One cliché that is habitually used by governments around the world is the phrase, “we are open for business.” Meanwhile, the distinguishing factors that separate those overusing this phrase from the others are the efficacy of their economic policies and budgetary performance.
Recently, the President of the Federal Republic of Nigeria, Muhammadu Buhari, also alluded to this saying when he presented the proposed 2016 budget, tagged, ‘The Budget of Change,’ to a joint session of the National Assembly on Tuesday, December 22nd, 2015.
President Buhari told anxious Nigerians, local and international businesspeople that despite the negative impact of global economic uncertainties and pressure on the country’s economy in recent times, Nigeria was still open for business. He then lay before the lawmakers the anticipated and unprecedented ₦6.078 trillion 2016 fiscal proposals, otherwise known as the 2016 Appropriation Bill.
The budget remains the first federal budget to be largely anchored on projected revenue from the non-oil sector; predicted in light of benchmark oil price of $38 per barrel and crude oil production of 2.2 million barrels per day. In the 2015 Budget, the benchmark oil price was $53 per barrel with oil production of 2.28 million barrels per day.
A Quick Breakdown Of The Budget
The 2016 Budget of ₦6.078 trillion comprises of a hefty non-debt recurrent expenditure of ₦2.65 trillion and capital expenditure of ₦1.8 trillion –representing 30 percent of the budget.
Under the spending plan, a record ₦1.36 trillion is provided for foreign and domestic debt service; while ₦113 billion is to be set aside for a Sinking Fund towards the retirement of maturing loans.
The budget is based on projected revenue of ₦3.86 trillion; with oil related revenues expected to contribute ₦820 billion, while non-oil revenues, comprising Company Income Tax, Value Added Tax (VAT), Customs and Excise Duties and Federation Accounts levies, are projected to yield ₦1.45 trillion. Government estimates to realise about ₦1.51 trillion from independent revenues.
A huge deficit of ₦2.22 trillion is to be financed through domestic borrowing of ₦984 billion, and foreign borrowing of ₦900 billion, totalling ₦1.84 trillion. The deficit is equivalent to 2.16% of the country’s Gross Domestic Product (GDP) growth rate projection of 4.37%.
As contained in the proposed 2016 budget, a significant portion of the recurrent expenditure has been earmarked to institutions offering critical services. They are: Works, Power and Housing ₦433.4 billion; Education ₦369.6 billion; Defence ₦294.5 billion; Transport ₦202.2 billion, Health Services ₦221.7 billion; and Interior Ministry ₦145.3 billion.
The Federal Government plans to spend ₦20 billion on the Presidential Amnesty Programme, another ₦20 billion as sinking Fund for Infrastructural Developments, and ₦200 billion for Special Capital Projects.
A new entrant into the budget cycle preparation is the Special Intervention Programmes component. In his speech during the budget presentation, President Buhari said, “In fulfilment of our promise to run a lean government, we have proposed a nine per cent reduction in non-debt recurrent expenditure, from ₦2.59 trillion in the 2015 Budget to ₦2.35 trillion in 2016. Furthermore, we have budgeted ₦300 billion for Special Intervention Programmes, which takes the total amount for non-debt recurrent expenditure to ₦2.65 trillion.”
While many Nigerians have commended the President for presenting a budget that looks reconstructive in reviving and jumpstarting a weak economy, facts emerging from the budget have, on the other hand, left many financial analysts wondering if Nigeria is indeed open for business because ‘the Budget Of Change’ actually appears to be a ‘Budget Of Shade.’
Senate Passes 2016 Budget, Reduces it by just ₦18 billion
The Appropriation Bill, which was before the National Assembly for debate and scrutiny for three months, has just been approved by the Senate on Wednesday, March 23rd, 2016.
The Senate passed the 2016 Appropriation Bill and reduced the budget size from the initial ₦6.078 trillion to just ₦6.060 trillion, a difference of ₦18 billion; despite the fact that the Chairman, Senate Committee on Appropriation, Danjuma Goje, admitted that the 2016 budget proposal contained a number of errors, particularly in the area of personnel cost.
Dead On Arrival Budget?
With the unwavering volatility in global oil price and Nigeria’s Brent crude oil sale going below the projected $38 in the next fiscal year, there is the possibility of a $10 to $18 dollar shortage in the country’s budgetary expenditure.
Some opposition lawmakers have already argued that the 2016 Budget Bill was dead on arrival due to the perceived unrealistic oil benchmark.
The International Monetary Fund (IMF) even projected that in 2016, oil price could fall below $20 per barrel. If that happens, the budget will certainly run into a fierce storm as predicted by opposition lawmakers. The Managing Director of the IMF, Christine Lagarde, reiterated the agency’s oil price outlook in extensive and advisory meetings with Nigeria’s political and economy leaders during her four-day policy visit to the country.
However, the legislative chambers have ignored such argument following the new upward trends in global oil prices that may be favourable to the proposed oil benchmark in the Bill.
Also, even though the proposed oil production of 2.2 million per barrels per day may no longer be rational or sustainable due to the renewed pipeline vandalism by militants which has forced the Nigerian National Petroleum Corporation (NNPC) to shut down two refineries, the Senate has passed the Bill. The government is now looking at new ways to suppress the sabotage in order to guarantee the free production of oil in most areas of the nation’s production stream.
In the meantime, while the dwindling oil price may not have a colossal impact on the budget revenue as expected in some quarters due to the modest fraction the oil sector is expected to contribute, of great concern about the budget is how the government genuinely wants to fund the ₦6.060 trillion Appropriation and ensure its full implementation.
Change Or Shade?
