VP Osinbajo At The 18th National Council On Development Planning On 11/10/2019

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KEYNOTE ADDRESS BY HIS EXCELLENCY, PROF. YEMI OSINBAJO, SAN, GCON, VICE PRESIDENT OF THE FEDERAL REPUBLIC OF NIGERIA, AT THE 18th MEETING OF THE NATIONAL COUNCIL ON DEVELOPMENT PLANNING (NCDP) IN ASABA, DELTA STATE, FRIDAY 11^TH OCTOBER, 2019

PROTOCOLS

I am extremely delighted to be here to join you at this 18^th Meeting of the Joint Planning Board and the National Council on Development Planning (NCDP). This event reflects the common commitment of the Federal and State Governments to work together in planning the economic future of our Nation and its people.

Let me, therefore thank His Excellency, my brother, the Governor of Delta State, Governor Ifeanyi Okowa, the Government and People of Delta State for their warm hospitality and for the facilities placed at our disposal for the successful holding of this meeting. I am also pleased to learn that the European Union delegation and the United Nations System collaborated with us by organizing the side event on the role of development partners in fostering inclusive growth and sustainable development in Nigeria. We do value this spirit of active collaboration.

As this is the first time the NCDP is holding since the inception of the second term of this administration, I take this opportunity to extend warm congratulations to the Honourable Minister of Finance, Budget and National Planning, The Honourable Minister of State for Budget and National Planning and all the newly appointed Commissioners for Finance who are here with us today.

The theme of this year’s Conference, ‘States Fiscal Sustainability and Economic Diversification in Nigeria,’ is very apt and timely. It is an excellent opportunity to re-ignite the conversation on how to lift our people out of poverty and misery, by the provision of jobs and opportunities, food, education, healthcare, and shelter. These are the core responsibilities of governments, whether they be central or sub-national governments. Unfortunately, revenue levels, especially from the Federal Account Allocation Committee (FAAC), to both the Federal Government and to States have been temperamental over the years.

During the 2016/17 recession, the total amount available for distribution from FAAC in April, 2016 was N289.4billion. Four years earlier, in the same month (April) of 2012, the amount available for distribution was N1.14trillion. So, 2016 saw a drop of nearly N900 billion in one month.  Today with improved oil revenues, funds available for distribution move between N600B and N700 billion. But for how long can we even sustain this figure especially as oil prices are now likely to remain lower for longer? If there was any doubt, the almost immediate reversal of the initial spike in oil prices following the recent unfortunate attack on Saudi oil installations made this very clear to all of us. It is also the case that just as Federal revenues have been disappointing, annual IGR of most States is usually insufficient to meet even a month’s expenditure in those States.

Most States simply cannot survive without FAAC. Yet the responsibility for Human Capital Development especially education and healthcare, and most other needs of citizens residing within their borders lie with the States. In order to be able to do so effectively, it follows that States must overcome the fiscal challenges that they face.  The extent of this fiscal challenge was evident when the present administration came into office in May 2015. Over 24 States had been owing salaries, pensions or other emoluments from between 3 to 12 months.

So, given the dire revenue situation of States at the time and the President’s personal concern about the plight of unpaid workers, the Federal Government made a number of interventions to assist, ranging from the restructuring of commercial debts owed by States, to advancing credit from the Central Bank and the Excess Crude Account.  It was clear, however, that the only respite that could be had would be a temporary one given the expected long-term decline in oil prices. So, the two courses available to States were, of course, to improve their fiscal positions. This could be done in two ways. One was to improve the management of the limited resources available through the introduction of what we described as the 22-point Fiscal Sustainability Plan, and then the drive for increased Internally Generated Revenue (IGR).

States were required to implement the Fiscal Sustainability Plan in order to access the Budget Support Facility of N496 billion which was put in place by the Central Bank then.  The aim of the FSP was to improve accountability and transparency, and increase public revenue, to rationalize public expenditure, improve public financial management and to ensure sustainable debt management. Some key elements of the FSP included implementation of IPSAS, publication of state financial figures, implementation of the Treasury Single Account (TSA), eliminating payroll fraud and domestication (at State level) of some of the Federal laws such as the Public Procurement Act and Fiscal Responsibility Act.

While several States have made major strides in implementing the FSP, the possibility of huge increases in revenues for States going into the near future remains very doubtful.  Clearly then, our States, and of course, the Federal Government, have to ramp up IGR for fiscal sustainability and in order to be able to meet personnel, overhead requirements, capital and debt service obligations.  Now, here lies the solution and the challenge: raising revenues. This is a challenge for both the Federal and State governments. It is also the solution to the various problems that we have. It is the only way forward for meaningful development and for realizing the objective of taking millions out of poverty.

But what exactly is the problem? Why, for example, were the old regions – Western, Northern, Southern and Eastern – able to provide the resources to build infrastructure, build industries, provide education and healthcare for millions of citizens at that time in the same territories and land areas that now cannot generate enough IGR to meet even salaries and emoluments of workers?

