Government policies, targets are very realistic, says Ahmed

Minister of Finance, Mrs. Zainab Ahmed, was recently in Lagos, to defend Federal Government’s financial and economic policies with a view to enhancing growth and development. She told a select group of editors that notwithstanding the perception, the President Muhammadu Buhari-led administration has done, and is doing a lot to improve the welfare of Nigerians in the various sectors, as captured by Clara Nwachukwu. Excerpts:

Feasibility of ERGP targets
The targets that we set in the ERGP are very realistic and achievable. If you have revenue target and you perform 50 per cent, or because you have a production target for example, in the budget, NNPC production target is about 2.3 million barrels per day (mbpd). But we do have production capacity that is over 2.5mbpd. People asked; when you are averaging performance at 2mbpd, why set it at 2.3mbpd? We say because you have to incentivise agencies to perform. Because agencies are underperforming, does not mean you just sit back and allow them. What you do is to sit back and find out what are their challenges and drive them to achieve those targets. So the targets are realistic.

NNPC expenditure on subsidy is not a capital expenditure, and we did not and will not use borrowed fund to pay for a recurrent expenditure like fuel subsidy. The current regime of fuel subsidy is different from the previous fuel subsidy regime. What we have now is under-recovery; it’s the cost of NNPC’s operations, and the cost of buying refined products, storing them and distributing them.

In the previous regime, there was cost of borrowing that is added because you are engaging a marketer. There was also profit that you have to add. But this is achieving better efficiency and then you have only one agency of government that buys and sells to the market. Fuel subsidy is not a capital expenditure, it is a business expense of NNPC, and the Federal government is not using borrowed money to pay for NNPC’s fuel subsidy.

Investment in infrastructure
Investment in infrastructure is very important in any economy that wants to grow and be sustainable. When you are building a road or rail line, you don’t complete it in one year; it takes time to build out and it is only when you build out and the assets are put to use that the citizens will get the impact.

If you say there is no impact, ask the people that are now riding on the Kaduna Abuja rail line every day. The benefit of that rail line is very, very significant. You can go between Abuja and Kaduna, do business in the morning and go back to Kaduna in the evening. The road that is being constructed now between Lagos and Ibadan, when that road is completed, that is a 50-year investment and you will not have a situation where you have to invest more on that road.

The most important road in this country is that road because it is the artery between the ports in Lagos to the rest of the south west and indeed, the rest of the country. And because it is not completed, people are still complaining because of the traffic congestion on the road, but the construction has to be done before the benefits are raised.

Success of VAIDS
The VAIDS programme has ended and as a result of the VAIDS programme we were able to register new five million taxpayers. And we were able to raise additional revenue of N92billion was realised, but our most important benefit of the programme to us in Finance, is the data that we gathered from that exercise because we now have the data base of these individuals who were previously not in the tax net, who we can now on a routine basis ensure that they paid their taxes.

Building on this exercise the Federal Inland Revenue Services has a scheme called the High net worth Individuals Scheme, similar to the VAIDS programme. It’s a programme where they identify the high net worth individuals through the level of their transactions in the banking industry, through their directorship and ownership of a business. By pursuing such high net worth individuals and making assessments for them to pay tax as individuals as well as companies. The result of this is that you will see that FIRS performance improved 40 per cent compared to their performance in 2017.

This is both a combination of the automation efforts, the VAIDS programme, and the high net worth individuals and it’s growing, so there is significant improvement.

GPD growth and IMF/World Bank predictions
The figures of the IMF and the World Bank provides as to the potential of a country is always, in most cases against the assessment of the country itself. We have more information about what we are doing than they do. We have more information on the various indices relating to the growth in my country than the World Bank and IMF. And I’m not saying they are wrong; they are seeing it from a prism that is different from ours.

