What happens to FG’s zero-based budget plan?
As the nation awaits the passage of the N8.612 trillion 2018 budget, one can not but ask: ‘what has happened to the Federal Government’s bid to adopt zero-based budgeting (ZBB) format for its budget planning.
Recall that Vice President Yemi Osinbajo, while playing host to the National Economic Summit Group (NESG) in 2015, said the Federal Government was planning to use the ZBB format for its budget planning, adding that the format would be carefully coordinated to ensure that it is policy-driven.
He explained then that, with the ZBB, the Federal Government would focus on a bottom-up approach to development.
But two years down the line, it seems that that plan has gone into oblivion.
What is ZBB?
A zero-based budgeting, according to www.invsetopdia.com, is a method of budgeting in which all expenses must be justified for each new period. The budgeting starts from a “zero base,” and every function within an organisation is analysed for its needs and costs.
Companies, for instance, often shy away from the method because, according to www.mckinsey.com, they fear or believe it means “budgeting from zero.” In reality, it’s a structured process that can build a culture of cost management.
“A world-class ZBB process is based on developing deep visibility into cost drivers and using that visibility to set aggressive, yet credible, budget targets. The annual budgeting process does, in fact, start from zero and is very detailed, structured and interactive in order to facilitate meaningful financial debate among managers and executives”, says mckinsey.com
The financial expert adds that “one company recently realised 11 per cent savings in its operating budget within the first four months of a new ZBB programme. In this instance, immediate savings came from increasing visibility into labour costs and executing new approval thresholds to control demand for contract labour, relaunching procurement initiatives to renegotiate prices, and changing “make versus buy” decisions.
More than 40 per cent of the savings were strategically reinvested in new teams and sales staff who spent all their time with customers. While this company chose to reinvest those savings in the customer-facing parts of the business, other companies use the savings to fund and therefore amplify the next wave of productivity. And, of course, some let the savings fall to the bottom line”.
But despite the above advantage, the CEO of Bud Git, a civic organisation, Mr. Seun Onigbinde, argues that zero-budgeting system can’t work in Nigeria because there are thousands of abandoned projects in the country.
According to him, the meaning of “ZBB is that you are going to start afresh. But we are in a phase of development where most of our projects are rolled over.” To confim this, a check by Daily Sun revealed that multibillion dollars projects are abandoned virtually in all states of the federation. For instance, a Monorail project in Rivers State, conceived in 2008 and designed to cover 12km at the cost of N50 billion was abandoned at 2.6km when the work had already gulped N33.9 billion.
Another one was the Minna Airport City Project estimated to cost $600 million. Governor Abubakar Sani Bello has said there were no resources in the state now to complete such a project. Its cost of construction was put at N19.6 billion.
Although the government had issued a bank guarantee of N1.4 billion and a land worth N400 million, the hotel remains as it is since former Governor Babangida Aliyu left office more than two years ago.
Expressing worry over this lack of continuity and poor state of budget implementation generally, Onigbinde lamented that the second most important document that should have come after a country’s constitution was the budget, which stipulates allocation of resources to members of the public. “People would tell you that after the constitution of a country, the most important thing is the budget. Gradually, we are moving to a point where every single person would be able to have a conversation on the budget,” Onigbinde added.
Udeh, Adeyemi and Onuora in their study, Zero-based budgeting: Pathway to Sustainable Budget Implementation in Nigeria, said there is significant difference in the effectiveness of ZBB in terms of budget implementation compared to the Traditional Budgeting System (TBS).
They, nonetheless, recommend that ZBB should be encouraged as a means of budget implementation and also close monitoring of budget execution should be enshrined in work ethics at every stage of budget preparation and implementation in the country.
“In Nigeria, budget is as old as the country but successive administrations had been faced with the challenge of appropriate budget implementation strategies, which has led to below optimal performance of Nigerian budgets over the years.
“We found that there is significant difference in the effectiveness of ZBB in terms of budget implementation compared to the TBS. It was also found that the application of ZBB tends to be performance-driven and is able to detect the redundant programmes/projects and staff, thereby recommending either realignment, discharge, transfer or redeployment of projects or resources. The study, therefore, recommends, among others, that ZBB should be encouraged as a good means of budget implementation and also close monitoring of budget execution should be enshrined in work ethics at every stage of budget preparation and implementation in the country. This, it is believed, would go a long way to strengthen measures aimed at mitigating poor budget implementation in the country,” they stated.
Source: THE SUN