In his closing remarks during the budget presentation, the President said, “Indeed, trust in government, due to abuse and negligence of the past, is at an all-time low. This means we must go back to basics. Our actions will speak for us. My team of dedicated, committed and patriotic Nigerians is well aware of the task ahead and I can assure you that we are taking on the challenge.”
But after carefully analysing the 2016 Appropriation Bill that showed details of the proposed budget, it is shocking to note that of the 1,810 pages of the Bill, 1,808 pages appear to have a lot of shady deals embedded in it; leaving only the two Table of Contents pages without any question mark.
Unlike other serious climes where budgetary preparation and implementation are meticulously achieved, Nigeria’s estimated 2016 budget seems to be a charade or an orchestrated loot by all indications due to the enormous fabricated figures contained in all the pages. It is obvious that the new strategy for stealing is simply to ‘budget the loot.’
President Buhari had introduced a zero-based budgeting system when he came into power aimed at reducing leakages and corruption, particularly in civil service. But what the President failed to realise was that depraved individuals in the corridor of power, particularly top politicians and civil servants, have already outsmarted him even with the new budgeting system.
Ordinarily, a zero-based budgeting approach, which is a clear departure from the previous instrumental budgeting system, would have ensured that resources are aligned with government’s priorities and efficient allocation. It would equally have ensured that all expenditure be justified before allocation. But what the 2016 Budget has shown so far is a re-strategized means by supposedly ‘budget mafia’ of padding figures and looting the nation.
Some of the shady deals that vividly drew attention in the budgets of the Ministries, Departments, and Agencies (MDAs) include repetitions of projects, programmes, and equipment acquisitions under different expenditure, using different quotations. The paradox is that once this Bill is enacted into law, these spurious figures become spendable and untraceable.
Budgeting The Loot
One is forced to ask how on earth the Buhari-led administration would explain to Nigerians that in the middle of looming economic adversity, his government has decided to be more profligate than the previous administration.
Under the recurrent expenditure, it is amazing to see the huge budget of ₦39.13 billion for the Presidency and the baffling sum of ₦115 billion set aside for the National Assembly.
Of the colossal presidency budget, the Federal Government earmarked the sum of ₦11.81 billion for the State House headquarters, ₦1.89 billion for the State House operations (President), and ₦321.80 million for the State House operations (Vice President) in 2016 fiscal year.
In the same vein, details of the budget showed that Aso Rock would rehabilitate/repair electricity for a whopping sum of ₦1.83 billion; rehabilitate/repair office buildings for another gigantic sum of ₦3.91 billion; conserve its wildlife for ₦115.83 million; and acquire computer software for ₦268.9 million.
On some of the ongoing projects inside the villa, FG wants to link cable to driver's rest room at the villa for ₦322.42 million; link cable from guest house/generator house to gate for ₦213.87 million; install electrical lightings and fittings for a titanic sum of ₦618.60 million; do another electrical installation of distribution boards and other cables for ₦371.73 million; as well as purchase C-caution (triangles), fire extinguishers, towing ropes of booster cables for ₦27 million.
Apart from the State House operations for the Vice President’s office that plans to spend a modest ₦48 million on travel & transportation, and ₦16.68 million on food stuff/catering materials supplies in the 2016 fiscal year, State House operations for the President’s office wants to blast ₦1.42 billion on travel & transportation for the President and ₦114.97 million on food stuff/catering materials supplies.
The State House headquarters itself would spend ₦108 million on travel & transport; materials & supplies ₦485.26 million which include ₦102.94 million for food stuff/catering materials supplies; and ₦354.15 million on miscellaneous. This is imprudent and against the letter and spirit of fiscal discretion that the President claimed in his budget speech.
Since coming to power, President Buhari has already squandered over ₦1 billion on 22 foreign trips in eight months, while Nigeria is yet to feel the impact of those supposedly business trips.
The Looting Continues
Also in the proposed 2016 budget, all former Presidents, Heads of State and former Vice Presidents/Chiefs of General Staff are to share ₦2.3 billion as entitlements during the year.
According to the Act which provides for their remunerations, each former President and former Head of state is entitled to ₦350,000 per month, while former Vice Presidents and former Chiefs of General Staff are entitled to ₦250,000 per month for their up-keep.
What is puzzling is how these figures that should merely be in the realm of few millions of naira for about 11 individuals suddenly jumped to billions of naira, even when you estimate all other possible allowances that these former leaders are entitled to. Clearly, the padding and shading of the budget by the mafia may see no end.
Like all other MDAs not left out of the shady deals, the Office of the Head of the Civil Service of the Federation budgets ₦198.6 million for research and development, and ₦284.2m for computer software acquisition. With all these spurious figures, there are so many open-ended questions this government needs to answer.
Implication for Business
The combination of the FG’s budget 2016 proposal and the current monetary policy of the Central Bank of Nigeria may present enterprises with a harsh economic business environment.
Businesses in Nigeria may continue to be crowded out of borrowing by government in 2016. Access to funds to grow private businesses may remain challenging, and where available will be priced out of reach of Small and Medium Enterprises (SMEs). Interest bearing loans will continue to be priced beyond 20% for SMEs in 2016.
Meanwhile, irrespective of the looting expected in the process of implementing the budget, President Buhari appears very optimistic about the budget of change. The major flank of his budget speech was his desire to create jobs. He assured Nigerians “that this administration will have a job creation focus in every aspect of the budget implementation.”
While improvements in the global economic uncertainty and domestic security conditions are expected to aid the successful implementation of the 2016 budget, observant Nigerians are keenly watching all the moves of the Buhari’s government in fighting corruption and ensuring some of its promises are fulfilled.
...Click here to Download the full details of the 2016 Proposed Budget.