The ERGP as well as the 2019 budget project that the Nigerian GDP will be progressing at 3.1 per cent by the end of this year. What this means is that this is a growth target we all have to do together and then it is broken down into what each sector has to contribute and we have to now drive implementation on a sector by sector basis so that we look at the contributions. So when you say target, this is supposed to drive the growth. If you set targets that are high, what you’re doing is that you are incentivising improved performance.

Debt servicing
The debt servicing as I said earlier on is higher than what we would like, but we are able to meet our debt servicing obligation at an average of 50 per cent of our revenue that is not good enough. When you look at the budget, the debt service performance obligation is supposed to be 25 per cent, but because the revenues are under-performing it results to an average of 50 per cent. What we have to do is to address revenue, and we’re embarking on several avenue initiatives. I’ve invited you all to the launch of the revenue initiatives on Wednesday next week in the Ministry of Finance, where we will be unveiling the measures we will be undertaking and some that we are going to take in enhancing revenue stream and also new revenue streams that we hope to implement.

Poor human development index
Nigeria’s human development index in the World Bank report is one that saddened all of us. Let me start by making an excuse by saying that where we are in terms of indices is a process that took years to happen, and the things we are doing to reverse it will not manifest in one or two years. The baseline of the data that was used for that report was prior to the social investment programmes that we are currently undertaking.

Another reason is that India had taken some radical measures, which they had implemented over a couple of years that made them drop off from being the highest. So there is a combination of the things we’re doing that are not yet recorded and the efforts that India did. We are also following the same path that India did. We have to identify the most vulnerable persons in our society, and put in place policy measures and implement them.

For example, we’re feeding children in school and today we have reached 9.5 million pupils. Brazil that has the most aggressive social investment programme in the world, when we visited that in the second quarter of last year, the numbers that had covered was about 41 million people and they had been doing this for 30 years. We have the fastest growing social investment programme in the world today.
That feeding programme has a multiplier effect; it’s helping us to address the issue of poor school enrolment, which is one of the measurements for the HDR. It is helping us to improve our poor nutrition indices, which is also part of the measures HDI report. It is also helping us to provide jobs for women; we have about 100,000 women that are now cooking for these 9.5 million children. One nutrition meal a day, including eggs, chicken fish and beef that some of these children don’t get at home. The one meal a day that every student is being fed; what has happened is that there is more trade in the market because these schools have to buy food items to cook the food. The cooks themselves also have to engage other people to help them, because each woman has at least 100 kids to feed. So she ends up employing two to three people, so it has created employment.

Then the farmers in the immediate environment, because we insist that the food has to be bought locally and no imported food, the farmers production has increased exponentially, because they need to produce more to enable the traders buy, and the cooks will buy from the traders to prepare the meals. So it’s a journey, and for us that report was a wakeup call because it means we need to further redouble our efforts in the social investment programmes to make sure the next two years when the assessment is done the report will be significantly favourable to Nigeria.

Revenue generation and borrowing
In 2019 budget for example is a budget size of N8.83trillion, the proposal. There is oil revenue of N3.73trillion, non-oil revenue of N1.3trillion and also other revenues N1.2trillion. Then on the expenditure side, you have debt service, which is N2.1trillion. We have recurrent expenditure that is salary, bills and other operational expenditure of Ministries, Departments and Agencies N4.0trillion. Then you have capital expenditure N2trillion and statutory transfer N492billion. So there is gap. What you have as deficit is the total expenditure less your projected revenue; the difference that your revenue cannot finance is the deficit. That deficit you’re either financing it by selling some assets, either by recoveries such as the recoveries from anti-corruption agencies, either by borrowing locally or internationally.

So the picture that you painted in respect of the 2018 budget is still showing that even between FIRS and Customs, the total revenues of N6.8 trillion, whereas the expenditure is N9.1trillion so the deficit that you plan to incur and the revue that you plan to generate. So that’s why you have to borrow because you have a deficit.

