Vanguard (Lagos)

31 December 2012

Nigeria: We Don't Have to Sack Workers to Reduce Recurrent Expenditure - Okumagba

interview

Deregulation, reducing cost of governance, respecting sanctity of contracts as well as how to make on-going reforms work for the people dominated discussions at the 18th Nigeria Economic Summit. Albert Okumagba, Managing Director/Chief Executive, BGL Plc and Chairman BGL Securities Limited shares his views on these issues as well as the bailout package for capital market operators. Excerpts:

The huge recurrent expenditure profile has become a burden on the country, and there seems to be divergent views on how this should be addressed. If we need to push the economy forward, how should we go about it?

I think a central issue that is been discussed across all interest groups has to do with how government allocates recurrent and capital expenditure. I think if you study a number of governments across the country both federal and state government you will notice that a few government have tended towards reducing recurrent expenditure against capital expenditure. If you check out, Akwa Ibom state government recurrent and capital expenditure is in the neighborhood of about 28-72 per cent in favour of capital expenditure, and you can see the impact in the kind of infrastructure development that we have witnessed. If you check out Edo state, I think they have something similar

I believe Lagos state too also has something similar. So there is this clamour at the federal level last year that this should also happen and I think the federal government is already moving along those lines, moving from 78 for 2012 to 68 per cent recurrent for 2013. I believe that if a more thorough analysis is carried out, that movement downward over the next three years will be accomplished but it has to be done sensibly, it has to be done without necessarily tampering with numbers; when I say number I mean the number of workers. What we would like to see is a situation where the conditions of employment are improved for workers, workers that are trained and re-trained to service the people of Nigeria better than they are servicing Nigerians now.

If you check the component of what makes the recurrent expenditure, there might be a need to make sure that money are spent in the most beneficial manner to the people of Nigeria and those adjustments can be made without necessarily reducing the numbers of workers in government. What we need to do to advance; some of that presentation was made yesterday by Frank Nweke jr; what we need to do to move this country to a position where we can be one of the top 20 countries in terms of size of our economy, eight years to destination, is to make our various government institutions, some of the best employers of labour in Nigeria. Our bests students should make working in government as their first choice, so the very best in the society should be accommodated by government.

Because government business is more serious than private sector business, because government at different levels have very strategic roles to play to balance interest, because in the real sector, whether it is aviation, whether it is financial services, whether it is education, whether it is health, if we have an improvement in the quality of those who run government it will percolate down to the various sectors. So, I think the debate today around recurrent and capital expenditure has to be content driven and the issue of number should not be considered. We have a very heavy unemployment rate in Nigeria and those people need to be absorbed by either the private sector or the public sector.

What is your reaction to the comments of the CBN Governor about reducing the number of workers in the public sector and the various responses to this position?

It is important that we tell ourselves some very clear truth, the issue of reducing recurrent expenditure is a journey we must embark on so that the government at the federal level will have more money to invest in infrastructural projects and in those very essential services around education and health. If we would not invest in our education and health sector from a capital expenditure platform we cannot have the best skill in Africa in another eight to ten years. I think the issues that have been raised around that matter require more serious concentration and discussions.

The Minister of Finance said that 30 per cent of the recurrent expenditure goes into personnel cost. Do you really believe that we have so much actual number of workers that warrant such proportion of expenditure on salaries and wages? What about the issues of ghost workers, redundancy, are these not issues we also need to look at?

You know there is context of employment and underemployment. If the figure quoted, if the recurrent expenditure is 68 per cent and out of that 68 per cent 32 is what we call core personnel cost, what we need is that we should be asking what is the balance and if it is 32 per cent then that is not the issue, the question is not number, the question should be the quality of that extra, the difference between 68 and 32; that is one way of looking at it.

Another way of looking at it is, our revenues, do they align with our endowment, are we producing enough, are we generating enough revenues? When the revenue increase, a lot of that revenue increase can be applied to capital expenditure and the percentage, without figures coming down, the percentage of recurrent expenditure will come down, so another way of looking at it is, we need to start doing those things that will increase government revenue; a more efficient tax system, a more efficient exploitation of the various resources we have across the country. At the moment everybody lives on the exploitation of oil and gas. There are so many other things we are not exploiting, solid mineral, agriculture is still been done in a very subsistence manner. So there is a need for us to look at the process of baking the cake that will now form the basis of what goes to recurrent.

