The 2016 Budget and how it affects the entrepreneur (Part 1)

Posted by News Express | 22 February 2016 | 3,562 times

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As promised last week, today we’re starting a three-part series on the 2016 Appropriation Bill from the perspective of an entrepreneur. Here our discussions would detail how entrepreneurship skills in governance mixed with innovation and creativity can jump-start the economy leveraging on our advantages and acquisition of the right knowledge applying the budgetary procedure; using the 2016 Appropriation Bill as a case study.

That the 2016 Appropriation Bill was missing at a time or that it has multiple versions and cost differentials plus loads of errors is really not the issue; what is disturbing are the procedures, strategies and systems of budgeting that was adopted. Was it prepared as an expense instrument as we have here and have always had, or would it have been developed as a development tool and plan, and as a building instrument and not just a mere consumption mechanism as the one in question? Is it not surprising that the Presidency submitted the most vital document of the year from that office without thoroughly going through it, yet the president put his name on the document? No matter what the explanations are and no matter where they emanate from, my submission is that they are surreptitiously dancing to the demands of the IMF, except that they want just the ‘talakawas’ to bear the brunt, while they, the privileged ones, continue in the reckless consumption and personal amassing of our joint patrimony.

It has also exposed the lack of capacity and competence in those quarters of the government. What then really was the Ministry of Finance and that of the budget and planning doing all through this period? Their level of inadequacy has been alarmingly revealed with all that’s going on with this appropriation bill and something drastic has to be done about it, if the country’s economy must go forward. The 2016 budget was not derived from the zero budgeting procedure nor was it from performance budgetary strategy, even when we were promised it would; rather, what we have is still the same as it has always been – the incremental style of budgeting, which some prefer to call the envelope system; which at best is a mere cut and paste system, where you practically copy whatever was there in the preceding year and mark it up by a certain percentage. This also must be looked into by the relevant authorities and it has to be done now.

Nigeria’s economy needs to be better handled and managed; the fiscal and monetary policies deserve a better handling, a choice between managing inflation and creating employment still needs to be made. Do we maintain national pride of having our local currency be the only legal tender for transactions within our borders, at the expense of high interest rate, due to the system of managing this strategy? Do we continue with the current system of managing the monetary policy; where the central bank has to print naira for every dollar of our national income meant to be injected into the economy, only to turn around and engage in the vicious circle of managing inflation and interest rates? This system as it is presently operated puts us at the short end of the stick whatever the case is; if our commodities are highly priced in the international market, we cannot benefit from our high earnings and reserves by way of currency value appreciation, equally so for when the commodities are down (then it’s worse because in addition, we have to deal with the short fall in revenue and budget deficit management). This system therefore ensures we are forever down as a nation no matter what our lots are.

Should we then be bold enough to take our destiny in our hands by either dollarising our economy (by the way most choice items and properties in the country are already dollarised – unofficially you may say), or we find an innovative method of injecting our dollar receipts into the economy, a method which would not have to by the same breath trigger off inflation, high interest rate and the crowding out of the real sector from the Nigeria credit market? This can be by issuing dollar receipt or vouchers to recipients and beneficiaries, like the three tiers of government, contractors and expatriate staff, instead of issuing naira for their dollar receipts, only to turn back and buy them again from the banks at ten to fifteen per cent in ninety days monetary instrument, and the circle continues. Interest rate heightens with this trend, as it becomes a threshold, of course since the system bears almost no risk, the banks prefers it to borrowing to the real sector, therefore resulting into low activities being registered at the real sector of the Nigeria economy, dovetailing into lower employment generation and endemic poverty, and the vicious circle continues.

We need a better and functional government and governance structures, a better indigenous economic participation and fiscal structural system and budgetary procedures and systems, and these all require a substantial level of being entrepreneurial, innovative and creative, with a good dose of thinking outside the box and being pragmatic, result oriented and focused to achieve.

The handlers of the economy both on the fiscal and monetary side should be excused for a deeper and insightful bunch, who can unravel the intricate mesh of the global financial market and macroeconomic politics to get us a gain – Finance Minister Kemi Adeosun who for political expediency is occupying that position, should go in for internship with the likes of Henry Boyo, Odili Enweagbara, Rewane, Chukwuma Soludo, Patrick Utomi and myself, to get her bearings; otherwise I see Nigeria becoming Zimbabwe in the next six months.

Buhari’s economic team should be reconstituted, the Vice President can only continue there in an observatory status and so with Mrs Kemi. Also why on earth would the minister for budget and national planning be an attorney, adding to an already weak and low capacity economic team; no wonder then, the economy is experiencing so much challenge and turbulence. We must learn to put our best foot forward and use industry specific expertise to solve our challenges. Have you noticed that almost everyone in this administration’s economic team is either a neophyte or an uninitiated? The minister for finance is just a first degree holder whose only experience is working a few years in a private investment company in England, minister of budget and national planning is an attorney, that of trade and industry is a medical doctor and the head of economic team is a law professor and a priest – is it any wonder why the Nigeria economy is where it is now and why the year’s budget preparation has ran into an embarrassing hitch? Economics is war and strategy is everything in a battle. For a winning strategy therefore, our plans must be fail proof and superior. This is not a game for those switching careers or representing interest.