The second is, you have a deficit, which cannot be clearly covered by the recoveries of looted funds. It cannot also be covered by maybe sale of assets, so the difference you go out and borrow.

Missing fund
There is nothing missing, what we will do is we will give you a chart that shows all the revenue components – oil and non-oil, the recoveries and expenditure side of the budget. There is a deficit that cannot be covered by oil revenue, non-oil revenue and any other sale of assets, which you now bridge by borrowing. That’s how budgets are structured. The same thing that happened in 2018 will also happen in 2019.

Unending ASUU strikes
ASUU is on strike again, and for us in government we see the ASUU strike as something that has become a matter of routine and it saddens us. We were told by ASUU that some years back that there were some negotiations and some commitment by the previous administration to provide to ASUU about N1.1trillion. Where will we get N1.1 trillion? It is not realistic. We told them the best we can do is to give them N20billion and we gave them N20billion last year and this year also the President has approved we give them another N20billion and that is being processed as we speak.
You know that apart from the budget of the Federal Ministry of Education, there is also the Tech Fund that is designed to be used by the tertiary institutions. You cannot build out the deficit we have in the educational sector in one year.

The first two tranches of fund that have been provided to ASUU towards the N1.1 trillion, I really still need to find out how it came to N1.1 trillion; it may be more than that, it may be less, so we have to find out how that was used, because these are monies that were supposed to build out infrastructure within the university system and the TechFund that is specifically set to build out infrastructure within the university system. So we have a lot of work to do between us and ASUU. As we speak, we have approved and I know the Accountant-General is processing N20billion for ASUU and another N15.7billion in earned arrears, some special allowances that the lecturers and the universities personnel are entitled to.

ASUU needs to face the reality that the economy is not buoyant for to pay them N1.1trillion in one year, it is simply not possible because the resources are not available for us to do that. Even if they are, you have to also ask the university system as it is structured, have that absorptive capacity. We want to make sure that the funds we provide are actually used to roll out the infrastructure that the university system requires.

Access to intervention funds
There are special messages that have been designed in the next level specifically for this. Also, the Anchor Borrowers Programme is for smallholder farmers with small loans of maximum of N200,000, some less. The Bank of Industry and the Bank of Agriculture have small loan sizes. So they have to approach the banks to say: “this is the crop that I am working on, I need so much.” The bank will work with them to fashion out the business plan and then provide the fund that they will require.

The beauty of the fund from the CBN Anchor Borrowers and the BoI and Bank of Agriculture, some of them are largely provided in terms of equipment as well as implement, and the rest in cash, working capital, and the farmers have found that very beneficial. In this document we have about six policies that we target, which agency is driving the policy and how to support you to access them.

Value, repayment of Trader Moni and Market Moni,
The Trader Moni and the Market Moni are all managed by the Bank of Industry. We started with the Market Moni, providing loans which average between N10,000 to N100,000 and by the middle of last year, we realised that we had only been able to cover 350 beneficiaries, yet our target was to reach 1.6 million beneficiaries. So the Vice President, who is the Chairman of the social investment programmes, said: “this is not tenable. What can we do to fast-track the access to these facilities because the bank was doing assessments and doing credit packaging and so on. How can we deploy these monies quickly? Also, in the town hall meetings that he has had, he found out that there are some people at the lowest cadre that are not even being addressed at all like the traders in the market that are selling pepper onions, tomatoes with very, very small inventory. Sometimes, N2,000 average inventory that we have seen so he said let’s find a way to reach out to these people very, very quickly without the hassle of doing bank credit.

We now went back, did some investigation and now found that that technology service that will enable you provide money using the mobile phone, provide a loan using the mobile phone for beneficiaries and you also recover the facility using the mobile phone. So the Trader Moni that has now evolved is to provide N10,000 to very small traders using the mobile phones and the recoveries are also made using the mobile phone. When a trader pays back the N10,000, the he is entitled to N15,000; when he pays this, he is entitled to N20,000 and it grows. We are helping to grow a large number of people and it makes a difference in the lives of these people. They still manage their families; they pay school fees, and take care of hospital bills. People really welcomed that and the ease of the access to the Trader Moni is really what is driving the ramp up. Today, the Trader Moni has gone up to one million people and the target we have in the next four years is to grow that to 10 million.

