2016 Budget: As Contractors Set to Return to Sites

By Kenneth Odoko

The truth is, a good food is worth waiting for.

Given the energy exerted on the original copy of the 2016 budget document submitted to the National Assembly by President Muhammadu Buhari and the period of time devoted to review, criticize, edit and rework the document, one can easily understand why Nigerians are confident that the nation’s fiscal and monetary policies this year would make a positive difference.
Perhaps, what fuels the optimism further is the resolve of the Federal Government to rebound the economy through the injection of N350 billion into the system in the next few months.

According to the media reports, the decision was reached at the end of the two-day retreat for governors of the 36 states of the federation and members of the National Economic Council (NEC) at the Presidential Villa in Abuja.
Reports quoted the Minister of Finance, Kemi Adeosun, as saying that part of the money will help offset the debt owed local contractors, who had laid off their workers for lack of funds.

While the budget is still undergoing its last stage as a document before the President signs it into law, the fact that this administration is pumping such a huge amount of money into the system to stimulate the economy is cheering news to us.
The plan to stimulate the economy with N350billion earmarked for capital projects should be celebrated for many reasons.
Since the Federal Government is desirous of making the huge capital spending to trickle down to ordinary Nigerians, I believe areas to benefit from this development include agriculture, transportation, construction industry and power, among others.

As the raining season beckons, the fact is there is no better time to plan for this year’s planting season than now. I expect the Federal Government to give a special attention to efforts that would make fertilizer available to Nigerian farmers. This is because President Buhari has consistently told Nigerians that agriculture would be given a pride of place under his administration. So, when the Minister of Finance announced the resolve of the administration to pump N350billion into the economy, I heaved a sigh of relief that agriculture will benefit tremendously from this capital funding.

Another area, which I believe will benefit from the capital stimulus, is transportation. It is obvious that payment to contractors is a precursor to the making of good roads in the country.
There is no doubt that the timing is critical for contractors to return to sites given the fact that it takes time for the real construction work to begin.
Good roads, will provided farmers the opportunity to take their produce to designated markets with ease and this will go a long way in preserving the quality of the farm produce.
Nigerian farmers, especially in remote parts of the country have had their farm produce like tomatoes and pepper perish given the difficulty of conveying them to markets.

With the current state of power generation and distribution, one doesn’t need to be told before realizing that power is another sector that will benefit tremendously from the N350bn capital spending in the first quarter of the year.
So it is not out of place to see contractors in the power sector rolling their equipment back to sites any time from now.
Some of us are happy with the bold step being taken by this administration to focus on contractors considering the fact that some of them had last year appealed to federal and state governments to pay debts owed the firms to enable them to return to project sites across the country.
Acting under the auspices of Federation of Construction Industry, the contractors had put the debt owed them by various governments in the past two years at N600 billion.

The president of the group, Solomon Ogunbusola, had explained that delay in payment of the debt had grounded operations of most of the companies.
According to him, many of the companies have closed shops while thousands of workers have been retrenched.
Mr. Ogunbusola said that no fewer than 8, 000 workers in the industry were laid off in a period of six months.
According to a media report last year, contractors handling over 184 federal road projects have abandoned the various sites due to lack of funding from the Federal Government and the huge debt owed them by the Federal Ministry of Works. The report said that following the decisions of the contractors to abandon the sites, N1.76trn federal road projects across the country had suffered setback.

As far as I’m concerned, the spread of the abandoned projects underscores the need for the Federal Government to offset its liabilities in order to encourage the firms to return to sites.
In the report, the Federal Government classified 184 projects as ongoing as at September 2014.
The North-Central zone had 29 projects, with a total length of 1,20.81km and a cost of N294bn; North-East had 26 projects, 1,219.65km long and cost N314bn; North-West had 20 projects, 1,040.22km long and cost n188BN; WHILE the South-West was put at 31, stretching 1,072.63km.
We all know that if the contractors borrowed money from banks to ensure progress of work on the projects, the consequences of non-payment by the government become hydra-headed, especially as the contractors would be unable to repay the borrowings from banks.
This is why I think the current administration deserves support for taking the bull by the horn by the resolve to release money to contractors.
We should also not lose sight of the provision given to these contractors. Newspaper reports quoted the minister as saying that the federal Government will extract commitment from these contractors in order to ensure that the disbursement to them will be used largely to facilitate recruitment of staff and not to be used for the payment of management fees.

Equally commendable is the declaration of the Minister of Finance that adequate mechanism has been put in place to ensure discipline in fiscal policies. This, to my mind, will give credibility to government’s programme since we are made to understand that the era of “money for the boys`’ is gone.
I strongly believe that by the time this money hits the accounts of contractors, a process which is expected to motivate them to move their equipment back to sites, Nigerian economy will be better for it. This is because apart from big contractors who are owed directly by the Federal Government, the small-scale contractors needed for menial jobs are bound to begin to enjoy patronage.
Apart from the direct gains from the resumption of construction works, which include the prospect of better roads and the attendant accessibility to farms and other economic sites, the anticipated capital injection will definitely boost economic activities in all the nooks and crannies of the country.

Besides, the debt burden, which the current administration seeks to lighten with the planned payment of contractors is a very substantial debt burden that mirrors the poor priority government over the years have attached to road infrastructure development or maintenance. This level of indebtedness, of course, can lead to abandonment of the projects, cost inflation, poor execution of the projects, disengagement of workers thereby exacerbating the unemployment situation and even litigations.
When that happens, the amount of interest charges may not only over-run the entire contract amount but may necessitate the lending banks making substantial provisions for non-performing loans or outright bad debts. The capacity of the banks to extend credit facilities to other needy economic agents will therefore be curtailed. Most assuredly, the stability of the banking system may become impaired with grave adverse consequences such as bank distress and/or failure, disengagement of employees, loss of investments by investors and hard-earned deposits by customers.
This is one of the reasons why I’m joining other well-meaning Nigerians to salute the efforts of the current administration to empower contractors to go back to sites.
–– Odoko is an Abuja-based policy analyst