2021 BUDGET: SELLING NATIONAL ASSET TO FUND BUDGET DEFICITS WILL BE COUNTERPRODUCTIVE
The fallout from the Minister of Finance Ministerial Briefing on the 2021 Nigeria’s National budget is mainly the proposed action by the Federal Government of Nigeria (FGN) to flip and sell some critical National Assets to assist raise necessary funds to finance the budget gap. This underscores the pressure on the side of the FGN to figure out how to generate and raise requisite funds to finance the budget estimate. The issue becomes more precarious when it is realized that the rest of the world is paying specific attention on Nigeria especially arising from the unprecedented damages to the National Economy by the global economic crises created as a result of the Covid 19 Pandemic. Nigeria becomes an active focus of undue attention because it is currently the world’s biggest rising poverty destination on planet with an average of 19,000 Nigerians drifting below the Global Poverty Index (GPI) per day; it is home to third largest unemployment number in the world with over 105 Million Nigerians currently unemployed or underemployed; it is perhaps African largest economic by 2018 GDP records; perhaps, the worries of the Global Financial Experts and Analysts is how will Nigeria respond to tackle the problems created by the current recession in Nigeria which is equivocally the biggest recession ever in Nigeria.
There is absolutely no doubt that the greatest challenge currently faced by the FGN and the 2021 Budget implementation is primarily how to generate the requisite revenue to fund the budget. There is an unprecedented cloud of uncertainty on how to get the funding hence need for the FGN to resort to any available known means to raise capital to finance the Budget estimates. There is an inherent deficit gap of about =N=5.5 Trillion in the budget which is about 42% of the Budget estimate. But the intrinsic deficit gap in the budget is approximately about 67% of the budget. What this translate into is that the actual guaranteed revenue estimates as provided in the budget is =N= 4.4 trillion. This will come from what is called or considered as the Base Revenue Sources (Crude Oil Sales; Taxation; Custom’s Revenue; and proceeds from JV’s transactions). The balance of 67% intrinsic deficit gap apportioned revenue estimates are just projections and there is no guarantee where the funds will come from to finance this.
This is the reason why the FGN is perhaps left with no options than to look everywhere to raise necessary funds to finance budget due largely to gross revenue shortages. Of course the most resounding and easy way out is through outright borrowing (domestic and offshore), despite the risk of Nigeria drifting closer to the debt valley zone (DVZ) terrain with the mounting National debts profile. Other option being considered includes the much publish sized selling of National Assets to finance the budget. Debt servicing projections for the 2021 Budgets is about =N=3.3 trillion which translates to an equivalent of 25% of the budget revenue to service Nigeria’s approximately =N=37 trillion in debts (Domestic and Foreign). This is a big challenge for the Government especially with decreasing economic fortunes for Nigeria.
Cognate reasoning and creativity must be explored at these difficult times to solve this visible budget bottleneck and challenges. We surely must invoke active creative strategies to address this problem especially with the economic growth currently at negative rate. The remote and immediate concerning is the decision of the FGN as announced by the Minister of Finance to sell off certain Government Assets to finance spending and fiscal overheads expenditure. While selling National Assets is centrally not a problem, the immediate recent experiences of Nigeria selling off Government Assets has been a disaster littered with monumental national embarrassment and economic woes for Nigeria than a material gain by the Country . This is why it being recommended that the NASS stop the process through appropriate legislation, even though we do not know how much of helping hands demonstrated by the NASS in assisting the FGN to seek revenue supports for the Budget. It is not known why Nigeria should be allowed to sell the Country’s assets again to fund overhead consumption or wasteful and reckless spending we have been witnessing in recent times. Perhaps, the Nigerians in the Diaspora can also mount pressure on the FGN to rescind its decision to desperately spinoff or sell National Assets in view of the past ilicit activities around such exercise. Well, the Nigerians in the Diaspora must also come up with efforts to assist the FGN with creative ideas and strategies to raise capital for the budget. Undue criticism without any cogent recommendation or practicable solutions will not permeate.
When a Country’s divests or spine off Assets, it is essentially meant or generally used to fund strategic projects that will translate into multiple economic trickling down effects which ultimately means growth prospects and increase in GDP. Those are projects possibly listed under long term strategic plan models. The proceeds of such disposed National Assets in real economic parlance and sense should be channeled towards bridging the infrastructural gaps in the country to assist in productive economic activities and industrialization. With the huge hole and gaps in the 2021 Budget funding, and based on the unspoken words and body language of the Minister of Finance, selling off National Assets will be an option on the table to fund fiscal overhead expenditure of the budget. That approach is totally unproductive and extremely dangerous for the economic. What happens down the line when all viable National Assets have been sold and yet we are unable to solve the problems of budget financing in next couple of years.
