Yesterday, at the lower chamber of the National Assembly, legislation titled “A bill for an Act to provide that 40% of Nigeria’s annual budget should be earmarked for capital projects in the next 10 years” passed second reading.
The proposed bill provides a penalty of 5 years imprisonment or a fine of N50 million or both for violation or any attempt by any person to frustrate the implementation of the bill when passed. In simple words, the bill aims to ensure that budgets prepared over the next 10 years allocate 40% to capital spending.
We note that the bill appears ambitious to us. A brief analysis of the past 6 budget cycles (2014 – 2019) shows that the average capital expenditure (capex) to total budgeted expenditure is 26.6% with the highest record of 31.7% in 2017.
The recently proposed 2020 budget has a capex to total expenditure ratio of 20.7%. While the legislature may successfully pass the bill, we believe the executive would be very reluctant to give its assent. We also do not rule out the possibility of political lobbyists shooting down the bill at the upper chamber.
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While we understand the intent of the bill which is aimed at curbing Nigeria’s enormous infrastructure deficit, we do not see its practicability or ability to be enforced. The elephant in the room remains the inability of the Federal Government to meet its revenue targets which has prevented it from being able to appropriate sufficient amount to capital spend without hurting recurrent spend.
This can only change if the government seeks alternative revenue generation sources. Again, we wonder at the ability to enforce the bill. The punishment that goes with non-compliance is a penalty of 5 years imprisonment of a fine of N50m or both for the official.
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