25 January 2016, Kaduna – With the perennial fall in the prices of crude oil, is it right to say Nigeria has entered the post-crude oil era? Indeed, any country dependent on one commodity that is a mono economy like ours is sitting on a keg of gun powder basically. We were aware of this for a very long time; either adequate measures were not taken or they were taken and done haphazardly. For some that were taken seriously, those that took the measures did not have sufficient time to see them through and we are where we are.
There are two things the government can do: One is to drastically cut down the cost of governance. By cutting down the cost of governance, it does not translate into salary reduction because what comes to mind easily is that staff salaries would be cut, but I am talking about the associated cost of governance. If you take the salary of a minister or a governor, for instance, it is not that much, but if you look at the associated cost of maintaining those in power, it may be one thousand times more than their take home pay.
And that is where we have to pay serious attention to, we need to do institutional reforms, if you don’t reform our institutions so that they can give in their best, the cost of governance will continue to be high. Even if you manage to suppress corruption now, and you don’t do the institutional reforms, any time you have a change it will resurface again. So what do I mean by institutional reforms? If you look at virtually all the public institutions, they are at the beck and call of the chief executives, but that shouldn’t be the case.
Ministries and departments should be structured in such a way that they can argue with the chief executive where professional issues are at stake, not to talk of other institutions as security and other related institutions; they are basically supposed to serve the state and not to serve anybody in power. If you don’t carry out these reforms, serious mistakes will continue to occur. If it is institutional, once there is a change, one person cannot choose to do as he likes, he is bound by the same rule all over again, and these are fundamental issues we need to address if we are to check the serious exorbitant cost of governance in this country.
As we are checking the cost of governance we need to look at diversifying the sources of revenue for the federation. Indeed each state needs to diversify, even local governments. Looking at it at the national level, independent revenue to government that ought to have come from entities owned by the federal government which either do commercial activities or collect revenue in forms of fees and charges have to be addressed so that the revenue is properly collected. I believe trillions can be collected from there. Now, the rule is that 80 percent of the operating surplus of that revenue is supposed to come into the federation account.
Even the current minister has said that policy must be complied with but that is not where the problem is. The question is: How do you determine the 80 percent, when I say, ‘bring out 80 percent of operating surplus, but you are left to do your budget to determine how much you spend and how much to declare as 80 percent?’ In a situation where you declare zero, where would the 80 percent come from? Or if your operating expenses are expected to be 30 percent of gross savings but you spend 90 percent.
The issue is looking at the enabling legislations which allow them to do their budget and spend anyhow and determine by themselves what the operating surplus should be. Unless we address that, we will not be able to block that loophole. But if you block that loophole, even from there alone, I tell you the Federal Government can make not less than a trillion naira. If the government can make a trillion naira more, the fall in oil revenue would not even substantially affect it when you look at the budget that was made.
Aside that, the federal government has independent sources of revenue, you look at the revenue accruing from customs, Inland Revenue. Also, people should pay appropriate tax. There is a high suspicion that individuals and corporate entities don’t pay appropriate tax. It is not about creation of additional taxes, if people can collect appropriate tax, you can even reduce tax rates but if people pay the correct tax and there’s efficient collecting and accounting you end up collecting more. But again you see for those individuals and corporate organizations, the compliance rate would be low if they don’t trust the government.
The current government has goodwill, so this should be addressed so that together, when I say together, I believe it is a problem that surpasses a single party. When you are faced with such enormous challenges and other challenges, there should be a way to unify the country and know where you all agree and where you politically disagree, which is normal, so that together we can work and partner to salvage our country irrespective of misdeeds and mistakes of the past.
But there comes a time when you have to say, ‘all those interested in joining hands, lets join hands, lets address this problem,’ especially in a country that is politically divided and sorry to say, full of sycophancy, because I will rather listen to the person who critique me in power than the one who praises me, because that one that praises me more when I was in power may be the person to crucify me the very moment I’m not in power. What does the fall of the crude oil price portend for Nigeria in the current fiscal year? First of all, the President has a budget before the National Assembly.
