Nigeria will come out of recession stronger — Adeosun

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Mrs Kemi Adeosun, Nigeria’s Finance Minister, has been toiling day and night in concert with the economic management team to still the storm that has thrown the country into a recession.  The ravages of the faltering economy are still evident in the weak macroeconomic figures emanating from official sources but the economy’s managers assure that they are on the right track.  “Nigekemiadeosun-coverria, Adeosun says, “will come out of it stronger.”

Toughened by a distinguished career in the private sector where she rose to become Managing Director of Chapel Hill Denham, an international financial management firm, and a spell as Finance Commissioner in her native Ogun, a sub-sovereign state, Adeosun has endured brickbats from all shades of commentators embittered by the country’s economic woes and moved on to help formulate a credible recovery plan.

Latest economic data indicate that a turnaround is underway. Last month, over

$1billion in foreign portfolio investment streamed into the economy in response to ongoing reforms. Under the minister’s supervision
, the federal payroll bill has been cut from N165 billion to N159 billion monthly, with the prospect of further savings before the end of the year. In appreciation, governors of Nigeria’s 36 states commended Adeosun and the economic management team in handling what is perhaps the toughest period in Nigeria’s economic history in three decades.

Quietly focused and characteristically unflappable, she insists that the administration’s economic recovery and diversification agenda is not mere rhetoric. Exuding, in her own words, “the Nigerian spirit and resilience”, the minister identifies, “quick wins” that would lead the country out of the doldrums. These social interventions to “put money in the people’s pockets include the hiring of about 500,000 teachers and payment of a monthly welfare stipend of N5,000 (about $16.5) to old, vulnerable citizens in tune with the “helicopter money” theory. Nigeria, she says, will spend its way out of recession in the classic Keynesian tradition while upholding sound fiscal discipline.

Excerpted hereunder are highpoints of Adeosun’ thoughts on the broad fiscal policy outlines for restructuring the economy and the stalled growth engine.

The administration of President Muhammadu Buhari has come under public scrutiny since the Nigerian economy officially entered recession. What is government’s plan to steer the economy out of the situation?

The reality is that we found ourselves in an unfortunate situation where our economy which used to record high growth rates suddenly slipped into recession following the global crash in commodity prices. We quite understand that it will impose hardship on ordinary Nigerians.

It’s the worst possible time for us.  It’s a difficult time for Nigeria but I think Nigeria is in the right hands and if we can stick with our strategy, this economy will turn around in no distant time. We have a strategic plan that will take us out of the recession we have found ourselves in; we want to make sure the recession is as short as possible because we do not want a prolonged recession. From what we are looking at, we do not think that it will be a prolonged recession; we think that some of the initiatives we are working on will now begin to bear fruits in the next few months. We are on course and are confident that the plan we have put together will work and put the economy back on track. It is a long term plan that will reposition the economy so that we do not go into boom and burst cycles driven by the oil price. The economy has to be more resilient so that we do not find ourselves back where we are now.

Government has a credible plan for speedy economic recovery and has begun to implement the reform plan. We must be disciplined in our expenditure. We must invest in our capital and we must diversify our economy. And I think from the signs we see, Nigeria is going to come out of this recession stronger because we expect the outcome to be an economy not dependent on oil, and not subject to vagaries of oil price but built on a solid, diversified economic base.

People are focusing now on the things that we need to do to revive local production and reduce import. There is a huge increase in the production of rice and other staple foods. People are going back to the farms. There is a growing need for rice mills and other food processing plants. This is because just growing rice, cassava or cocoa is not where the greatest value is realised. It is in the processing them. We want a situation where we produce and process our foods as well as transport them from production areas to markets easily. That is why the government is making investments in rail, roads, power and airports.

We are undertaking counter-cyclical strategy to stimulate the economy and expanding government spending with a focus on infrastructure, the true catalyst for economic growth. Our spending stimulus is private-sector driven, supported by a robust procurement system that will see local capacity built in a number of sectors including oil and gas, housing construction, agriculture and solid minerals.

So for me, I think we are already coming out of it because I can see clearly that there is a difference in the way government is operating. There is a difference in the way people are spending government money. There is a difference in our monthly salary bill. We remain committed to our strategy which we are confident is the right one.

Can you elaborate on other measures adopted by government to reset the economy?

Well, part of the measures being put in place includes the release of funds for various projects in the country. What government wants to do is to step in and begin to spend to provide a stimulus. Since the budget was passed in May, we have released N420 billion and another N350 billion is underway. We believe strongly that we need to stimulate the economy and we are going to do so largely by redirecting expenditure from recurrent into capital. We believe that capital expenditure will create jobs and create more productivity in the economy in the long run and help us to diversify. To do so, we’ve got to invest in our capital infrastructure. So our worst case scenario in terms of our planning has already happened. From now on, the only way really is up. The only way is recovery; the only way is forward.

