Still on the Funding of Our Super Agencies

Postscript by Waziri Adio

Two recent developments beamed an extra spotlight on some of Nigeria’s government agencies that are funded through special arrangements. The first development is a 28 December 2023 circular by the Minister of Finance mandating, among others, that 50% of the revenue generated by self-funded agencies be automatically remitted to the Federal Government. The second is the publication, early last week, of the 2024 budgets of 63 government owned enterprises (GOEs). Both developments are consequential and commendable. But much more needs to be done to further optimise these laudable initiatives.

In my column of 24^th December 2023 (“Revisiting How Nigeria’s Super Agencies are Funded”), I identified three sets of government institutions that I stylised as Nigeria’s “Super Agencies”: those that receive a percentage of the revenue that they collect on behalf of the federation; those that are assigned portions of some revenue handles; and those that are allowed to keep a share of the fees/levies that they charge and the fines they impose. In that piece, I argued that while possibly emanating from a good place, these special funding arrangements have created costly unintended consequences, such as perverse incentives, mind-blowing profligacy, suboptimal allocation of scarce resources, revenue leakages, and avenues for patronage and corruption.

The circular from the finance ministry, if painstakingly implemented, should limit the games that some of these super agencies play with the revenue that they collect/generate and the portions that they are expected to remit. The 2023 circular is a major improvement on a 2021 circular from the same ministry. All things being equal, the Federal Government should earn more revenue as remittances from this set of agencies.

But the circular will not address how prudently the agencies are applying the revenue they are allowed to keep. Neither will it resolve the question of whether some of the expenditure lines in the budgets of some of these agencies can be justified. So, as commendable as the intervention by Minister Wale Edun is, it can only be the starting point. Much more needs to happen.

This is where the 282-page document on the 2024 proposed budget of 63 GOEs, released by the Budget Office of the Federation, steps into the gap. It represents a significant step forward. To the best of my knowledge, this is the first time that the disaggregated budgets of these GOEs will be in the public domain. The GOEs used to be a complete black hole. The previous administration insisted that their budgets must be submitted to and approved by the National Assembly. At some point, GOEs’ budgets became part of the overall budget of the Federal Government and started featuring in the Medium-Term Expenditure Framework (MTEF). But in the publicly available budget documents, the GOEs used to appear as aggregated as one-liners: GOEs’ revenue and GOEs’ expenditure.

It is conceivable that the budgets of the GOEs were previously made available, either in parts or as a whole, to our legislators and to the Ministry of Finance. A few of the agencies have also published aggregated and sanitised versions of their annual reports. Even when the level of details is not even, the 2024 proposed budget of the GOEs is the most detailed I have seen on these super agencies.

The Budget Office has thus done a huge favour to all of us by giving us a full view of the budgets of 30 self-funded, 11 partially-funded and 22 fully-funded GOEs. (Actually, the number is 62 as TETFUND, which is in the main budget, is just listed. Also not included is the budget of NNPCL, an organisation that has notably relapsed to its dark past after a brief flirtation with transparency: it stopped publishing the monthly operational and financial report that was started in 2016 and it did not, contrary to its recent tradition, release its 2022 audited financial statement within 2023).

The Budget Office document puts the total revenue of the 62 GOEs at N4.93 trillion, out of which the GOEs proposed to spend N3.77 trillion. This proposed expenditure represents 76.5% of the revenue of the GOEs and 13.14% of the total sum of N28.7 trillion appropriated for the Federal Government in 2024. By whatever measure, the proposed expenditure of the GOEs is material.

The previous and current openness that led to the unveiling of this important document is deserving of utmost praise. But openness is not an end in itself. It can only be a means to an end. Accountability actors within and outside government and public financial management experts should be poring over this important document and should be asking serious questions around optimal approaches to resource mobilisation, allocation and application on one hand and should be discussing the design and implementation of appropriate policies for necessary course correction on the other.  

In this piece, I will make a few general observations and ask a few questions about the 2024 budgets of the GOEs under three broad headings.