The regions largely depended also on tax and revenues from agriculture. In GDP terms, in 1956/57, yams contributed 95.4million pounds, Cassava and Garri contributed 86.1m pounds to GDP; Groundnuts 30m and Guinea corn also contributed 25m pounds. In total, just food crops contributed almost 45% of our GDP and of course, created thousands of jobs.

In terms of tax revenues, as of 31st March, 1953, in the Northern region, 5,086,000 pounds was collected in taxes; the next year, 5,643,000 pounds was collected in taxes. In the Western Region in the same period (March 31 1953), 1,969,000 pounds was collected in taxes, and 2,134,000 pounds in 1954. The Eastern Region, in 1953 collected just under 1 million pounds in taxes, and in March 1954, collected also just slightly under 1 million pounds in taxes. With all of these taxes they collected, they were able to do the things that they did, built roads, infrastructure, farm settlements, all manner of industries, in the Western region, for example, they had free education for over 800,000 students, from these same taxes and agriculture revenue.

So, what happened? How come the same land areas can no longer generate revenues from agriculture? How come our tax to GDP is one of the lowest in the world? The simple answer is oil and the Dutch disease. The Dutch disease is what happens when a country discovers oil or some mineral that provides foreign exchange earnings without creating jobs. It is important to bear in mind that this Dutch disease did not start here. What happens in such countries, especially a country such as ours, is that the country’s currency becomes stronger (earning money from oil) and so it is able to import cheaper, even food items that it used to produce, and all sorts of luxury goods. But then its exports become more expensive, so export of cash crop declines because it is more expensive and not competitive any more. The country earns more money but loses jobs, loses competitiveness and the people are poorer.

Most of the productive entrepreneurs find some way of connecting to the oil, somewhere in that value chain, some rent can be made. As I said, this is not an African disease; it started in the Netherlands an industrialized economy. When the Dutch disease hits a country the size of Nigeria, the situation is even much worse. The oil revenue affects currency, encourages bad fiscal habits, the economy becomes unproductive and many slide into poverty. The truth is that oil does not produce jobs by itself. The oil industry employs very few people indeed and what you have is revenue. It is not like farming which employs thousands of people.

Which partly explains why even when our oil was selling at over 100 dollars a barrel, poverty was at its highest levels and public debt was increasing. As of 2012, the number of Nigerians in extreme poverty was 112 million going by the NBS statistics. And as of 2012, oil was over 100 dollars a barrel. Today, oil is about 71 dollars a barrel.

So, the Dutch disease is like the case of a salary earner. For as long as he keeps his heart on the monthly salary, he will never be an entrepreneur. At best, his mind and prayers will be focused on a salary increase, much in the same way as our minds are focused now on our oil revenues. But it is clear that oil revenues are not really going to increase by much. So, what we need is a paradigm shift in our thinking in order to prosper as a Nation and as States within the Federation. The reason for diversification of our sources of earning is because oil at whatever price, cannot deliver jobs, or even enough money to build infrastructure and answer the human capital development issues and problems that we have. We have seen oil going as high as 143 dollars a barrel in this country, yet we were unable to provide the jobs, infrastructure, and the various other things accompanied.

Human capital development problems of a populous country such as ours, which in another few decades will be the third most populous nation in the world, no matter how much we earn from oil, we simply cannot address the fundamental problems that would arise from a population of over 400 million people. That is already clear from the constraints that we have in the national budget today, and, of course, the constraints that the states have in their own budgets.

So, I propose three things for the consideration of this august body as a means of increasing production and generating revenues at State level. A lot of these things are quite obvious, because they have been proposed time and time again, but I think they bear repeating. The first is that the States, just as the Federal Government is doing, must engage in careful and well-thought-out strategic planning in order to articulate and implement priorities derived from such thinking and from such planning. We have to look at a comparative advantage. Every State must determine where it has a comparative advantage and focus on such areas.

Second, there is great scope for boosting agricultural production if States choose two to three high-value crops or products to specialize in. Such specialization will enable economies of scale in the provision of support across the entire value chain, from preparing land, to seeds, fertilizers and pesticides, storage, processing and transportation, marketing and sales. This also implies organizing the agro-allied value chain from farm to table. One ready means of doing so is the use of out-grower schemes like the Anchor Borrowers Programme. We’ve seen the success of some of these programmes in some of the Northern States. For example, Kebbi state recorded tremendous success in rice production. The simple reason is that Kebbi focused on its comparative advantage, rice farming.

In a similar vein, States must take advantage of the entrepreneurial spirit of Nigerians by empowering economic clusters and trade groups through the provision of basic infrastructure and shared facilities. I’ve so far visited about 24 States as part of our MSME clinics drive, taking a lot of the regulatory authorities to different states to show them what the small businesses are doing, and to enable these regulatory authorities such as NAFDAC, SON, CAC and so on, to understand that these small businesses need their assistance and support and need to be able to process their approvals quickly so that they can do better businesses. And one thing that we have seen across the states is that you have vibrant business clusters everywhere, from shoemaking clusters to leather processing clusters, steel fabrication, phone assembly and repairs, garment making, and several agribusiness clusters, all across the different states of the Federation.

