Writing this, my third article on the economy, I’m keenly aware that the
question Nigerians want answered is: what is government doing to
address our economic challenges? The first thing to state is that there
are no quick fixes, but our strategy is clear and the expected outcomes
are pretty compelling. Our immediate economic imperative is to provide a
Keynesian stimulus to reflate the economy.
The 2016 focus is underpinned by a desire to radically reposition
Nigeria’s economy. This administration believes very strongly that the
previous direction was far from optimal. We are pursuing a fresh
direction consistent with our belief in building a resilient economy.
The strategy itself is worth reiterating.
The 2016 Budget is being debt funded and the borrowings are targeted at
the financing of capital projects to address the infrastructure deficit,
create jobs and build the platform for optimisation of the non-oil
economy that will see Nigeria prosper. To this end, we have commenced
an aggressive programme of fiscal housekeeping: increasing revenues and
reducing recurrent expenses. This will ensure that we move towards our
objective of financing recurrent expenditure from revenue, rather than
borrowing as obtained before now.
In addition, we have signalled through our financial decisions that we
are moving away from oil. Government investment in oil will be limited.
We are inviting private sector participation in the funding of cash
calls for our Joint Ventures rather than tapping the Federation Account.
This is guaranteed to improve our cash flow. As I have stated
previously, oil is important but oil is not enough. Therefore, if faced
with an option to invest borrowed funds in our railways or power or fund
oil cash calls, we will strategically fund non-oil. This is in the
knowledge that there are private sector solutions to the funding needed
for oil, but few sources other than government for investment in
physical infrastructure.
The debate about whether Nigeria should borrow is well intentioned and
cannot be dismissed without careful analysis, given our antecedents as a
nation. I am in agreement with those who argue that Nigeria should not
borrow simply because its debt to GDP level is low enough to
accommodate such borrowing. There must be a clear business case backed
by justifiable benefits. I believe that Nigeria has such a case at the
present time. Simply put, we need capital investment to grow our
economy. At 13% debt to GDP, we compare favourably with the threshold
of 30% for developing economies. Our low debt to GDP ratio is not
exactly a positive attainment because it is accompanied by critically
low level of infrastructure investment. It is actually a false economy.
Low capital formation is a risk which, if uncorrected, hinders future
economic growth and this is already evident.
Borrowing, as we propose, will increase debt to GDP to 16% and still
leave us significantly lower than our peer group including Ghana at 70%,
South Africa at 50% (2015) and Angola at 31% (2014). Appropriate levels
of fiscal deficit have been used to grow many of the most successful
global economies. As ours develops, our sources of revenue will grow,
diversify, and become less susceptible to external shocks. Our need to
borrow will reduce accordingly. It’s important to note that capital
spending creates an asset, and this gives a return over time in the form
of growth. Infrastructural projects such as rail and roads create jobs,
generate taxes and stimulate further spending.
This is the economic multiplier effect that capital spending brings.
Therefore, while an increase in public spending may create a deficit in
the short term, the resultant increase in productivity will lead to a
higher rate of economic growth and greater tax revenues. According to
the International Finance Corporation (IFC), for every one billion US
dollars invested in infrastructure in developing economies, between
49,000 and 110,000 jobs are created.
Our borrowing policy will remain conservative and will see us access the
lowest available funds, hence our decision to approach multilateral
agencies in the first instance, for budget support at concessional rates
as low as 1.5% per annum. We have also secured commitments from Export
Credit Agencies that are tied to specific capital projects including key
initiatives in power, transport and other infrastructure, and at
semi-concessional rates. The balance will be sourced commercially to
create a blended cost of capital that’s as low as possible. We are
addressing the relatively high debt service to revenue ratio which saw
28.1% of our 2015 revenues devoted to debt. This will be done through a
systematic restructuring of inherited debt portfolio into a profile that
is aligned with our medium term outlook as well as an increase in our
revenues.
Borrowing is not our primary focus. Increasing our Internally Generated
Revenue is critical because it is sustainable; and because much of the
funds collected went unremitted to Government – something we are
tackling now. Our Revenue Team holds daily revenue sessions with MDAs
during which clear targets are set and agreed; monitoring and evaluation
are continuous. We are deploying cash-less revenue collection
processes in our high earning agencies to ensure maximisation of our
receipts. We are working through Treasury Single Account balances with a
view to identifying monies that can potentially be used to fund the
budget and reduce borrowing.
Other costly leakages are being blocked. We have completed a detailed
review of tax and duty waivers and discovered that in some cases,
Nigeria lost significant revenues and with limited benefits. We are set
to begin consultations with stakeholders on a revised policy aligned
with the best interests of Nigeria. Furthermore, we are identifying
funds that can be released from hitherto untapped sources, including
idle and underutilised government assets that have commercial potential
including real estate. To this end, Ministry of Finance Incorporated
(MOFI) is to become a professionally operated Asset Manager, rather than
a passive holder of government assets. It will be actively managed to
‘sweat’ Nigeria’s very valuable global asset portfolio. This will
generate earnings and constitute additional budget funding.
Gradually and with the requisite safeguards, we will authorise the
investment of part of the estimated N6Tn currently held in pension funds
into key infrastructure that will provide workers with higher returns
on their pension funds while enhancing capital formation and economic
growth. Nigeria’s first ever Project Tied Infrastructure Bonds are being
designed. These are novel structures that will see borrowings tied to
specific revenue generating projects, bringing private sector financial
discipline to the project structuring and delivery process, thereby
improving value.
Our first quarter-planned release of N350Bn is ready and is sure to have
significant impact, in addition to exploring opportunities to reduce
contract prices. Our conditions for release of funds are clear and the
mandate is a simple one: to define and agree the number of Nigerians to
be engaged as a result of this funding. Priority will be given, without
apology, to those creating jobs and opportunity for Nigerians. This
level of investment, predominantly capital, exceeds the total capital
spend for the whole of 2015 and the tempo will be sustained until the
green shoots of recovery begin to appear.
John Maynard Keynes’ famous quote on fiscal stimulus - that when
economies are depressed,“Government should pay one man to dig a hole and
pay another to fill it back” - is an extreme example and suggests an
economic benefit in seemingly pointless activity. In Nigeria’s case, the
activity to be triggered will be a fully productive one. We will pay
men and women to meet our critical needs in power, transport, housing,
agriculture, solid minerals, health and education - and lay the
foundation for a collective future that is more positive than our
current situation may suggest.
One of Nigeria’s greatest strengths is the resilience of her people.
Even beyond our shores it is widely acknowledged that if you can survive
in Nigeria, you can thrive anywhere. Our ability to overcome obstacles
and our ingenuity in exploiting opportunities, are legendary; our
economic policy will ensure more of us succeed in creating wealth. There
is sufficient diversity of opportunity which our capital investment can
unlock. We will always celebrate the emergence of billionaires, of
course, but we recognise that a thousand millionaires have greater
fiscal impact. Therefore, where the number of private jets was touted
in the past as a measure of success, we will take pride in the number of
people lifted out of poverty, and the number of new jobs created.
The idea that Nigeria can succeed this time is, for some, unthinkable.
But for those of us privileged to be part of this determinedly patriotic
team led by President Muhammadu Buhari, it is and will be possible.
- Mrs. Kemi Adeosun is the Honourable Minister of Finance, Federal Republic of Nigeria.