We have released significant funds into the area of infrastructure, particularly transportation. And just to give you an example, for the whole of last year, we spent N4.9 billion on transportation projects. In the last two months, we have released about N22 billion for airport projects that were stalled because Nigeria had not paid its counterpart funding. We have released N109 billion to the Ministry of Power, Works and Housing, N74 billion of which went to roads. Last year, we did N90 billion for the whole year. So we are actively prioritising capital projects.

Government is also paying attention to agriculture, water resources and solid minerals. The objective is to reposition the economy to be more resilient and on a path towards sustainable growth.

Apart from the government’s interest in solid minerals, a lot has been said about making agriculture the mainstay of the Nigerian economy once again. What is the new deal here?

As the solid minerals sector is receiving government attention, so also is the agriculture sector. The current effort to boost agriculture involves the deepening of domestic self-sufficiency in wheat and rice production, two commodities which could conveniently be produced in Nigeria, but which the country imports at high cost. Production of both commodities is receiving special funding support from the Central Bank of Nigeria via a programme called ANCHOR Borrowers Programme in which 78,000 farmers were engaged in Kebbi State alone to produce a million metric tonnes of paddy rice in the current dry season.

The programme will take-off shortly in a dozen more states across Nigeria identified as capable of producing rice in the wet season.  The target is for the country to consider exporting rice to the world in the next 18 months. We have equally revived the e-wallet system for fertiliser allocation and distribution, which was part of the Growth Enhancement Support Scheme introduced by previous administration to address the menace of middlemen in the fertiliser supply chain.

The policy which led to the registration of more than 10 million farmers would be modified to meet the emerging challenges in the sector and help the Buhari administration achieve the target of food security within the shortest possible time. So, we are doing a combination of things to diversify our economy, with revenue mobilisation to enable sufficient investment in developing the non-oil sector. We have great opportunities to reset the Nigerian economy and ensure that as we go forward, growth will be in a sustainable manner so that we won’t be vulnerable to oil price fluctuations.

You have harped on the essence of financial discipline for efficient management of resources. How has the Ministry of Finance keyed into this?

Fiscal discipline is a critical pillar of our economic strategy. The Ministry of Finance is using fiscal discipline to plug the revenue leakages and wastage in public spending. And we are addressing this by tackling corruption, inefficiency and negligence in the management of public finances.

This administration has a strong focus on transparency and an increase in government openness. Government remains committed to our anti-corruption drive. We are putting in the necessary controls to guard against leakages and wastage, and strengthening institutions weakened over the years. Therefore, along with the transformative capital investment we are undertaking, we are concurrently developing the much needed systems and controls for monitoring, tracking and ultimately optimizing the investments we intend to make.

As part of our fiscal housekeeping, we have introduced programmes designed to audit and rationalize personnel related expenditure, which accounts for over 40 per cent of total government expenditure. We have established an Efficiency Unit with a mandate to reduce overheads and increase expenditure efficiency. Measures are also being put in place to consolidate extra-budgetary revenues.

Financial discipline will be our watchword as we shape the future of our economy. And that entails, discipline in tackling corruption, discipline in what we spend, and discipline in accountability, discipline in measuring performance as well as in collection of government revenues and dues.

Some of our key initiatives include a tailored Ministries, Departments and Agencies (MDAs) Revenue Strategy which entails detailed identification and strategic mapping of the revenue sources for each MDA. We are also investing in technology and putting in place incentives to improve the efficiency of tax collection and broadens the tax base. The Federal Inland Revenue Service (FIRS) is using technology to enhance collection, linking up databases from diverse government agencies, auto debits of Value Added Tax (VAT) from corporate entities and government contractors and the rollout of Biometric Verification Number (BVN) across bank account holders. To date over 700,000 new taxpayers have been added.

Compliance with the Fiscal Responsibility Act, in your view, has been poor. How do you intend to strengthen this?

Well, I must say that the days when revenue generating agencies acted as autonomous entities outside of the budget are now over. Whether the funds are from fees and fines, from taxes or from projects, the law is clear that every Naira generated must be paid into the Consolidated Revenue Fund. Government has started the process of maximising its revenues with a number of initiatives. The most important change introduced is a reorientation in the thinking about public money. Discipline and accountability in the spending of public money is a trademark of the President Buhari-led administration. Making every naira count is a commitment and a policy focus and not a slogan.

As we begin to streamline our public finances, we expect those organisations with high revenue generating capacity to fulfil their responsibilities. We have observed that in other countries some agencies like Passport Offices and Vehicle Licencing Centres, Airport Authorities and Ports are cash cows whereas in Nigeria their historical contribution has been sub-optimal. This is going to change.

The first step required is the preparation of a detailed revenue map which identifies the specific lines of revenue and understands how such revenues are generated. Disaggregating revenue into line items is an important first step. The triggers in our various processes that result in a revenue transaction are clearly understood and well documented. To maximise revenue collection, the task of plugging these leakages must be undertaken. It is also important to understand the costs of collection. That is the essential equipment, technology and resources that are required to support revenue. The administration is committed to ensuring budgetary provision for these costs. We currently hold daily bilateral revenue meetings with revenue generating agencies to define targets and agree strategies.