What a lot of these people require is some support from their states and also the Federal Government in the provision of infrastructure in existing clusters. For example, some clusters need power, some need additional equipment that they cannot afford as individual traders or artisans. But State governments, and in some cases, Federal Government, can also provide that, and we’ve been trying to provide such shared facilities such as this and equipment in various states.

For example, we found that providing solar power, and this is private solar power, in markets across the country has boosted trading activities in those markets. So, trade is able to go on 24/7. For example, we have private solar power facilities in Sabon-Gari market in Kano servicing close to well over 40,000 shops. The traders there are happy to pay the tariff. This is a willing buyer-willing seller arrangement, they have 24/7 power. The same thing in Ariaria market, in fact, there are two private power sources in Ariaria market, with thousands of shops there that have access to power 24/7. So, they are far more productive. And that is exactly what many different clusters require, something that will support them to be more productive.

The current move of the Federal Government also to provide broadband connectivity for all by 2023 will assist the States to improve their production base. But the States cannot charge fees for the laying of broadband infrastructure, that is like strangling the goose that is going to lay the golden eggs even before it starts to lay the eggs. We need to be able to provide and facilitate the laying and provision of infrastructure without charging fees. If we make it easy for the provision of infrastructure, then it is possible for this broadband connectivity for all by 2023 to be realized. And that means incredible opportunities for young people in technology, all the mobile payment systems that we are seeing and for the various innovations in technology that we are seeing from many of our young people.

Similarly, creating an environment for small businesses to thrive is crucial. The complaint of many small businesses is the multiplicity of levies and charges by State Governments, local government and the Federal Government. States should invest in agencies that can help small businesses comply with regulations and standards and access credit. When the businesses grow and employ more they can create taxable profit and taxable employees. The key thing is to think out of the box and utilize the opportunities that are open to the States. Some would have advantages that can be readily used in the area of tourism, others would be contiguous to major economic centres like Lagos and Abuja, which offer markets, as well as, perhaps, more valuable land for residential and industrial purposes.

The availability of skills plays a key role in attracting foreign and domestic investments and as such, it would be wise for States also to build these skills. For example, STEM education, functional digital literacy education from early childhood are the crucial building blocks for reaping the fruits of the Knowledge economy that is now upon us.

In addition, I would also urge that the States take advantage of several Federal Government programmes that can complement their efforts and ease some of these constraints.  Some examples include the resources available from the Universal Basic Education (UBEC) programme, the National Social Investment Programmes, the National Livestock Transformation Programme, the Anchor Borrowers Programme, the Family Homes Fund and the Basic Health Care Provision Fund. amongst others.

And then there is a lot of support also coming from development partners. This should also be leveraged to support fiscal sustainability at State level. I think one that is particularly notable is the World Bank’s States Transparency, Accountability and Sustainability (SFTAS) Programme.  This is particularly important because States can access resources from this programme by meeting certain performance criteria and also for capacity building.

I must also add that domestic resource mobilization and its taxation is, of course, crucial even as we avoid multiple taxation, and we can improve our capacity to tax in a number of ways. To start with, there should be greater collaboration with the Federal Inland Revenue Service to share data as well as capacity to collect these taxes, and also ensure remittance of VAT proceeds.  Improving tax morale is also a very big part of the story as the evidence shows that people do not feel obliged to pay taxes and they justify their belief by asserting that they do not receive commensurate services. It would also be necessary for States to improve tax administration and widen the tax net including making it easier for people to pay tax both in terms of easier processes and lower levels of taxation.

Before I conclude, permit me to say that all tiers and arms of government must be open-minded in addressing our common challenges and in identifying solutions.  Our ultimate purpose is to create jobs and growth and as key economic managers, we cannot afford to do any less. In the context of Nigeria’s fiscal federalism, it has to be collaborative work; States, Local Governments, Federal Government simply have to work together.

I am optimistic that the deliberations of this Council will contribute to achieving these noble objectives which will lead us closer to lifting the 100 million people that Mr. President has promised that we would lift out of poverty in the next 10 years.

Finally, I thank the Joint Organizing Committee consisting of officials of the Ministry of Budget and National Planning, and again the Delta State Government for their efforts in organizing this Conference. I look forward to its outcomes and associated recommendations.  This would be very important for the Federal Government’s own planning efforts and I expect that the Report of the 18th Session of the National Council on Development Planning will be formally presented by the Honourable Minister of Budget and National Planning to the National Economic Council at its next meeting.

Your Excellencies, Ladies and Gentlemen, it is now my singular honour and pleasure to formally declare open, the 18^th Session of the National Council on Development Planning.

Thank you very much.