With N61 billion as annual average expenditure, GOEs deserve more intense scrutiny: The Ministry of Finance and the rest of us should not just be content with the GOEs remitting more revenue to the government. In the present circumstances, getting them to remit more is definitely a necessary step. But it is not sufficient. The quantum of public funds at play in these few agencies should earn them more than the passing and perfunctory examination that they are currently getting. The emphasis here is that what we are dealing with here is public funds, not private funds of these agencies or of those who run them.

With a proposed expenditure of N3.77 trillion, it means that the 62 GOEs will spend N61 billion on the average in 2024. If we include the N672 billion budgeted for TETFUND, this means that the average expenditure for the 63 GOEs will be N70.5 billion in 2024. (And by the way, the figures for NNPCL and CBN are not captured or revealed). By whatever metrics, an average expenditure of between N61 billion and N70.5 billion is a significant sum that should, even in the best of times, invite legitimate questions about the quality of spending, about value for money, about opportunity costs and about optimal use of scarce public resources. Needless to say that, financially, these are not the best of times for Nigeria.   

For context, the yearly budget for most government agencies ranges between N1 billion and N3 billion. We have close to a thousand government agencies, meaning that the specially-resourced, super agencies constitute just a tiny island in the sea of our vastly under-resourced public sector.

For additional context, the state governments receive an average of about N6 billion from FAAC, if we use as benchmark the FAAC disbursement for October 2023 (itself a buoyant month). This will mean that the average annual FAAC allocation to the states and the average annual expenditure for these super agencies are almost the same. So, these agencies have almost the same resources as the states, with some super agencies even having more at their disposal.

As usual, averages do not tell the full story. There are many super agencies above the N100 billion expenditure mark. These include: N451.55 billion projected expenditure for the Nigerian Customs Service (NCS); N356.95 billion for the Federal Inland Revenue Service (FIRS); N349.02 billion for the Nigerian Ports Authority; N272. 9 billion for the Nigerian Civil Aviation Authority (NCAA); N229.82 billion for the Nigerian Upstream Petroleum Regulatory Commission (NUPRC); N188.43 billion for the National Health Insurance Scheme (NHIS); N142.6 billion for the Federal Airport Authority of Nigeria (FAAN); N130.3 billion for the Nigeria Deposit Insurance Corporation (NDIC); N119.3 billion for the Nigerian Communications Commission (NCC) and N106.14 billion for Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA).

There may be some strong justifications for providing predictable funding and special incentives for certain regulators and other strategic agencies. But it is always important to constantly review if those justifications still hold up and whether the incentives are not producing unintended consequences. Government policies should be dynamic and should be constantly reviewed for effectiveness. This leads to my second point.

Urgently needed: a review of the suboptimal funding arrangements: at present, whatever some of these organisations earn as costs of collection is treated as their full entitlement which they can expense as their fancy directs. On account of this warped arrangement, Customs plans to spend N451.55 billion out of its expected revenue of N459.38 billion. On its part, FIRS plans to spend the entire N356.95 billion that it expects to earn in 2024.

This egregious spending pattern reinforces the variant of the Parkinson Law that I cited in my previous article: expenses always rise up to income. It is noteworthy that FIRS, according to a report on its website, spent a total of N171.22 billion in 2021. Within three years, FIRS plans to more than double its spending. Simply because the money is there!

A breakdown of FIRS’s spending plan in 2024 aptly illustrates the saying that the devil is in the details. The tax authority plans to spend N171.29 billion on personnel alone (slightly higher than its entire expenditure for 2021); N122.5 billion on overheads; and N63.16 billion on capital. Further breakdown throws up some interesting details as follows: N3.6 billion budgeted for management, board and staff retreats, N4.4 billion for office furniture and fittings, N4.5 billion for local transport and travels, N4.6 billion for purchase of computers, N5.55 billion for purchase of motor vehicles, N7.5 billion for local trainings, N11.07 billion for long service awards, N13.62 billion for welfare packages, N15.22 billion for grant to government owned companies, and N26.52 billion for construction and purchase of office buildings (including a N7.82 billion for an office in Ikoyi, which may just be the allocation for the financial year).