Entrepreneurship skills in governance can help to achieve an efficient budgetary procedure, arriving at estimations, planning, etcetera with compliant, easy to follow and implementable programmes, and when these are mixed with innovation and creativity, it will definitely results in jump starting the economy leveraging on our advantages and the acquisition of the right knowledge.

The fiscal side of the economy needs a lot of reworking and adjustments ranging from fiscal discipline, efficient budgetary procedures and systems, to decisions on the relationship between recurrent and capital expenditures, procedures of managing corruption, labour issues, to the method of aggregating the national income according to the constitutional provisions, and so on.

Someone may ask, what is the relationship of all these to entrepreneurship, since that's my forte, simply put faulty economic systems produces dyfunctional and bad social and financial effects, like poverty, crime, low productivity, lack or inadequate access to health care and education, clean and drinkable water, housing, respectable employment, and so on. Then very important and germane is to recognise that although faulty economic systems may produce a handful of stupendously wealthy people, the truth is that “one rich person in the midst of six poor people, is equal to seven poor persons”, the society will be better for it in terms of development, efficiency, inclusiveness and serenity, if we can get the systems to run efficiently and orderly. Only then will the effects of economic development, innovation, creativity and entrepreneurship begin to be clearer, experienced and enjoyed by all.

On the fiscal side of the economic management, one would ask why it has been difficult on a seating to tell specifically what the nation’s actual earnings are, especially from the oil and gas sector, the internal revenue services, e.g. the tax board (FIRS), the customs, immigration, the maritime industry regulators (NIMASA), the Satellite agency and weather management agency, the telecommunication regulatory agency (NCC) and the broadcasting commission (NBC), and so on.

The constitution mandates that all revenue accruing to the federal government be paid into the federation account before appropriations, but what you notice is that organisations like the NNPC, NIMASA and other agencies spend at source without recourse to the national budget or the constitutional provisions. These highly discretionary activities leaves a big opening to corruption, since it becomes difficult to monitor or track effectively; as has been proved by those of NNPC and NIMASA.

Looking at the nation's budget size, one would wonder why for about a decade or so, it has hovered at about 4.3 to 4.6 trillion naira, when just the revenue from taxes alone equals that amount. The question then is what happened to the rest of the income from the other streams; could they have been lost in transit? But thanks to the new directive on the single treasury accounts (TSA), they could likely be on the way to recovery – presently about 2.2 trillion naira has been recovered or mopped up via the implementation of the TSA. The point here is where all the revenue aggregated in one place as the constitution stipulates, Nigeria should well have over 15 trillion naira to budget on and appropriate. Then we can move on to the next stage of reformation, which has to do with the budgetary system and the relationship between recurrent and capital budgeting. For the budgetary system, the incremental style of budgeting hasn’t been of much help so far, but thanks to the new regime of zero budgeting system, although it has come with its own hiccups of bureaucracy and lengthy time of preparation and completion, all the same whatever it takes to end the regime of practically copying and pasting whatever it was in the preceding year’s budget and marking it upwards with a specific percentage to arrive at the current year budget, must be encouraged, for therein lays the root of wastage, pilfering and other corrupt actions.

The nation has remained largely undeveloped with dilapidated infrastructures as a result of the budgetary system and processes. A situation where over seventy per cent of the budget are spent on the recurrent expenditure, while the rest becomes too small to make any significant mark on the all important dividends of democracy, which is expressed through the development activities, on roads, rail lines, provision of health care, education, and so on. But if the revenue aggregation is observed to the letters of the constitution, then at least the about thirty per cent of a huge sum representative of the improved budget size, will mean much to actual provisions of the development activities of the government and to the dividends of democracy. Yet it can be better, by restructuring the ratio between the recurrent expenditure and that of the capital, by say reversing what we presently have in operation, this is possible because with a huge 30% of a large earnings, things like the salaries and emoluments of the federal civil and public servants, the nation’s statutory payments and debt servicing, which are some of the constituents of the recurrent expenditure, will be more than well taken care of, and we can then have a whole lot left as the seventy per cent of the budget wholly devoted to real development, for this is actually where the rest of the population is taken care of, and money trickles to the public and the market place, so that the larger proportion of the people can begin to feel the effects and impacts of good governance.

•Lawrence Nwaodu is a small business expert and enterprise consultant, trained in the United Kingdom and the Netherlands, with an MBA in Entrepreneurship from The Management School, University of Liverpool, United Kingdom, and MSc in Finance and Financial Management Services from Rotterdam School of Management, Erasmus University Netherlands. Mr. Nwaodu is the Lead Consultant at IDEAS Exchange Consulting, Lagos. He can be reached via (07066375847).

Source: News Express

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