Paying For APC’s Spending Promises, By Femi Edun

by Femi Edun

The Buhari-Osinbajo ticket and the APC Manifesto make a number of social spending promises, which have been picked upon for criticism by certain public commentators, as not being consistent with the austere times that are upon us as well as not having been well thought out in terms of their affordability.

These spending promises are as follows:

1. Cash transfers of N5, 000 per month to the 25 million poorest and most vulnerable citizens.
2. Job seekers allowance for graduates who have completed National Youth Service and received discharge certificates, during a period of 12 months whilst they receive employment and entrepreneurship training.
3. One meal a day for primary school pupils.

The approximate annual costs of these programmes are estimated below.

1. Cash Transfers to the Vulnerable Poor

This programme proposes to give 25million of the poorest and most vulnerable households the sum of N5, 000 monthly subject to the achievement and continuing compliance with conditions such as enrolment of children in school and meeting immunisation requirements.  The programme will also incorporate means testing such that families transit out of the programme as their household income improves.  At the target of 25 million households, this programme will cost N1.5trn annually.  The scale and cost of this programme will require us to make some tough choices.  But this is exactly what political economy is all about – making choices based on priorities.  In 2014, the Federal Government budgeted N971.14bn for fuel subsidy on PMS (petrol).  This subsidy that paralysed the whole country for almost a month in 2012, is the subject of continuing controversy, allegations of corruption and outright theft and dubious claims as to its real benefits to the most vulnerable poor.  The amount budgeted for petrol subsidy in 2014 represents 65% of the cost of this cash transfer programme. Whilst I acknowledge that the 2015 budget estimate for fuel subsidies is a much lower sum of N291.03bn, fuel subsidies are still a very poor way to spend so much money, in the context of our current fiscal challenges as a nation.

Back to the cash transfer programme, the sheer number of 25million of our most vulnerable poor creates the challenge of implementation.  The logistics of registration, tracking and monitoring therefore mean that 25 million is a target that will be achieved gradually over a number of budget cycles.  This also means that the cost of N1.5trillion is a target to be attained at full rollout of the programme and not at inception, thereby allowing the multiplier effect of spending in earlier budget cycles to have a beneficial impact on the economy and therefore improve its affordability over time.

Cash transfers to the poor strengthen private consumption and have been proven to work in alleviating poverty, improving human development, creating jobs, making economic growth more inclusive, improving social cohesion and in fact, stimulating economic growth.  Cash transfers are being used as an important tool for economic stimulus in several countries across the world – Malaysia, Indonesia, Singapore, Germany and Brazil – the most visible and most successful, with its Bolsa Familia programme, amongst several others.

Christine Lagarde, Managing Director of the International Monetary Fund, (IMF) speaking about the challenge of inequality and promoting inclusive growth in October 2014 at the IMF Annual Meetings said: “…Within budget constraints, governments can design more growth- and jobs-friendly policies. For example, we can explore redirecting public resources towards activities that are more effective at promoting job-rich, inclusive growth. Something that immediately springs to mind is reducing untargeted energy subsidies, and reallocating those resources (which we estimate {globally} at about $2 trillion per year) to activities that promote inclusion—such as better education and training programs and strengthening of safety nets.”

Paying for this programme will require Government to redirect resources away from: obtuse and badly targeted fuel subsidies, CORRUPTION, WASTE in government, bloated payrolls and duplicated jobs and the OSTENTATIOUS LIFESTYLES of our public officers and towards the more critical mission of looking after the most vulnerable in our midst and thereby improving overall well-being, social cohesion and economic growth.  It requires us to ask several pointed questions of both the Executive branch that prepares our budgets and the Legislature that approves them.  We must also demand greater value for money in government spending.

Some, just a few, of these questions readily come to mind.  Can we justify an allocation of N150bn as the cost of running the National Assembly, particularly in an era of low oil prices?  More fundamentally, can we justify the amount, even with high oil prices?  Should we not interrogate more closely and demand detailed explanations of the line items that make up the caption “Other Service Wide Votes” of N348.69bn in the 2015 draft budget of the Federal Government?  How many times will Government House continue to be rebuilt and refurbished?  How many cars and aides should accompany our elected and appointed leaders? How much longer can we afford the embarrassment of the bloated Nigerian delegations at international events?  The list can continue.

2. Post NYSC Job Seekers Training Allowance

For the first 12 months after discharge from NYSC, unemployed graduates will receive training to either make them more attractive in the job market or ready for self-employment.  Let’s assume that of the roughly 250,000 Youth Corpers that pass out every year, 150,000 enrol in the Job Seekers Training Programme and continue to receive the NYSC monthly allowance of N19, 800.  This translates toN2.97bn per month or N35.64bn annually.  This Job Seekers Training Allowance represents roughly 2% of the amount budgeted for personnel costs of Ministries, Departments and Agencies of the Federal Government in 2015.  The Director-General of the Budget Office of the Federation disclosed in his 2015 budget presentation that N160bn has been saved and 60,000 ghost workers eliminated so far from the introduction of the IPPIS programme.  This saving represents almost 9% of budgeted personnel costs for 2015 and covers the cost of the job-seekers training allowance a handy 4.5 times.

Let’s digress and go back for a minute to the central and elementary economic issue of making choices in the allocation of scarce resources.  The estimated annual cost of this programme to make our unemployed young graduates more “employable” or prepare them for a life of entrepreneurship as earlier stated, is approximately N35.64bn.  It has a precedent in another government initiative – the Presidential Amnesty Programme for former militants, where the nation agreed to pay the price of peace and uninterrupted exploration and production of oil and gas in the Niger Delta region. The Amnesty Programme was designed to achieve the laudable objectives of training and preparing young Nigerians for productive enterprise and employment amongst others and resources were allocated to this policy choice. The provision in the draft 2015 budget for this programme is N63.28bn.  Conceptually, both programmes are similar in their focus on helping young Nigerians become active and productive participants in the economy.

