How Government And Its Agencies Can Be More Efficiently Run – The BOI Example

Proshare

Monday, November 05, 2018     08 15PM / By Proshare Research 

 

The Nigerian government, like many other countries is under pressure to improve public sector performance without further increase in expenditure growth. Indeed, as we have seen with most of government ministries, departments and agencies (MDAs); containing expenditure growth is as much a challenge as maximizing and drawing value from its balance sheet as it moves towards becoming accountable for its use of taxpayers’ money.

 

This article briefly reviews efficiency principles that are pragmatic in delivering value-for-money public sector efficiency, and uses the example gleaned from the Bank Of Industry (BoI) to demonstrate what is possible.

 

While there is no blueprint for delivering public sector efficiency; Nigeria has engaged in a number of institutional reforms, the empirical evidence of their impact on efficiency has not delivered the wholesale, measurable impact set out and is needed to impact positively on governments finances.

 

Since Nigeria’s independence in 1960, successive governments and their agencies have been run on a yearly cycle of financial budgets, which detail the expected Revenues and the planned expenditures, both Current (Operating) and Capital.

 

So much energy is dissipated by both the Executive and Legislative arms defending and assessing the budget proposals. At the end of any given year, the surpluses and deficits are simply rolled forward to the following year.

 

Having operated this budgeting system for nearly six (6) decades, we have, consciously or unconsciously, built up thick layers of fat and inefficiencies across various government ministries, departments and agencies (MDAs). It is now recognized by thought leaders and the political elite that it is time we took a serious and critical look at these MDAs, to explore opportunities for cost efficiency, operational efficiency and resource optimization.

 

The cost savings and revenues from such an exercise should help reduce the pressure on government to borrow more to finance the budget. 

 

Cost Efficiency 

Although the Federal Government established the Efficiency Unit in November 2015, in the Federal Ministry of Finance, to manage overhead costs such as the costs of travel, training, stationery, adverts etc., the impact has been limited relative to the annual overhead budget,  perhaps and because of its centralization.

 

Government should mandate all MDAs to embark on Cost Efficiency projects whilst it looks at ways in which the central co-ordination and utilization of the BPP mandates are operationalized.

 

Zero-based budgeting will be a good starting point.

 

MDAs should not procure any item unless they are absolutely necessary and required for their smooth operations. And MDAs must be compelled to procure from only accredited suppliers with whom volume discounts have been negotiated, such that the unit prices are value for money and are lower than what is obtainable in the open market. This was the natural intent of the central processing portal recommended for government purchases.

 

By so doing, the Federal Government can easily save over N500 billion annually in overhead expenses; apart from savings from inefficient pricing, poor contract terms and inventory risks. 

 

Operational Efficiency 

It is a well-known fact that most MDAs are grossly inefficient in terms of transaction processing. Files still go missing from time to time given the prevalent use of old filing cabinets with torn papers, which are hardly legible.

 

Why are the MDAs not implementing an electronic document management system, which will ensure all the official records are digitalized and stored electronically/cloud. Too much time and resource is wasted in the MDAs over a simple task as file management (information trail)…. A culture of ‘looking for files’ and documents is the clearest sign of inefficient operational capabilities.

 

In the course of work, we were made aware that the Bank of Industry (BoI) actually implemented this in 2016, and it thus little wonder that the bank’s operational efficiency received a boost by so doing. BoI equally implemented a process automation project which has ensured that its lending operational capability is much faster than before.

 

The evidence of this is seen in the bank’s cost-to-income ratio which reduced significantly from over 70% in 2013 to less than 30% in 2015.

  

Resource Optimization 

This is by far the biggest area of opportunity across the MDAs.

 

There are underutilized assets lying waste everywhere. There are investments yielding next to nothing in terms of returns to the government. There are assets being expended on with no justifiable attempt to cover operational cost for commercial operations.

 

Who is asking questions about performance, productivity and prudence?

 

Where MDAs have the governance structure that asks the hard questions; there is a higher chance that such an MDA will boldly do the needful.

 

Such was the case again with the Bank of Industry (BoI) in 2014 when it was faced with a serious situation - government funding was no longer not forthcoming!

 

The BoI board and executive management took strategic decisions that guaranteed not only its survival but created a pathway for looking at its balance sheet. It took the following steps:

 

  • Liquidated its investments in equity securities, most of which had lost value on the bourse of the Nigeria Stock Exchange.
  • Disposed off its stake in FrieslandCampina WAMCO – a decision that delivered a gain of N30 per share above the then market price of N290 per share. The stock has since lost over 50% of its value, and is currently trading at N150 per share.
  • Disposal of  real estate assets (plots of land) lying waste in Lagos.

 

The bank came to the realization that it had veered off its core mandate into trading in equity securities and real estate. Two of these assets were liquidated at market price of N850 Million, even though the board had earlier approved their sale at N350 million.

 

The liquidity generated from these asset optimization activities has sustained BOI over the last three years. The bank also succeeded in securing very positive local (Agusto & Co) and international (Fitch and Moody’s) credit ratings during this period.

 

The bank’s successive management has continued in the same vein to sustain these efficiency and asset optimization initiatives till date. On the basis of the very positive ratings garnered, the bank recently secured a $750 million long term loan from Africa Export-Import Bank (Afreximbank).

 

This addresses the continuity and succession issues often feared during change programs in our public sector. The need to recognize and reward leadership that initiated, executed and sustained reform and change management as a cultural attribute appears to be the key to unlocking the efficiency challenge we face in Nigeria.

 

Nigeria can and should replicate the BoI example in every MDA. There are world-class professionals available in both the public and private sector who can take up this assignment and help us navigate our dire economic straits.

 

Proshare Nigeria Pvt. Ltd.

Feedback via info@proshareng.com 

 

Related Links

1.       For further insight, see page 85 (Privatisation of Government Enterprises) of the Bureau of Public Service Reforms (BPSR) analysis of Privatisation of Public Enterprises in Nigeria. Public Service Reforms in Nigeria (1999-2014) - A Comprehensive Review

2.     Improving Public Sector Efficiency: Challenges and Opportunities... - OECD.org

3.      New policies to improve government efficiency, benefit public and ...

 

 

Proshare Nigeria Pvt. Ltd. 

 

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