Breakthroughs in Agriculture
The agriculture mechanisation programme that we launched on Monday, is a programme was designed and took almost three years before we came to that level. The Government of Brazil is partnering with the Government of Nigeria, to bring in agriculture machinery to be deployed across the whole of the country. Brazil has one of the highest bases of tractors in the world as well as other agricultural implements, and they are one of the places that have the most success in agriculture production; of course, in the different value chains. They have a model that they use in Brazil, which they have been able to export to other countries. And Nigeria found out about it, but we saw also the mode of implementation that had happened in some of our African countries including our neighbour Ghana, didn’t really achieve the target they tried to achieve.

Nigeria stepped back, and walked to Brazil to design a programme that was specifically suitable for the Nigerian market. So, the $1.2billion is going to come largely in the form of equipment in completely knock down (CKD) parts. We have identified six tractor assembly plants, one in each of the six geo-political zones. They will assemble these CKDs into tractors and other implements that will be used in the agriculture sector.
The second thing is the 109 senatorial districts of the country are going to have what we call, Service Centres. These are centres that will be providing services where they will be needed in terms of agriculture services to farmers around the area. But they will also be providing processing services, so if you produce cassava, instead of maybe exporting just the dry cassava, they will be able to process it for you. Those centres have been chosen already, but they will be chosen around what is the most competitive commodity in that particular senatorial district. These centres, and of course the assembly plants will be 100% private sector owned, and the owners that will run those centres will emerge through a stiff competitive process. And it will be 100% private sector funded and financed. The government is only providing the policy, framework and any support that they will require.

What it means is that a farmer that used to just take his produce and sell directly to the market will now take to this centre, and pay the centre a fee, process it, and then go away with the processed product. If I farm maize for instance, I take it to the centre, they produce maize flower, and what I am selling is the maize flower, because the value addition is actually 70% of the value chain of any agricultural produce. This way, more value will be retained, a lot of employment will be realised as a result of that, and also more wealth for the farmer; that is the design of the programme. We have support from the Deutsche Bank as well as an arm of the Islamic Development Bank to drive this process, which is largely vendor financed by the government of Brazil.

Returning the Budget cycle to the January to December calendar Current cycle is literally a nightmare for us executives. Unfortunately, we are not in control of when a budget is passed by the national Assembly. Yes, the requirement by law is that the executive should submit the budget by September to the National Assembly so that by December the budget is passed, and by January we start implementing immediately. The first year, we submitted the budget in December, because we were just sworn in, in November. The second year, we submitted in October, the third year in November. In all of these periods, the number of months that the budget will be completed and passed has been increasing. And when the 2018 budget was submitted to the National Assembly, we had an understanding because they also were concerned about the lateness in the passage of the budget. And we were hopeful that the budget will be passed in December or in January, but it didn’t happen.

This is another budget 2019 that is before the National Assembly, we are hoping that the story will be different, because even in terms of reporting especially for the Ministry of Finance, it is really very awkward. This is because you will be reporting recurrent expenditure, which starts from first of January, because you have to pay salaries, provide running cost to the MDAs, and then you will be reporting capital expenditure whenever it is that the budget is passed. It is very difficult in terms of reporting, and in terms of even preparing the physical account. We hope that if not this Assembly, may be the next Assembly will actually work with us to at least start by reducing the average, because now it is averaging about six months that it takes to pass a budget. It is very important that we return to the January-December circle, because government budget might be 10% of the GDP of the economy, but it also acts as a trigger for the private sector decision-making as well as investments, so it has a very fundamental effect on performance of the economy.