It must be stated that FIRS is not alone, even if it stands out. Most of these super agencies have allocations for travels, trainings, welfare packages, office buildings etc., that individually are in excess of the total budgets of typical government agencies. There are ample examples in the breakdown of the budgets of NCC, NDIC, NUPRC and others. NUPRC, for example, plans to spend N19.51 billion to build its head office (called The Barrel) and N50.43 billion on welfare packages (outside of N65.21 billion for personnel) and it intends to “sequester” N71.09 billion for capital projects.

In a slightly different but related vein, we need to reappraise the amount of money going to some obscure agencies and decide on whether some agencies that are commercially viable should continue to be propped up by government. In this category are the following: the Nigerian Postal Service (which hopes to generate N10.83 billion but plans to spend N23.63 billion); the Nigerian Television Authority (with expected revenue of N4.03 billion but projected expenditure of N12.63 billion); Raw Materials Research and Development Council (with N24.28 billion in projected expenditure); the National Space Research Development Agency (with expenditure of N24.70 billion, all from government funding, out of which N21.36 billion is assigned to personnel) and the Nigerian Nuclear Regulatory Authority (projected expenditure of N28.85 billion, out of which N24.26 billion goes to personnel). We need to appraise the public value created by these organisations and amounts expended on them can be justified.

It may be important to either drastically reduce the cost of revenue collection and exercise stronger oversight over application of even the money ‘earned’ by these agencies or bring all agencies within appropriation and ensure that all expenditure lines pass a strict need and smell test. We should constantly be guided by the need for optimal application of scarce resources and the cost of alternative action.

Revisiting the concept of regulators as revenue agencies and the efficiency of earmarks: we need to stop the practice of seeing regulators as revenue-generating agencies and desist from giving regulators a percentage of the fines they impose. As stated earlier, this arrangement creates a perverse incentive that distorts the focus of the regulatory agencies. Regulation is an important state function and the state should make adequate but reasonable budgetary provisions for agencies such as NAFDAC, NCAA, NCC, NDIC, NERC, PCCPC, SON and others.

Charging regulators to raise revenue for the state or expecting them to earn their keep is an anomaly. If we think the services that these regulators provide are important enough—and clearly, they are— we should make full provision for their needs. This is not to say erring businesses should not pay fines or be sanctioned. But saddling regulators with finding resources for their operations through fines will mean that they will be incentivised to go to great length to prioritise imposing fines, irrespective of the costs on businesses, consumers and the larger society.  That is how the law of incentives work. However that is not how effective regulation works.

We also need to review the multiplicity of levies and how they are applied. For example, there are levies paid at entry-points into the country and on certain goods and services by businesses and individuals. Some of these levies include the 7% port levy, 5% levy on local and international air tickets sold in Nigeria, 1% import duty surcharge, 1% levy on all upstream oil and gas contacts awarded, 2% cabotage levy and others including the education tax, information technology tax, annual operational levy etc. We need to do an assessment of these levies and weigh the implication of consumer welfare and national competitiveness. Some of these levies do not make material difference to the nation’s coffers but they increase the cost of goods and services for consumers and increase the cost of doing business in the country.

Also, instead of just sharing the port development levy or the air ticket levies to port-related and aviation agencies to fund their operations, we may need to ringfence the accrued fund for the development of infrastructure in the port and the airports. This is how earmarks should work, and we have a template in the how the education tax fund is tied to funding research and infrastructure in higher education, even if the application of the money itself needs further reforms.

In refining earmark, the curious case of the Nigeria Social Insurance Trust Fund (NSITF) should focus the mind. The NSITF is funded from mandated contributions by companies and some government agencies. The accrued resources are designed to provide compensations to workers or their relatives for work-related injuries such as physical harm, mental stresses and even deaths.

In 2024, NSITF plans to spend N83 billion, out of which only N8.02 billion will go to sundry forms of injury/death claims, the raison d’etre of the organisation. However, N25.29 billion will be spent on personnel, N8.85 billion will be used for promotions, recruitments and appointments, N3.8 billion for purchase of office buildings, N2.84 billion for productivity allowance, N2.49 billion for purchase of computers and N1 billion for purchase of buses. The contributions made to NSITF to compensate injured workers and relatives of deceased workers are effectively being used by NSITF to take care of itself. Talk of total misalignment, underpinned by a huge dose of immorality.