The way things are, if the budget is approved it would, in my opinion, become difficult for the President to say that he is going to go about implementing the budget in the same pattern where every month, every quarter you are releasing the same amount of money everywhere on pro rata basis. Things are not the same, there must be priority. We have to set our priorities, but as our revenue begins to improve, then we know we can amend how we finance the budget. Of course priorities are pensions and salaries. Government should prioritize all its other projects so that those it places on higher priority and will impact more on the lives of the ordinary Nigerians who are more on the receiving end, would be done to make life easy for them.
Address issues that will touch the lives of overwhelming majority of ordinary Nigerians. We cannot relegate security to the background. We thank God it is fast improving but it is not something we can rest on our oars; you don’t close security at all. Even in periods of normalcy, security is not something you play around with. So in short, it is the issue of prioritizing after taking care of things you cannot postpone, such as salaries and pensions. But why has it been difficult to diversify the economy like other countries have done? Well, there have been attempts, so it’s either those attempts were not comprehensive enough or were not followed to logical conclusion. One key area you can easily diversify which majority of people are involved in is in agriculture, but you must define the most effective ways to get involved in agriculture.
In my opinion, the most effective way is to ensure standard, ensure quality of what is produced because quality determines how you compete in terms of exporting your products and if you are processing, what you get from what you process. Another thing, I feel pricing is another area which can be looked at to subsidize agriculture. When you talk about tractor or fertilizer, all these can be diverted, but price goes directly to the farmers and in Europe and America, subsidy to agriculture is by setting price of commodities. You mean government should fix prices for agricultural produce?
There should be a minimum price that you get, for example, for your ton of cocoa which should be of such and such grade and standard or a ton of maize. But that price ought to have factored all elements of production and a reasonable profit margin. If you do that, the private sector gets involved in leasing and hiring equipment, as well as fertilizer supply and the corruption in the system from the private sector would have been removed, while a farmer is guaranteed a basic level of price.
We must start to look at this area. Another area is promoting communal processing of agricultural produce or storage. When you look at the irrigation system in Kano and observe what is cultivated, individually they may not be able to build a cold store but should government build a cold store and charge for storing their perishable products either on a monthly basis or whatever basis, wastages would be prevented. And anywhere you have that kind of production facilities, in my opinion, would not only cut wastages, but would improve on the income of people and would make people produce more even for export.
Solid minerals, is another area we can easily diversify but we have a long way to go because over the years, based on our existing laws, all kinds of rights have been given to corporations and to entities. How we tidy up all these licenses and leases and rights is really an issue because some have about an acre of land, some have over three acres or hectares, just like that, scattered just like largesse being given to people and there is no way serious mining activities can happen in an environment where rights are given as if you are giving small parcels of farmlands to individuals.
We need to tidy up that area so that it can be attractive to both large corporate investors as well as international corporate and individual investors. If we can address these two areas, of course we are doing well in terms of services but services require power, we should continue to invest in the stability of power because without power, cost of services would be high and the desire to diversify through the provision of services may not be easily achieved.
A lot is going on, it has been going on, may be not so well at different times, but I think we should look at where the mistakes were made, rectify them, improve on where the mistakes were not that much and move forward. Is the intention of the current government to allow states develop their mineral resources in line with what you are saying? Constitutionally, states have no rights over solid minerals. I don’t understand exactly what they mean, because unless you read the policy document before you’ll know what it is.
But if it means states can apply for mining rights and be given to do mining, that is fine and good, but are states in the best position to do the mining? In my opinion, the public-private partnership would be the best way to exploit our solid minerals potentials where the private sector investor would take the lead and not the public sector investor.
There was the excess crude account created during the Obasanjo era when you were governor then later the Sovereign Wealth Fund to take care of rainy days such as these, how come all these have not given us a safe landing now that we are in a rainy day? Well, in any case, you don’t have the Excess Crude Account now. What you have is the negative, if you look at the budgeted price and the selling price of oil. But when the little that was accruing into the account was being saved, it was being used to augment monthly federation account distribution and if you recall, anytime there was money taken from there, they used to state how much was taken so it served its purpose. With the benefit of hindsight, do you think that was the right thing to do?