Government has also commenced the review and revision of the cost profiles of revenue generating agencies to ensure that maximum operating surpluses are declared and remitted in compliance with the Fiscal Responsibility Act. In this regard, we recently commenced a number of audits of a range of agencies that will give us improved visibility into their revenue and cost profiles. This will enable us to generate an indicative cost profile that can be used to establish reasonable budget targets going forward. In a nutshell, the Ministry of Finance is committed to enforcing compliance with Fiscal Responsibility Act.

To what extent has the Treasury Single Account (TSA) impacted on accountability and government revenue base?

The implementation of the Treasury Single Account has for the first time provided clarity on government funds at any point in time. It has provided us with financial information on the revenues of agencies funded by government and reduced  revenue  suppression.  This  information  is  being  used  to  drive  our programme to enforce compliance with the Fiscal Responsibility Act and ensure that revenue generating agencies muster expected surpluses and remit to the federal purse. It has also corrected the practice of government borrowing short- term funds at high rates of interest, whilst simultaneously having idle funds in various bank accounts. TSA has eliminated opportunities for brokerage and other corrupt practices that previously encouraged agencies to accumulate funds with commercial banks rather than apply them to their uses. By reducing the number of accounts in operation, monitoring and control has significantly improved.

TSA has improved visibility, afforded greater accountability for revenue generated by government ministries, departments and agencies, and enhanced government treasury management.

What is the position of federal government on the Nigerian Sovereign Wealth Fund? Are there plans to shore it up?

The Federal government wants to reposition and have the Sovereign Wealth Fund (SWF) focused in line with government’s objectives which is investments in infrastructure. Government has realised that even with 30 per cent of the budget earmarked for capital spend, the country’s infrastructure gap is so wide that government alone cannot bridge it. So what we are hoping is that the SWF will become a channel for attracting further private capital, particularly from investment funds abroad. We really want to focus on infrastructure − toll roads, bridges, power plants, and other projects that would help the economy grow.

As you may know, 52 per cent of the Nigerian federation revenue actually comes to the federal government. So, even if the 36 state governments want to spend their share, the federal government can save its portion. Unfortunately, the previous administrations were not saving. However, I don’t think we should be trading blames about the failure of the past administrations to save enough money during the era of the oil boom. I think what we should be doing now is to look at the lessons we have learnt. The federal, state and local governments must have savings. Even if we don’t have savings, we can have investments. Consider an oil dependent country like Saudi Arabia, which has about $700 billion of reserves unspent, and we have merely $26 billion. We should be mindful of the fact that oil is not going to be there forever or sold at a high price at all times; and so its proceeds should be saved and judiciously utilised.

What is government’s spending in 2017 going to look like. Are you going to review the fiscal plan to reprioritise spending?

Well, we have a medium-term strategy already in place for the next three years. Instead of a review, we are moving from a spending or consumption-driven strategy to an investment for growth strategy. However, one of the changes in 2017 spending is that, in line with our recognition that the infrastructure deficit is such that the government alone can’t bridge the gap, we are looking to accelerate opportunities to partner with the private sector. We have a number of PPPs and foreign portfolio investor (FPI) type platforms where the government will contribute some of the money and then the rest of the money will be sourced from the private sector, and we will have user fees to actually pay for them particularly in the area of roads, where it is very clear that the deficit is huge.

People assume that when you say the “user pays”, it means tolling the road, but my argument is this; when you spend six hours on a journey that takes an hour you’re paying anyway. You’re paying in terms of the petrol, you’re paying in terms of your time, and you’re paying in terms of the wear and tear on your vehicle. So why not just pay a toll and do the journey in an hour. I don’t think the Nigerian public have a problem with paying. In fact we pay very heavily for everything now. It’s just a different kind, a more formalised means of paying. We have been working with the National Pension Commission (PENCOM), the Sovereign Wealth Authority, and the Debt Management Office (DMO) to structure instruments that will enable us to raise infrastructure bonds specifically for toll and toll able projects, and that will considerably increase the amount spent on capital to complement what the government is doing. It will also bring private money in. We’ve had quite a lot of interest, both locally and internationally, to come and invest in such instruments, and we have a similar platform for housing. We’ll be rolling that out soon.

How would you describe the Nigerian business environment to a foreign investor?

Regardless of our present socio-economic challenges, Nigeria remains the best country for investment in sub-Saharan Africa. The fundamentals and potential for investors remain strong.  Nigeria is blessed with a youthful growing population, a very rich resource base and a strong determination on the side of the government to do the right things to ensure a conducive environment for businesses to thrive.

We still think Nigeria is a very compelling story and those who stick with us stand better chances of getting better returns on their investments. The Minister of Trade and Investment is working on the ease of doing business and there is an ongoing presidential initiative on this. We’re actually working on the existing bottlenecks around everything from getting visas to getting business permits. Indeed, our doors are open for investors in all sectors, including solid minerals, agriculture, manufacturing, power as well as oil and gas.


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November 2016