Perhaps, we should be seriously considering pursuing the much taunted federal restructuring that everyone seems to be clamoring for in Nigeria. We may have to start considering downsizing and significantly reducing the size of the FGN through a gradual process of shifting most of its current functions and activities to the States. That will assist to reduce the FGN budget size and allow the States to increase their visibility in terms of operating under a true federalism. The FGN currently have over 1000 Agencies and parastalals that are doing services and functions which are far better handled by the States. The FGN funds and provides annual budgets to fund the operations of these Agencies with almost zero contributions to National productivity and almost 90% of those Agencies returns almost nothing to the FGN coffers and revenue despite huge budgets they obtained from the Government annually. This is one of the biggest loopholes in our systems and this is asserting tremendous untold hardship in the land and financial health of the Nation. It is about time, the FGN identifies those moribund Agencies some of them even duplicated with No income and No contribution to the National coffers and allow the States to take over such responsibility to enable them function appropriately. If we consider this steps, Nigeria could possibly save over =N= 3 trillion in unnecessary and wasteful funding to Agencies that offers nothing to the federation accounts. I understand, that will take a huge and unadulterated political will for the FGN to do this since most of these Agencies are set up and funded by the FGN for people to loot and mismanaged and to attract unnecessary appointments for Politicians without portfolio to have field days. Rather than sell National Assets, the FGN could cut its budget by =N= 3 trillion by shutting down these moribund Agencies and allow the States to operate them.
In the periods starting from the President Obasanjo regimes and late Mr. Yar Dua administration, Nigeria sold several Assets in the name of generating revenue for the fledgling democracy. It is not known how much of historical reference the Minister has conducted or where was the Minister of Finance in those periods when Nigeria sold off almost 40% of its National Assets and yet we were told that the Country will invest the proceeds on infrastructure and projects of economic values. We are still left with gross inadequate and epileptic infrastructure in Nigeria after 20 years of selling those Assets. The Assets that Nigeria have sold in the past did not yield the Country’s any dividends or benefit despite the illicit activities around the sales and the disappearance of the proceeds.
During this period, Assets in virtually all economic facets were sold or spin-off Hotels, Aviation, Power projects, telecoms, Oil and Gas, Banking, Iron and Steel, Industrial projects and several others. Most of these Assets were given away at ridiculous low prices and so many under the table transaction committed at the expense of the Tax payers. The owners of those companies except probably for the Telecom companies turned around to become the largest beneficiaries of various Federal Government stimulus funds and National cake distribution during the first recent recession which was occasioned by the last global recession and financial meltdown. We equally know that majority of those stimulus funds were grossly misappropriated by these same local investors. Majority of the beneficiaries of the stimulus package and buyers of the so-called sold National Assets that are supposed to refund those stimulus loans at that time refused to pay back. They are still enjoying their largesse while the Country suffers. That is why i totally objected to another stimulus for anybody or any company with the current recession in Nigeria. But CBN is rolling out Billions of Naira again as we speak in the name of Economic palliative and stimulus loans as a result of the pandemic to these same people. The same folks that received the stimulus funds the last time and had refused to refund the money. CBN is giving bailout and economic support funds to Aviation, GEMCOM and DISCOM companies, industries with no added values etc.
The resultant effect of these has been the creation of another moribund Agency called AMCOM. That Agency is currently overwhelmed with toxic debts of over =7= trillion Naira which it has obsoletely no clue how to manage or deal with these embarrassing National Debts. The so-called bailout funds were given out to the same local co-opts in Government and private sectors that acquired the sold National Assets, they turned around and cried to the Government for bailouts that they misappropriated and never pay back, then the creation of the AMCOM to absorb, acquire and repossess the Assets of those companies and corporation. These are the same Assets the FGN just in less than 20 years ago sold to these investors. AMCOM have acquired Assets of several companies including Arik Air, Aero Contractors, Hotels Projects (Federal Palace Hotel and Abuja National Hotel, Some Oil and Gas facilities, Telecom Facilities, Power Plant projects are some of those Assets that AMCOM has taken over due to unpaid bailout loans to the Owners. These are the same Assets purchased by the Owners from the FGN just a while ago.
Without having the details yet, these are some of the same Assets taken over by the Government that the Minister may be making references to in terms of selling National Assets to finance the budget spending.
What manner of economic sense this narrative portrays. These are Assets originally owned by FGN, sold in illicit manner. Owners run them down, then took billions again in bailouts funds for these companies, starched the funds to overseas private accounts, shut down those companies and the big brother AMCOM took them over, unable to collect the debts. These Assets are currently being held by AMCOM on behalf of the FGN of Nigeria and perhaps the same companies are being offered for sale again the second time with unprecedented debts hanging on them.
This is the nature of cyclical debt syndrome and bad Asset Management that we have seen in Nigeria in recent times. For our benefit, i have equally addressed this issues a while ago especially with the AMCOM debt management. I once had a lengthy meeting and discussion with the APC appointment Chairman of AMCOM in Abuja in 2018. I made useful recommendations and he promised to stay in touch with me. He was unceremoniously removed due to conflict of interest before he could even start any reform. He was consumed by internal Party politics.
