Home / News / Local / 2021 Budget: Why selling national assets to fund budget deficit will be counter productive By Dr. Kazeem Bello

2021 Budget: Why selling national assets to fund budget deficit will be counter productive By Dr. Kazeem Bello

Zainab Ahmed, Minister of Finance, Budget and National Planning
Dr. Kazeem Bello

The fallout from the Minister of Finance’s 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 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 to Nigeria especially arising from the unprecedented damages to the National Economy by the global economic crises created by the COVID-19 pandemic. Nigeria becomes an active focus of undue attention because it is currently the world’s biggest rising poverty destination on the planet with an average of 19,000 Nigerians drifting below the Global Poverty Index (GPI) per day. It is also home to the third largest unemployment number in the world with over 105 Million Nigerians currently unemployed or underemployed. It is perhaps Africa’s largest economy by 2018 GDP records, but the worries of Global Financial Experts and Analysts is, how will Nigeria tackle the problems created by the current recession in the country, which is 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 the need for the FGN to resort to any available 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 translates to 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 concerning where the funds will come from to finance this.

This is why the FGN is perhaps left with no options than to look everywhere to raise necessary funds to finance the 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. The other option being considered includes the much publicized selling of National Assets to finance the budget. Debt servicing projections for the 2021 Budget 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 the country’s decreasing economic fortunes for the country.

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 concern 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 is being recommended that the National Assembly (NASS) stop the process through appropriate legislation, even though we do not know how much of helping hands has been extended 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 the 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 illicit 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 recommendations or practicable solutions will not permeate.

When a Country divests or spins 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 economy. 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 the 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 has 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 return almost nothing to the FGN coffers despite huge budgets they obtain from the Government annually. This is one of the biggest loopholes in our systems and this is inflicting tremendous untold hardship in the land and in the financial health of the Nation. It is about time the FGN identifies these 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 step, Nigeria could possibly save over =N= 3 trillion in unnecessary and wasteful funding to Agencies that offer nothing to the federation account. I understand that this step will take huge and unadulterated political will for the FGN since most of these Agencies are set up and funded by the FGN for people to loot and mismanage 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 Olusegun Obasanjo regime and the late President 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 the Minister of Finance was in those periods when Nigeria sold off almost 40% of its National Assets, and yet we were told that the Country was to invest the proceeds on infrastructure and projects of economic value. We are still left with grossly inadequate and epileptic infrastructure in Nigeria after 20 years of selling those Assets. The Assets that Nigeria has sold in the past did not yield the Country any dividends or benefits. There were, instead, illicit and shady activities surrounding the sales of the assets and the disappearance of the proceeds.

During this period, Assets in virtually all economic facets were sold 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 ridiculously low prices and so many under-the-table transactions took place 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 exercises 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 object 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 palliatives 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, GENCOs and DISCOs, industries with no added values etc.

The resultant effect of this has been the creation of another moribund Agency called AMCON. That Agency is currently overwhelmed with toxic debts of over =7= trillion Naira and it has absolutely no clue as to how to manage or deal with these embarrassing National Debts. The so-called bailout funds were given out to the same local people that acquired the sold National Assets. They turned around and cried to the Government for bailouts that they misappropriated and never paid back, then the creation of the AMCON to absorb, acquire and repossess the Assets of those companies and corporations. These are, literally, the same Assets the FGN just less than 20 years ago sold to these investors. AMCON has acquired the Assets of several companies including Arik Air, Aero Contractors, Hotel Projects (Federal Palace Hotel and Abuja National Hotel). Some Oil and Gas facilities, Telecom Facilities, Power Plant projects are among the Assets that AMCON has taken over due to unpaid bailout loans to the Owners. These are the same Assets purchased 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 reference to in terms of selling National Assets to finance the budget spending.
What manner of economic sense does this narrative portray? These are Assets originally owned by the FGN, sold through shady or illicit manners. Owners run them down, then took billions again in bailout funds for these companies, stashed the funds away in overseas private accounts, shut down those companies and the big brother AMCON took them over, unable to collect the debts. These Assets are currently being held by AMCON on behalf of the FGN 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 issue a while ago especially with regards the AMCON debt management. I once had a lengthy meeting and discussion with the Chairman of AMCON 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 reforms. He was consumed by internal Party politics.

Most of Nigeria’s national problems are human created and fuelled by human factors. When you have these nature of problems, no amount of expertise, experience or theories will work because they will not apply them because of those human factors. My recommendations to AMCON 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 them in accordance with standard global practices.

I will never recommend that Assets be sold to fund budget deficits based on what has transpired in the recent past. Those sad experiences are still fresh 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 fraudulent and a total failure yet no head has rolled in Nigeria. The Head of that Assets Sell off process became the unpronounced richest man in Nigeria yet terrorizing Nigerians with his huge amassed fortune by his repeated spending to become Nigeria’s President! What a Country!!!.

When Etisalat divested from Nigeria, the company was already enmeshed in debts running into billions of Naira. No investor was interested in the company and the FGN did not want the company to go under due to its preeminent position as number 3 national carrier in Nigeria. AMCON stepped in and acquired those debts and a new investor stepped into it. Till today, AMCON is stuck with those debts.

When the failed defunct Skye Bank that has now become Polaris Bank was being sold, we heard that the Bank was sold or virtually dashed out to a prominent family from Northern Nigeria. The Bank was in debt to the tune of about =N=400 Billion or so. AMCON took over the debts and the Bank was handed over almost free of charge to become Polaris Bank Nigeria Limited to a friendly family. When things like these continue to happen, what is the assurance that people have that selling Government Assets will be beneficial to the Government and to the people?

The current recession facing Nigeria is an extremely grave issue and it is clear whether the political leaders understand the gravity of the economic difficulties this will bring upon the country. It will require all kinds of creativity and all hands on deck to overcome the crisis. It cannot be business as usual otherwise we would be digging further down 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 time, all the country’s stakeholders must be ready to make sacrifices especially for the future of our Nation. It must be seen as a contribution by all stakeholders to help the country navigate through the current challenges.

It will not be out of place to start considering imposing some form of taxes on Religious Organizations at all levels. When Europe was growing in the 16th, 17 Centuries even up to the 18th Century, most religious organizations were paying taxes and in fact it was one of the largest contributors of taxes to the States at that time. These taxes were gradually abolished, but it created the pathway for the foundation of the European countries’ development in those days. We can commence this process in Nigeria as well. Again, as sacrifice by 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 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 a very good way to help the Country overcome its economic challenges at least in the medium term.

My proposition to raise fresh and new avenues for funds to finance budgets remains within the public domain. They are still relevant at any time as a practical approach to addressing revenue shortages in Nigeria. There are no hard facts to this, we need to get creative to locate and attract 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 term perspective to solving this perennial problem. Perhaps, my recommendation to take deep insights into the operations of the many moribund and unproductive FGN Agencies with a view to shutting them down to reduce budget size and reduce the FGN operational size, will be an appropriate option going forward. Again, this will assist remove so many loopholes in budget funding to Agencies that yield nothing to the FGN or the Economy.

If we must consider selling National Assets in Nigeria on a large scale again, we need to ensure that an institutional and appropriate operational framework 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 to 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 no need to panic and carry out the 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. Bello is Principal Partner/CEO- Afrique Capital and Equity Funds Ltd, New York, USA, President, Nigerians in Diaspora, New Jersey, USA chapter and Chairman, Steering Committee of the proposed Nigeria Federal Credit Union, USA. He is a Financial Specialist and Development Economist.

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