ICAN’s RAZAK JAIYEOLA:  It’s an Aberration to Skew Budget in Favour of Recurrent Expenditure

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Alhaji Razak Jaiyeola
Alhaji Razak Jaiyeola is the President/Chief Executive, Institute of Chartered Accountants of Nigeria (ICAN). Prior to his appointment, he had chaired various committees of the institute and Association of Accountancy Bodies in West Africa (ABWA) and was a council member of the Pan African Federation of Accountants (PAFA). In this interview Kunle Aderinokun, Jaiyeola, who is the 54th president of ICAN, addresses pertinent issues relating to the economy, including the federal government’s handling of the national budget, rising debt portfolio, economic diversification and interest rate. He also expresses his opinion on the implementation of IFRS 9. Jaiyeola, in addition, weigh in on the Forensic Accounting Bill presently at the National Assembly just as he speaks about the role of ICAN in fraud matters and whistle-blowing. Excerpts:

What is your opinion about the implementation of IFRS 9?

The implementation of IFRS 9 is on course in Nigeria. To ensure smooth implementation, the CBN provided Guidance Notes to Banks and Discount Houses on expectations of implementation of the new standard.  The CBN also set up a project team from which banks could seek clarifications on grey areas of the implementation process.  The banks have keyed into the implementation process and are developing and fine tuning strategies to ensure smooth take off in compliance with the deadline for conversion which is January 1, 2018. For instance, Diamond Bank had as of December 31, 2017 complied with the deadline.  Generally, the implementation process is satisfactory, as a number of the processes (trainings, model designs, impact analysis, accounting policies among others) have been completed, especially by the banks.  For insurance companies, it would appear they desire to wait for the take-off of IFRS 17 in 2021 by electing to exercise the Temporary Exemption approach instead of applying IFRS 9. To enjoy the exemption, they will have to pass the ‘predominance test.’ With the implementation of IFRS 9, it is hoped that the non-performing loans portfolio of banks would drop significantly.

On fraud matters in Nigeria, what are the roles of accountants?

In all modesty, ICAN has been at the forefront of supporting various governments’ and agencies’ initiatives at fighting the hydra-headed monster of corruption and other forms of fraud in the polity.

We are not resting on our oars. In 2015, we launched a N50 million Whistle-Blower’s Fund to protect and compensate our members who report any form of financial misdemeanor in the country. We were therefore, and as expected, elated when the Nigerian Senate passed the Whistle-Blower Protection Bill of the federal government in June 2017 and you can see the level of success achieved by the federal government from the whistleblowers initiative.

ICAN keyed into Non-Compliance with Laws And Regulations, or (NOCLAR) in 2017. NOCLAR was issued by the International Ethics Standards Board for Accountants (IESBA) as a whistle-blowing initiative, which mandates professional accountants and auditors to expose any act of non-compliance to laws and regulations by their employers or clients to relevant authorities.

Similarly, the ICAN Accountability Index (ICAN-AI) being developed by the Institute is gathering momentum. This Index aims at improving the process for assessing public finance management and public governance practices across the three tiers of the Nigerian public sector including the federal, state and local governments.

Some of the specific objectives of the Index are to: encourage greater accountability and transparency in fiscal and Public Financial Management (PFM) practices in Nigeria; improve quality of governance and compliance with Fiscal Responsibility Act 2007; and tackle corruption by engaging quality professionals in public sector.

In fact, we made a presentation to the Federation Account Allocation Committee (FAAC) on the Index and we have the support of various government officials and political office holders in the development of the Index.

What’s your scorecard on Nigeria’s economy?

While there are still many hurdles to cross, we must acknowledge the fact that progress has been made especially in sustained decline in inflation rate for 18 consecutive months from the peak of 18.72 per cent in January 2017 to 11.23 per cent in June 2018.

Experts have projected a GDP rate of 2.4 per cent by the end of 2018 from the 0.8 per cent in 2017. Remittances by federal government agencies have also improved significantly e.g. N50 million by JAMB in five years to N7.8 billion.

However, the challenges of insecurity and political uncertainties are still rife.  Very high interest at over 20 per cent is stifling business growth and limiting SMEs access to credit and hampering SMEs’ potentials as a major employer of labour.

Generally, government should create the enabling environment for businesses’ growth in terms of building a very strong infrastructural base, creating a supportive tax regime for SMEs and building a strong legal structure to protect SMEs. This is when we can have a truly diversified and inclusive economy.

Are you satisfied with the way the nation’s budget is being handled?

