governor. I’m not saying do this for the private sector free. 

My proposal is, set up your industry and employ my people, you pay them salaries, and the government starts taking PAYE. They buy things, government takes VAT. Then, I will amortise your land. This land, for instance, is worth N50 million, after your third year, you have started making money, you start paying back N2 million a year.  In a few years, you pay off. For electricity, you can be billed right away, because it would be cheaper than buying and maintaining your own plant.

An industrial establishment has a multiplier effect. Immediately you set up a factory at a place, maybe sachet water company, the people who make plastics would start coming, people who make chlorine, filters, etc., will start coming. You start a whole set of economic activities that would grow the economy. 

An economy grows as a result of the level of transactions that happen in the system. These things a doable, only people in office just allow themselves to be corrupted by power, circumstances, and privilege. I have tried it. The only question is, is it your priority? If a governor does these things in his first two years, by the third year, the results would begin to manifest.

Sometimes I ask myself, am I being naïve? I used to asked myself this question when I was younger, is there something that happens to people when they get to a certain level? Then I said, maybe because I hadn’t gotten to that level. But God took me from the first level as a pharmaceutical sales rep, and I became chairman/CEO of a multinational company. I believe that nothing changes. What changes is that you get busier, and having gotten busier, you devise how to use your time more efficiently.