Most Nigeria’s national problems are human created and human factors. When you have this nature of problem, no amount of expertise, experience or theories will work because they will not apply them but those human factors. My recommendations to AMCOM are still part of globally known methods to attacking Debt Management. There are several instruments and strategies that can be adopted to manage those debts but again they will never work except the players are ready to use the in accordance to standard global practices.
I will never recommend that Assets be sold to fund budget deficits based on the above analogy of what has transpired in the recent past. Those sad experiences are still refresh in our memories and like the Financial Times may have summed up in its past editorial comments on Nigeria, that Nigeria National Assets privatization and Sell off may have been the largest monumental fraudulent transaction any nation on earth may have ever undertaken. It was described as a total failure and fraudulent, yet no head rolls in Nigeria. The Head of that Assets Sell off process became the unpronounced richest man in Nigeria yet terrorizing Nigeria with his huge amassed fortune by his repeated spending to become Nigeria President! What a Country!!!.
When Etisalat divested from Nigeria, the company was already enmeshed in debts running to billions of Naira. No investor was interested in the company and the FGN does not want the company to go under due to it preeminent number 3 national carrier position in Nigeria. AMCOM stood in and acquired those debts and a new investor stepped into it. Till today, AMCOM is stuck with those debts.
When the defunct failed Skye Bank that became Polaris Bank now was being sold, we heard that the Bank was sold or virtually dashed to a prominent family from Northern Nigeria. The Bank was in debt to tune of about =N=400 Billion or so, AMVOM took over the debts and the Bank handed over almost free of charge to become Polaris Bank Nigeria Limited today to a friendly family. When things like these continues to happen, what is the faith in selling Government Assets. ??? How will these become beneficial to the Government and to the people?
The current recession facing Nigeria is extremely graviuos and it is understood how much of the economic difficulties our Political leaders can possibly comprehend that this will lead to as a Nation. It will require all kinds of creativity and hands on deck to overcome, it would not be business as usual otherwise we would be digging further into economic woes as a Country. There is something I know will be very contentious but it is possible to attempt to attract additional revenues by Government. At his very difficult times, every facets of the country stakeholders must be ready to sacrifice especially for the future of our Nation. It must be seen as a contribution by all stakeholders to navigate through these challenges.
It will not be out of place to start considering imposing some form of taxes on Religious Organization at all levels. When Europe was growing in the 16th, 17 Centuries even up to the 18th Century, most religious organization pay taxes and in fact it was once of the largest contributor of taxes to the States at that time. These taxes were gradually abolished, but it created the pathways for the foundation of the European countries’ development in those days. We can commence this process in Nigeria as well. Again, as sacrifice from the Religious organizations to contribute to National development. While not taxing them for Income generated it is expedient to tax Assets and property taxes and also capital gain taxes on Assets. This will surely bring substantial income revenue to the Government; Nigeria could possibly attract well over =N=5 trillion annually from these specialized taxes. I personally know it I will be resisted but if well managed and promoted, it is very good way to help the Country overcome its economic challenges at least in the medium term.
My propositions to raise fresh and new avenues for revenue funds to finance budgets remains within the public domain. They are still relevant at any time as a practical solution to addressing revenue shortages in Nigeria. There are no hard facts to this, we need to get creative to attract and locate new revenue sources. It takes creativity and cognate experienced professionals to articulate those recommendations and until we have that, we are completely stuck with the whims and caprices of the failed system and strategies we have used over and over with detrimental damages and not proven positive results. Selling National Assets will not yield any long terms perspective to solving this perennial problems. Perhaps, my recommendation to take deep insights into the operations of the several FGN moribund and unproductive hundreds of Agencies with a view to shutting them down to reduce budget size and reduce the FGN operational size, will be appropriate option going forward. Again, this will assist remove so many loopholes in budget funding to Agencies that serve nothing to the FGN and no productive activities or functions to the Government or the Economy.
If we must consider selling National Assets in Nigeria on a larger scale again, we need to ensure that an institutional and appropriate operational framework and functionalities are put in place drawing expertise from international experts to help if necessary. We must also have appropriate Plan of Action to invest those funds to assist bridge gross infrastructural deficits in the Country and probably use it to fund specific projects that will translate more robust economic growth prospects. We have not exhausted all options to generate revenue to fund the 67% intrinsic deficit gap in the 2021 budget hence there is absolutely not need to panic to carry out a desperate option of selling off National Assets to fund the budget especially when it is just to fund overheads and spending expenditure like the =N= 500 Billion annual budget of the NASS.
Dr Kazeem Bello is Principal Partner/CEO- Afrique Capital and Equity Funds Ltd, New York, USA, President, Nigerians in Diaspora, New Jersey chapter and Chairman, Steering Committee of the proposed Nigeria Federal Credit Union, USA. He is a Financial Specialist and Development Economist.