Against the background of the Ministerial Performance Review carried out few days ago, financial and economic pundits who have followed events within the nation’s economic landscape in the first year of President Muhammadu Buhari’s second term in office, hold the view and very strongly too that there are few positives to cheer about as well as areas in need of improvement, report Ibrahim Apekhade Yusuf and Charles Okonji
FOR the discerning mind, Mrs. Zainab Ahmed, Minister of Finance, Budget and National Planning, is the livewire of the nation’s economy for the simple reason of the position she holds. Little wonder that pundits are quick to take a swipe at her if anything goes awry from her ministry because a lot literally depends on her.
With the benefit of insight, taking a retrospective look one year into the second tenure of Buhari-led administration, and over the last four years, the Ministry over which she superintends has consistently helped to take the economy through the frightening months of COVID-19, and also looked to set it on a path to steady growth.
A cursory review of policy thrust one year after
The budget process over the years has been anything but hitch-free. However, within the last 12 months, the budget process was completed within a period of two months and successfully reversed the budgetary cycle to Jan – Dec. 54.9 percent overall revenue outturn was achieved (66 percent for oil, 31 percent for non-oil) as at Q2’2020.
Also achieved was 90.4 percent recurrent expenditure, 86.9 percent debt service, 31 percent capital expenditure) as at Q2’2020. The increase in minimum wage was funded, and there was continued monthly reconciliation and revenue performance monitoring by the Presidential Revenue Monitoring and Reconciliation Committee (PRMRC).
Besides, the successor mid-term and long-term plans (the Medium-Term National Development Plan (MTNDP) 2021-2025 and the Long -Term Plan Agenda 2050) that succeeded vision 2020 and the Economic and Recovery Growth Plan had commenced respectively just as the development of the macro economic framework for the proposed Medium-Term Plan as well as the Perspective Plan had also commenced.
The 2020-2023 MTEF which has been passed by the NASS was prepared. The monitoring and evaluation (M&E) mechanisms were institutionalised by finalising matrix and targets to each ministerial key performance indicators (KPIs). The key MDAs have established a performance matrix to track and measure the presidential deliverables (2019 – 2023) to ensure improved service delivery.
Under her charge, the Finance Act 2019 was passed at a record time before the 2020 budget.
According to the Minister, “Through the Finance Act, we have achieved the following: Value added tax (VAT) rate increase from 5 percent to 7.5 percent, which was implemented in Feb. 2020; introduction of a N25million threshold for small and medium enterprises (SMEs) for eligibility for VAT collection; reduced of tax rates for SMEs (0 percent and 20 percent respectively); administering of the Finance Act 2019; automation of import duty exemption certificate (IDEC) and vehicle registration (V-REG); and automation of the collection of stamp duty.”
This is just as the government provided N802.82 billion as new domestic borrowing to part-finance the deficit in the 2019 Appropriation Act. The funds were mainly deployed to capital projects like roads, bridges etc. As part of the economic development plan of the government, N100 billion sukuk bonds was raised in 2018 and provided N1,319,986 billion, out of the total borrowing of N1,564 billion in the 2020 Appropriation Act, to part-finance the budget deficit.
For COVID-19 Response and fiscal stimulus, the federal government provided debt relief to states to relieve them of debt service obligations for 2020, developed a N2.2 trillion economic stimulus plan to help cushion the effects of COVID-19, provided N500 billion for COVID-19 Crisis Intervention Fund; N263.63 billion of which will be drawn from federal government special accounts, N186.37 billion from Federation Special Accounts and the balance of N50 billion is expected as grants and donations, reviewed 2020 Budget based on the current realities (oil price shock and COVID-19 pandemic) as well as funded the Presidential Task Force on COVID-19 response, mobilised funding from domestic and external sources for the implementation of 2020 budget (Raised domestic revenue for the budget deficit but as a result of weakness of the foreign market, and converted foreign borrowing to local currency in other to cushion the effect of the oil price shock and COVID-19 pandemic).
Oil revenues have been highly affected by the twin shock events, i.e. crash in oil prices and dampened economic activities and consumption from the COVID-19 pandemic which have adversely affected non-oil taxes. As at March 2020, oil revenue performance was at 70 percent while non-oil performance stood at 60 percent. The erratic oil market makes prediction difficult, heightening the vulnerabilities around oil revenues.
The government relaunched the strategic revenue growth initiative (SRGI) with MDAs (portfolio owners) charged with responsibility of establishing Project Implementation Units (PIUs), and completed the opportunity sizing of incremental revenue with clear identification of potential revenue expected of each source.
However, a deep dive into oil revenue streams show some good results from reforms (VAT and Stamp duty), which include: Achieving 54.9 percent overall revenue outturn (66 percent oil, 31 percent non-oil Q2,2020); the stamp duty which increased by 40 percent from N3,386,648,663.85 in Q1, 2019 to N4,750,893,578.48 in Q1, 2020; and VAT also increased by 27 percent at the customs level and 13 percent at the non-import level.
The federal government reviewed tax expenditures and exemptions by reducing sectors eligible for pioneer status incentives under the industrial development income tax relief Act (‘IDITRA’), as well as auto policy incentives and import duty exemptions. It restructured Social Investment Programme (SIP) by: Suspending further intakes into the N-Power scheme of the SIP for a period; transitioning youths currently under N-Power into CBN’s Anchor Borrowers’ programme; and conducting a review of the SIP to implement measures to increase efficiency.
The government has worked with the international community of donors, nations, multilateral organisations, etc. to raise concessionary resources for the nation, including COVID-19 response. In the light of this, it signed a total of $2,534,880,717.6 as follows: African Development Bank (AfDB) – $278,093,093; IFAD – $89,100,000; World Bank IDA – $1,573,248,600; AFD – $201,911,909,23; and China-Exim Bank – $392,526,218.37.