3. Primary School Meal Programme

The World Bank 2010 estimate of gross primary school enrolment was 21,558,460 with a gross enrolment ratio of 84.8%.  Based on an estimated cost of provision of N70 per child per day and 36 school weeks per year, the annual cost of this programme nationwide is estimated at N271.6bn.  School feeding programmes deliver the several social benefits including but not limited to the following:

• Improved pupil enrolment attendance and retention, especially for the girl-child and urban and rural child labourers.
• Improved child nutrition and health and the corollary, reduced child mortality
• Improved learning outcomes and pupil performance due to the impact of improved nutrition and school attendance on educational outcomes.

In addition, using cost and employment generation estimates based on extrapolations from the Osun State Home-Grown School Feeding & Health Programme, this programme has the potential to create over 250,000 direct jobs nationwide for cooks alone, excluding ancillary jobs for food and input suppliers and the beneficial impact on agriculture and rural economies.

This is a programme that deserves to be rolled out nationwide in a collaboration between the Federal and State Governments.  The cost of a national school feeding programme can be readily incorporated into the UBEC framework and the Federal Government’s share of the cost substantially funded from there.  For example, on 3 July 2014, the Punch newspaper reported that N53.6bn of unutilised UBEC funds was sitting in the Central Bank of Nigeria.  This is a programme that deserves support by consensus across party lines, for implementation nationwide.

The aggregate cost of these programmes, when fully rolled out is N1, 807.24bn.  The strength of cash transfer and spending programmes such as these is the multiplier effect. Using a multiplier of 3.25 which is an average from the estimates of leading private sector economists in Nigeria, this spending has the potential to create additional output of over N5.8trillion over time with the associated jobs and taxes.  The numbers speak for themselves.

However, these costs will not pay for themselves in advance.  They need to be funded in a world where oil prices are likely to be much lower than those we have enjoyed in the recent commodity price “super-cycle”.  Therefore, some tough decisions are required.  In addition to cutting corruption and waste, some of the other issues to consider include the following:

1. We need to moderate the pressure imposed by the public payroll.  The Budget Office of the Federation estimates, in the accompanying commentary to the 2015 draft budget, that personnel costs have increased from under N600bn in 2006 to overN1.8trn budgeted for 2015 and from under 30% of Federal Government expenditure to over 40% today.  If our elected leaders show restraint in benefits and allowances, they bring valuable capital to the engagement with public servants in a new partnership that balances employment benefits with affordability.
2. Governments should not be in the business of creating jobs. They should design and implement pro-growth and pro-jobs policies in a disciplined and transparent way and get out of the way of the private sector.  Jobs are created by the interplay of entrepreneurial talent and energy, capital and an enabling environment amongst others.  Government cannot be the umpire and a player at the same time.
3. We cannot continue with the fiction of “capital expenditure” in our federal and state budgets. I say so in the context of the generally accepted orthodoxy that governments should tilt budgets in favour of capital expenditure rather than recurrent.  This is based on the idea that capital expenditure is investment in increasing the productive capacity of the economy and providing social goods such as education, health care, security, law and order and so forth.  However, when we look closely at our federal and state capital expenditure budgets, the question that arises is: how much of this money is really for expanding the fixed assets of government – offices for newly created government departments and agencies, motor vehicles for government officials, office furniture and equipment and such like.

In the 2015 draft budget, out of the total capital expenditure budget of N633.53bn, the amount allocated to ministries such as Education, Defence, Works, Transport and others having direct social impact, including the SURE-P programme, was N236.7bn or 37% of the capital expenditure budget. The balance of N396.8bn is likely to be spent on the infrastructure of running government.  Of the N20bn capital expenditure vote for the Federal Ministry of Education, N5.8bn or almost 30% is allocated to the ministry’s “Headquarters” where not a single pupil or student is enrolled.  The balance is allocated to over 200 institutions – all the federal universities, polytechnics, colleges of education, unity schools and several “parastatals” of the Ministry.  We need to change our priorities!

4. We will have to increase selected taxes and improve tax collection. Value Added Tax (VAT) has grown to become an increasingly significant source of revenue for Government.  The Finance Minister suggested in her comments at the public presentation of the 2015 budget, that by increasing the rate of VAT from 5% to 10%, an additional N614billion can be generated.  Since we are increasing VAT from a low base, this is a good idea that deserves greater attention.  However, one of the practical issues in implementing this will be the challenge of encouraging states such as Lagos that already charge sales taxes, to drop their state taxes in return for more VAT.  Also, the current efforts to improve tax collection and remove leakages are commendable and should be continued.  Some of the ideas for increasing taxes, such as the proposed taxes on luxury goods and services are worth exploring further, as much for the signals they send as their impact on the treasury.

My list is by no means exhaustive, but if it helps the debate around the tough choices we have to make, its purpose would have been well served.  And I think it appropriate to end with borrowed words that I cannot improve.  Almost twenty years ago, in its 1996 Annual Report, the United Nations Development Programme (UNDP) made a statement that is perhaps more true today than it was then: “…policy-makers are often mesmerized by the quantity of growth. They need to be more concerned with its structure and quality. Unless governments take timely corrective action, economic growth can become lopsided and flawed. Determined efforts are needed to avoid growth that is jobless, ruthless, voiceless, rootless and futureless.”

*- Edun works in Financial Services and lives in Lagos