It was a fair thing, the only thing was that the constitution did not envisage it but sometimes you have to build political consensus for the good of the country and that’s why I said we should not use politics in all we do. There are times we should sit down irrespective of political affiliations and say let’s embrace this or that because it will serve the general good of Nigeria.
So if you have the opportunity if advising this government in case the price of oil goes up above the benchmark, would you say it should be shared as before? I think from what is happening now, we should learn a lesson not to have a high benchmark because oil is so volatile. We should concentrate more on the diversification of the economy and revenue sources for government. But why has it been difficult for the agricultural sector to develop to a level that it can sustain the economy? What is sustaining the economy now is agriculture, only that it doesn’t earn foreign exchange for the country. If not for what we produce you can imagine how much dollar do we earn and how much we can import? Agriculture has been sustaining the economy.
What people have lost sight of as a major contribution is that it is not a foreign exchange earner. For us to make agriculture a foreign exchange earner, we have to be exporting quality produce, this is essential. The quality of what we produce must be acceptable all over the world and we must have the facilities to do so. Some products have to be exported on a daily basis and that means air cargo and so on, so the airport facilities, the storage facilities are issues that have to be addressed. The issue of access to agricultural credit is also there.
The policies are there, but if you sit down with farmers, you’ll discover it’s just on paper; they find it difficult to access the credit or when they do so it usually at interest rates that are far higher than stated. You suggested a reduction in the cost of governance, would you, as some are suggesting, say this should include merging some states or scrapping of some ministries? You see in governance deals with what is possible because which state are you going to scrap and how do you go about doing that in a democracy and work to make sure that it subsists.
How do you scrap states? You will only get involved in overheated political debate. You can succeed in scraping ministries but what does it take away? It will only take away some few chief executives, the public service will still be there and that is where the bulk of the cost of governance is. But in the public service, I don’t subscribe to retrenchment, they should be assigned to areas they can be productive because we may have a glut somehow and a dearth in another. So you may need retraining them to perform where they are needed, that should be done to improve on the productivity of the civil service which this country needs to continue to grow.
Of course, where there are two agencies performing the same functions, it makes sense to merge them. But even when you merge, what I am trying to say is that the reduction in terms of cost rests more on the top level personnel not on the public service itself. You once said in an interview that not all revenue accruing to government is captured in the Appropriation Act… Yes. Now that the TSA is in place does it address that concern?
You see it depends on the laws we have;.For example, a certain agency has its laws which states what it should do with its revenue. By directive, if you come and tell them to do something else, they would comply because you are a higher authority, but again when you look at the laws, that is not what it says. So we have these conflicts of issues here and there. That is why I said, what we need to do is address the enabling legislation that created most of these entities so that our actions will not be in conflict with the law, as good as a policy may be.
Truly, the TSA account is excellent, it is good, but if the executive is not careful it can be misled by the bank balance showing, because there are funds that are committed funds and you find them in Single Treasury Account, so they are there in one pool, so you must have a table which tells you what money is available and which is not. If you assume all of it is there for you to spend, you may spend and do one thing now but tomorrow, the purpose for that money will come and the money will not be there and then you will find yourself in trouble.
So it is good; but it requires a lot of follow ups and clarifications so that we don’t spend what is not our own. So how do you think all or most of the revenue generated can be captured in the Appropriation Act? Well, if you look at the revenue profile which follows the Appropriation Act, you will find some items under memoranda items. Those items you find under memoranda items you won’t find in the main Appropriation Act.
There are also statements of revenues to be spent by different agencies that certain legislations created. Previously, the items on memoranda were not being stated. I recall it was as a result of the engagement with the Committee on Finance then in 2007, when I found myself in the Senate that we resolved that it is in the best interest of government to state the issues under the memoranda items for disclosure purpose. You may not have to bring them into main Appropriation Act but you have disclosed the memoranda item, so if you have to look at the total expenditure of government in any given year, you have to look at the Appropriation Act, the amount to be spent under the act and the amount to be spent under the memoranda items, that will give you the true money available to government and to be spent for the provision of goods and services.