The government created the Presidential Infrastructure Development Fund (PIDF) which is being managed by NSIA for the development of four roads and one critical power infrastructure projects namely: Lagos-Ibadan Expressway, Second Niger Bridge Project, Abuja-Kano Road, Mambilla Hydro-Power Project, and East West Road. The projects, worth over N2.5 trillion, will stimulate economic activities across the country especially in the areas the infrastructures are situated.
On infrastructure financing, the government provided N802.82 billion as new domestic borrowing to part-finance the deficit in the 2019 Appropriation Act, which were mainly deployed to capital projects, ranging from roads, bridges, etc. It deployed the bulk of the proceeds of the N100 billion Sukuk raised in 2018 towards the rehabilitation and repairs of 28 road projects across the six geopolitical zones of the country. Considering road infrastructure development and Refurbishment Investment Tax Credit Scheme (RITCS), the federal government developed the RITCS which was signed via an Executive Order no7 by Mr. President to utilise tax expenditures, refundable by way of tax credits, to finance the construction of critical roads infrastructure through a public private partnership (PPP) mechanism. Under this scheme, the pilot is being led by the following: Dangote Industries Ltd; Lafarge Africa Plc; and Unilever Nigeria Plc. The investors are meant to invest in 19 eligible road projects, totalling 794.4km which have been prioritised in 11 States across each of the six geo-political zones.
Regarding Nigeria Integrated Infrastructure Master Plan (NIIMP), the government has revised the 2015 NIMP and is coordinating the different stakeholders involved (CBN, NBS, BNP (MFBNP)) to address the impediments to the assumptions and models.
In an effort to execute all this, there are lessons learnt such as the need for fiscal buffers (provision for rainy days) for future shocks, high risks of oil revenue dependent budgets, exposure of the magnitude of abuses and smuggling activities from the unplanned increase in Customs revenues, urgent need for infrastructure upgrade for revenue generating agencies, loss of revenue and worsen internal security situation, and poor regulatory skills among headquarters staff.
In the view of Dr. Titus Okunrounmu, former Director, Budgeting and Planning, CBN, a lot still needs to be done to address the parlous state of the economy. While attempting a review of the economy under the minister’s watch, Okunrounmi waxed philosophical.
“If the foundation is not strong, whatever you build on it will collapse. If the infrastructural crisis remains, there is no way the country will witness economic growth. Even as I’m speaking to you now there is no light. So how do you expect such an economy to grow, when people that are willing to produce do not have light to do so, and when they result to self-help by generating their own power, it will impact negatively on the production cost. So there is a high cost of production in the economy, because of power. Power is the most critical. But others are still there like the road infrastructure. Farmers cannot even get their produce to the market because of poor road infrastructure, and even when they do; it will get spoiled before they get to the market, that is to say that we are still doing the same thing as we were since independence. So how do you expect the economy to grow? The economy cannot grow while we are sleeping,” he stressed.
According to him, “Policy cannot implement itself. For instance, if you say that you want your children to be disciplined and you close your eyes without doing anything, would they not turn wayward? So, that is the case of policy and its implementation in this country. Something drastic needs to be done to address the drift.”
The top economist also addressed the issue of diminishing revenue in his review, stressing that there is a need to get the economy back on track as productive as possible as the rainy days are here already.
“For the country to grow its GDP it knows what to do, you cannot be exporting crude and import refined products and be thinking of GDP growth, it is impossible. Refineries should be fixed and all the petrochemicals in the value chain would generate forex, and other companies in the value chain will become viable and create job opportunities.”
Echoing similar sentiments, Dr. Samuel Nzekwe, former President of Association of National Accountants of on Nigeria (ANAN), said, there are so many factors affecting the growth of the Nigerian economy, ranging from policy summersault in all sectors of the economy to poor policy implementation, unwillingness of the people implementing it as well as wrong policies. These are some of the things that are affecting the country that makes it impossible for us to get it right.
“Inefficiency in policy implementation is a very big setback to the country. Secondly, some of the policies are not run in the right way because of corruption and so on,” he said.
Expatiating, the erstwhile chief of the second foremost accounting body in the country, said, the other issue that has been hotly debated is the problem of loans from China, which many see as a Greek gift.
“The loan is sterilised because the cash is not given to you. The cash is not coming to Nigeria, but the cost of all the materials and every input is factored as loan as well as the tractors and the equipment. My stand is that local content is not factored enough into the project. If there was local content in the project, the loan wouldn’t have been as much as it is because there are some things which we would have provided by ourselves. And if local content was captured in the rail line project, some amount of money would have been paid to Nigerian companies that manufacture tools, those that manufacture bolts and nuts that are used on the rail, but it was not considered. How about the furniture that is on the couch, we have companies that make such upholstery which would have saved a very huge cost. But what has happened is that the whole money has gone to China, which the Chinese has used to procure everything they need for the project without Nigeria benefiting from the massive funds expended on the rail project in terms of inputs.”
According to him, “This why people started agitating that Chinese loans are not good, because these were the things that would have been considered. This is why people are not feeling the impact of the loans that the country is taking. You can also recall that the Minister had some face off in the National Assembly because the negotiations were not done in the open and the experts that would have included the local content were not carried along. This is the part of the policies that we are complaining about that is not working well.”
While suggesting a way forward, Nzekwe said one better way the government can stimulate growth is to formulate policies that will lower interest rates to single digit to grow the economy.
This view is also held by many analysts, who are convinced that the government needs to go beyond platitudes to ensure steady and sustainable socioeconomic growth.