It would be difficult for anyone to confess that he is satisfied with the way the nation’s budget is being handled. A lot of improvements are needed to bring the budgeting process in line with global leading practices by eliminating all fundamental challenges currently being experienced. For instance, the budget preparation and scrutiny are always late. This makes it difficult for stakeholders to plan appropriately. There is also the issue of assumptions underlying the budget estimates which are often over ambitious. We need to begin to learn from previous budget in preparing current ones.  We do not have to impress anybody with high sounding but unrealistic assumption, especially in the area of crude oil production.  The budget is also usually skewed in favour of recurrent expenditure. This is a disservice to the nation and an aberration.  We equate budget performance in Nigeria with the release of funds such that nobody actually critically examines whether the budget is performing based on the parameters set in the budget or not. This is even compounded by the erratic release of budgeted funds to the respective agencies and units that need funds to execute projects and programmes. Unless and until all these fundamental challenges are dealt with sincerely and timely, the budgeting process in Nigeria would continue to be a challenge.

What is your position on the increasing debt portfolio of Nigeria?

The usual narrative is that Nigeria’s debt portfolio (even currently at over N21.7 trillion) is low and that the total public debt-to GDP ratio remains below normal threshold. This narrative is supported by the Debt Sustainability Analysis (DSA), which indicates that there is still ample space for Nigeria to continue to borrow from both internal and external sources. The advocacy is that in the 2018 financial year, Nigeria could still borrow US$6.25 billion and to be accessed on a 50:50 basis from external and internal sources. The crux of the matter is not whether to borrow or not to borrow, but that the debt profile is rising and much of what the funds have been applied to, are not quite evident, even though some of them would need some gestation period.  If the discipline to apply the borrowed funds to productive use is present, of course borrowing becomes attractive. This is not the case with Nigeria where most of the borrowed funds cannot be adequately accounted for.

Remember as of April 2006, Nigeria’s external debt was significantly reduced by the repayment of US $30billion. We are again sliding to the 1985-2005 era when almost all resources were applied in paying interest on over-sized debts. In the last three years, external debt of over US$11.76bn has been accumulated and there is no end to the taste for external debts at all levels of government. My position, therefore, is that first of all, let there be stocking taking of our current debt profile and the projects to which the funds were applied and the benefits derived so far. On the basis of this cost-benefit analysis, it would be evident to all as to whether the country should continue to borrow or not. It is not a question of relating debt profile to GDP. It should be one of seeing borrowing as an exercise in morality.

Are you comfortable with the debt servicing plan?

The debt servicing ratio of about 63 per cent of revenue is unreasonable and has not helped the economy to grow. It is unsustainable and should bother every right thinking Nigerian. What I believe has misled the country is the wrong position of relating debt servicing to GDP. I think the relationship should be between debt-servicing and revenue generated.  This would give a better idea of what situation is and help chart a path forward.

Would you say the federal government is making progress in economic diversification agenda?

Yes, we are making progress. But the issue is, what level of progress are we making when crude oil still remains the major source of government revenue in Nigeria? It is believed that increasing the tax rates and widening collection capacity are the answers to the budget deficit in Nigeria. No, diversification is the answer, the only way to move out of poverty to prosperity and be a player in the global economic space. One of the most potent areas for diversification is agriculture. A legion of measure had been put in place in the past but not much has been the outcome.  Agriculture is formidable as it can increase the supply of food for both internal consumption and export, provides labour, enlarging the market for manufactured and other goods and services as well as increasing domestic savings.  In all of these, we require high level of ethics and innovation for our products to be acceptable in the international market. Though we are making progress, it is at snail speed. We require much more than we are doing.

What are the factors inhibiting federal government’s move to fully diversify the economy?

Let me start by saying that the Nigerian economy is diversified to some extent. According to the National Bureau of Statistics (NBS) statistics in respect of GDP Q1, 2018, the sectorial contributions to GDP are as follows: information and communication, 12 per cent; manufacturing, 10  per cent; crude petroleum & natural gas, 9  per cent; trade, 17  per cent;  real estate, 6  per cent;  agriculture, 22  per cent; and other services, 24  per cent. The foregoing information provided, however, indicates that the country’s economic diversification can still be further deepened. Diversification should be both in terms of breadth and depth. The depth so far is shallow especially in the agricultural sector that should be driving the economy in the context of current development. The inhibiting factors are clear for everyone to see and the most fundamental is the absence of critical infrastructure such as electricity, good roads and water.

It is also important to provide the enabling environment (especially in the context of security, legal and ethics) that would ease business activities and also encourage investment. The diversification clamour would be a mirage if there is lack of consistency in policy formulation and implementation.

ICAN acknowledges government’s sustained drive in diversifying the economy which is exemplified with the launch of the Economic Recovery and Growth Plan (2017 – 2022). According to the Plan, the diversification policy focuses on the key sectors driving and enabling economic growth, with particular focus on agriculture, energy, MSME, manufacturing and other key services. As an institute, we believe that government would sustain this laudable initiative and broaden the economic base of the country, thereby reducing the economy’s level of reliance on crude oil which is neither renewable nor sustainable. 

There are feelers that CBN may propose increase in interest rate. What do you think?

This question needs to be situated against the background of the economic objective being pursued in the country. Interest rate is a powerful economic tool for controlling the flow of money in the system. While there have been varied views on increasing interest rate, my own stand is that the apex bank should ensure that such a move will not impact negatively on the SMES, the major employer of labour in Nigeria.