Even with that 32 per cent, if you check and analyze, do our civil servants get the best kind of remuneration, do they have the kind of environment that will enable them produce the kind of services they should be giving Nigerians? So for me rather than numbers and reduction of number, we should be talking of how to make that number productive, how to create a more enabling environment for people working in government to deliver services that will develop the pot.

Another way of looking at this is to come up with strategies for the collection of our revenue and when we grow that revenue, the number that goes to the current expenditure might increase but the percentage will decrease. So we have to look at sources of income for the federal government, what can we do to improve, but at the moment an economy that does not have electricity, no national railway, no good roads, agriculture mostly depending on rainfall, your revenue will be constrained, we are sharing from a small box, what we have to do is to open up that box and increase our revenue sources. We need to find a strategy to exploit those solid minerals in the north-west, north-central, north-east and some parts of the south. We need to also do such things that will put us in a position to produce more. A lot of what we produce now is not processed goods before they get to the market, we need to process more.

One of the topical issues in this Summit has to do with sanctity of contracts, it came up yesterday and today, and even the MD/CEO of ExxoMobil raised it as one of the concerns of foreigners about investing in Nigeria. But the comments of Governor of Edo State imply that this can't be guaranteed in all cases. What is your take on this?

Well we have to respect contract. We must be a country that have respect for the rule of law and contract have to do with the development of the society around the judiciary and the law enforcement agency. If we have a judiciary that both the private and the public sector have confidence in, then the issue of sanctity of contract becomes a major boost to those who want to do business locally, and also for foreign investors that want to come in. Then we must make sure that the enabling environment is created for investors to be attracted, because if we have sanctity of contract then the investors will come around.

The Minister of Agriculture was talking about new investments of about 6 to 7 billion dollar coming to the agric sector. Two years ago, nobody will have been able to attract these kinds of investment but the environment is now more enabling. Government in the agricultural sector has been reconfigured, rather than concentrating everybody in Abuja, they have been distributed across the 36 states including Abuja, so that the problems that the famers encounters are now been dealt with on real time basis. So we are going to see this reflected in the agric sector that we have, and in the kind of things we are processing.

Do you believe that there could be a justification for the government to just revoke contract like the governor of Edo was trying to say yesterday that some of these contracts were deliberately worded to favour the investors and be against the federal government. And he stressed that government should not be expected to respect such contracts.

That was what I was saying the other time about the quality of our work force, if the quality of our people is above average, they will not have anything to do with drafting contracts that will undermine the interest of the government. Now, if people working in government also have security of tenor, and they have situation where their future is guaranteed if they do their work, they are not going to get themselves into doing things that will undermine the government. But if the environment under which you work does not protect you, off course you look for other ways to protect yourself.

So I think, improving the quality of people who work in government, making sure that the go to the right type of training and they get the right kind of remunerations, and they get the future that gives them opportunity to address their basic needs.

For instance when you started working at the age of 20 something, and you start a family, you should have a clear plan, a system that can take care of you, without you doing anything untoward. I think the challenge is to see how that environment can be improved.

If I may ask you, we have been in a one kind of reform or the other over the past few years, but the results we are getting tends not to justify the investments. Like in agriculture for instance, look at the Commercial Agricultural Credit Scheme (CACS), look at how much CBN have disbursed, look at NIRSAL, several other reforms, with the promise they would unleash the economy, create jobs, but it is as if it's the same rhetorical statement, with little achievement on the ground. In your view how can we make these reforms yield results and at the right time?

The media has a critical role to play in this regard. When you said reforms have not worked, the question we should be asking ourselves is how we have created an advocacy environment around those reforms that have not worked? How have we monitored reforms to make sure that the reforms that people are talking about today are working or not working? How are you able to use the media to monitor the progress of government transactions? Especially those that are been handled by the private sector on behalf of government. Because we need to always throw up issues that will make government to continuously improve itself overtime.

Mind you, there are some certain reforms that have worked; there are some that have not worked. So we should be analyzing those that have not worked to know why they did not work. And let us also celebrate those that have worked because, that of the telecom have worked, that is not to say that there is no need for improvement.

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