BusinessDay... the voice of business: Needed reforms (2)

Needed reforms (2)
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CLEMENT T. OFUANI on 29 January, 2008 11:05:00
 
Infrastructure development as a key to invest ment flow has been over flogged
that it would seem like a mere repetition of what everyone knows. Nonetheless it
needs to be restated that without stable and constant supply of electricity,
industrial and economic activities would be constrained to low capacity
utilisation. While other economies are operating a 24-hour economy, we would
continuously be limited to activities under daylight and only when power is
available. Our transportation network requires reinventing. From the inefficient
reliance on road transportation for industrial and commercial haulage to the
poor state of the roads, the chaotic airports and the unbelievably tortuous
seaport processes, we are uncompetitive. All of these act independently and in
concert to reduce our economic performance.
The last item on Governor Uduaghan’s 3-point development agenda is Human
Capital Development. Leading experts on development are agreed that development
is all about people. Even our 1999 constitution states clearly that the
advancement of the security and well-being of the citizens is the reason for the
existence of our government. Human capital development involves the entire
process deployed to increase the productive capacity of the people. Higher
productivity of the populace translates to economic growth and poverty
reduction. It also means that the population would be capable of paying for the
quality infrastructure being provided such as tolls on excellent roads, rents on
quality housing, rates on constant and stable electricity, bills for quality
healthcare delivery services and taxes for common quality goods such as
environmental sanitation and maintenance of drains etcetera. The interesting
thing is that all of these are self-reinforcing as expenditures by workers on
health care services simply translate to revenues for health workers and so on
and so forth because it is a cycle. The question that is faced by the governor
is what should be the kind of expenditures that would lead to the human capital
development realization? I can attempt some answers but definitely, spending on
education, skill acquisition and health would top the list. Spending on
education would naturally involve building and equipping of schools to defined
standards, paying teachers adequate salaries and general running of the schools
including salaries of supervisors and overhead.
Faced with free education policy as a party policy, the entire funding for the
above issues must of necessity come from the state treasury which in turn is
funded from local taxes and allocation from the federation account. As we all
know now, about 80 percent of the federation account is revenue from crude oil
exploitation. This is obviously the greatest source of worry and fear for our
economic managers, that if we do not de-link our budget from oil price
movements, we would be susceptible to the boom and busts associated with the
product market. I totally agree but I maintain that the solution is not in
restraining public sector spending altogether at this point in time, rather, we
should be concerned about the nature of the expenditure to be financed from the
resource exploitation and the structure of our public revenues.
Going back to the Delta State example again, the 3-point agenda of the Governor
are linked and interdependent. We need infrastructure to grow the economy and we
need peace and security to invest in the infrastructure while the human capital
development is desirable to ensure viable investments as well as utilisation and
maintenance of the infrastructure. The spending on each of the items needs to be
properly sequenced to achieve the desired objectives. Benchmarking the fast
growing economies also reveals that the quantum of spending needed for effective
development cannot be met from public sector spending alone. Indeed, the larger
proportion of the spending must come from the private sector and only in form of
viable commercial investments.
This point needs to be re-emphasized because the inability of our governments
to deliver the kind of infrastructure and create urban centres comparable to the
nations we are benchmarking is often blamed solely on the corruption of our
leaders. The sad truth which we must confront is that the available government
revenue cannot deliver the level of development we are expecting even with zero
corruption. This assertion is best appreciated by a recent study of the
relationship between corruption and development with Indonesia under Suharto and
Republic of Zaire under Mobutu as case studies.
Our economy must be packaged as an attractive investment destination to provide
the level of aggregate spending that can bring about the kind of development
that we all wish for. The first step in my view is that we must embark on
critical reforms of our law and order management machinery earlier referred to,
to build confidence in our nation. Simultaneously, there must be key political
reforms to build a more stable polity so that we can cease to be tottering on
the brink of being classified as a failed state. While these are going on, we
need to identify key infrastructure that the private sector can invest in and
package them into attractive investment options. I need to re-emphasize that
these may not however be realised until, we have dealt with the law and order
reforms highlighted earlier or shown significant motion in the reform process.
Until then, the infrastructure requirement would need to be provided
principally from public sector spending. The Delta State Governor and I believe
all the other state governors are under pressure to deliver the dividends of
democracy by meeting the electoral promises. Under the circumstance, the
position of the IMF and the national economic team is obviously at variance with
the reality facing the governors. The IMF dictation must therefore be
jettisoned. If anything, the challenge before the economic team is how to ensure
that the various tiers of government would devote the increased public sector
revenue to infrastructure development.
A review of the current structure of revenue and expenditures of the various
tiers of government shows that recurrent expenditures accounts for well over 70
percent of total revenues whereas, tax income accounts for not more than an
average of 20 percent of public sector revenues. The implication of the above is
that an average of over 60 percent of revenue from resource exploitation goes to
pay salaries and overhead in the public sector.
This is what we need to reverse otherwise; our various governments would merely
exist to pay salaries and overhead. However, it cannot be done overnight but we
can set the process rolling by adopting timelines for achieving the reversal.
The governments must within agreed timeframe work towards financing their entire
recurrent expenditures from tax revenues so that in future revenue from resource
exploitation can be devoted entirely to financing capital development or saving
for the next generation of Nigerians.