 

The monetary policy rate (MPR), which is the benchmark interest rate is at 14 per cent, has been unchanged for a long while and the same applies to other policy rates. The CBN has maintained this tight monetary stance for a while now. At what point do you think the apex bank should relax the tight monetary stance?

It is important to stress that interest rate is a formidable economic tool used to control price fluctuations (for example, inflation), stimulate growth and to attract foreign investors into an economy. There is always an economic dilemma with the use of interest rate by the apex bank in an economy – should it be reduced to stimulate growth or be increased to curb persistent increase in the prices of goods and services, inflation? The dilemma lies in the difficulty of simultaneously pursuing the twin objectives of growth and low inflation rate. 

For instance, when the Central Bank of Nigeria (CBN) increased the rate in July 2016 from 12 per cent to 14 per cent it was intended to control the persistent increase in inflation that characterised the economy then. There were however divergent views on the appropriateness of the policy then. However, the policy has been able to reduce inflation consistently for 18 months. There has also been a marginal improvement in growth rates since the country emerged from the 2016/2017 recession.

We therefore believe that the CBN will consider easing the monetary stance when the fundamentals are right. Theoretically, reducing the interest rate will further stimulate growth in the economy as lower interest rate makes funds available in an economic system and such funds are engaged in productive activities that will create jobs for the citizenry. 

Nigerians admire the way ICAN has been carrying on with its succession plan. What advice do you have on the way to go for other professional bodies?

It does not require any comparison of ideas to come to the conclusion that the ICAN succession planning model has been second to none and has become the toast of other professional bodies over the years. I sincerely  give credit to the founding fathers of our great institute whose sense of character and presence of mind have been the thread for sustaining the tradition of succession planning in ICAN. This is a heritage we pride ourselves in during the course of our 53 years of existence.

Having said this, we must not fail to appreciate the fact that different bodies have rules and regulations guiding their activities. While the succession planning of ICAN has been widely acknowledged and praised, I think it is important to respect the individual differences characterising the various professional bodies, especially that making comparisons is a sure path to frustration.  ICAN strongly desires that our rancour-free change of baton would be replicated not only by other sister professional bodies but in the nation as a whole. More especially as the election year is fast approaching. 

 How many members are currently in the ICAN fold?  What is the level of confidence in the body?

At ICAN, our relentless commitment to build world-class professionals for the accounting sub-sector has been the primary impetus for our continued drive for increased membership. From a modest beginning of 250 members in 1965, the Institute has to date produced 45,103 chartered accountants, and 23,011 Associate Accounting Technicians (ATs), who are very talented, ethically committed professionals working in every sphere of the global economy to support businesses, public sector organisations, not-for-profits, individuals and communities to achieve their financial and strategic goals.

And I think the facts speak for themselves on the issue of the level of public confidence in the body. For instance, different accounting job advertisements place special premium on possessing ICAN certificate as a prerequisite.

Besides, ICAN is a member of many international professional bodies such as the International Federation of Accountants, (IFAC), PAFA, ABWA and has just also been admitted a member of the Chartered Accountants Worldwide (CAW).

What is your take about Forensic Accounting Bill presently before the National Assembly?

The summary of the matter is that the bill is not auspicious for a number of reasons. Forensic and investigative audit is a special area of practice of accountancy that describes engagements resulting from actual or anticipated disputes. Forensic accounting is adequately covered within the scope of the training that ICAN provides and therefore the quest for a separate Institute for just forensic accounting is totally uncalled for. Whatever perceived lacuna that this bill seeks to fill has been adequately covered within the scope of services that ICAN members render.

Won’t it just be like the Chartered Institute of Taxation of Nigeria (CITN), which specialises in taxation? Or are there any fears ICAN is entertaining?

We collaborate with sister professional bodies to collectively contribute to growth and development in the country. Our concern with this new bill is the imperative of protecting Nigeria’s accounting sector from adulteration through the promotion of quackery. The profession is a noble one, which continues to serve as the conscience of the society. Hence, all stakeholders should jealously guard this long standing confidence reposed by the public in the profession. 

Mr. Akintola Williams, the Doyen of Accountancy in Nigeria was 99 years old recently. Do you have anything to say about his life and achievement?

It is not whether I have anything to say about the life and achievements of Mr. Akintola Williams. It should be whether I would have enough space and time to chronicle the life and successes of a man, who has been unarguably known and regarded as the doyen of accountancy profession in Africa. 

He was the first African to qualify as a chartered accountant as well as the first president of ICAN. He established the first indigenous firm of chartered accountants in Nigeria as far back as 1952. In recognition of his services to humanity, he earned several prestigious awards such as the CBE (1997); OFR (1982) CFR (2001). There is also the Akintola Williams Arboretum at the Nigerian Conservation Foundation headquarters in Lagos. Akintola Williams is a colossus, whose achievements cannot be adequately chronicled. He has been one of the greatest accountants the world has ever known and still walking actively across the pages of history as no other had done, even at his age.