Sunday, January 23, 2011

MONETIZATION OF FRINGE BENEFITS IN NIGERIAN PUBLIC SECTOR: WHICH WAY?

MONETIZATION OF FRINGE BENEFITS IN
NIGERIAN PUBLIC SECTOR: WHICH WAY?


BY

MUSTAPHA MUKTAR, Ph.D
mmuktar 75 @ yahoo. com
Department of Economics
Bayero University Kano-Nigeria















Abstract
The burden of providing basic amenities for public officers have contributed significantly to the continued increase in government recurrent expenditure, hence monetization policy was approved so as to curb excesses for development purposes. Allowances monetized are accommodation, transport, furniture and others. The macroeconomic effects of monetization include efficiency in resources allocation, employment and inflation among others. It has been recommended that the problematic areas associated with monetization should be revisited by the government for effective implementation. The need for strong accountability is also recommended so that the benefits of monetization should not be abused.


1.0            INTRODUCTION
The committee on monetization of fringe benefits in the public service of the federation was set up by Mr. President on November 11, 2002, under the chairmanship of the secretary to the government of the federation, Chief Ekaette. The establishment of the committee became necessary because over the years the cost of governance has continued to escalate, arising mostly from the burden of providing basic amenities to public servants by the government. These amenities include residential accommodation, transport facilities, medical services, and utilities such as electricity, water and telephone.

Some benefits enjoyed by public servants have already been fully or partially monetized. These include leave grant entertainment and allowance; other benefits that are to be monetized under the programme are residential accommodation, provision of vehicles, fuelling/maintenance of vehicles, provision of drivers and medical treatment. Monetization document have displayed a great deal of conviction and optimism, but it will not be surprising if skepticism greets the new policy, in the light of experiences with the past initiatives and programmes. More importantly is the macro economic effects of the policy on the general economy. In other words, does Nigerian monetization policy of beneficial to public workers? Will the policy ensure financial efficiency in governance? The paper is organized into four sections, after introduction; section 2 reviews the goals principles and structure of monetization policy. Section 3 examines the macro economic effects of the policy. The last section contains concluded remarks.


1.1       METHODOLOGY
The methodology that is employed in gathering information for this paper is the use of documentary research method, it entails the review of books, journals, government reports and other literatures, the adoption of this technique is necessary because it is assumed that the printed document is more reliable than human memory.

A basic limitation of the paper is my main focus in monetization policy as it affects the public workers, also the policy is still at it infancy hence less have been said on it. Ideally it would have been desirable to interview top government officials on the issue. However it is believed that the useful findings of the paper could serve as a basis for discussion of the policy.

2.0 MONETISATION POLICY
2.1       GOALS PRINCIPLES AND STRUCTURE OF MONETIZATION

After a critical examination of the principles and justification for the monetization programme, the items recommended as its main components includes residential accommodation, furniture, allowance, utility allowance, domestic servant allowance motor vehicle loan, fuelling/maintenance and transport allowance, medical allowance leave grant, leave subsidy and entertainment allowance.

Residential Accommodation: – provision of residential accommodation should be monetized as follows:
          GL 01 – GL 06 (50% of annual basic salary)
          GL 07 – GL 14 (60% of annual basic salary)
          GL 15 and above (75% of annual basic salary)

Also government residential quarters across the country will be sold off by public auction at the end of the first year of commencement of monetization programme, with the present occupiers being given the first option to purchase the houses, but at the price of the highest bidder. In addition government would provide site and services scheme in satellite towns nationwide in order to assist public servants who would prefer to build their own houses acquire land.

Furniture Allowance: The payment of 200% of Annual Basic Salary (ABS) is recommended as furniture allowance, however considering the likely problem to be faced in paying huge furniture allowance of 200% of ABS in bulk, this allowance would be paid annually at the rate of 40% which amounts to 200% in five years, However this rate is only applicable for workers on Grade level 07 and above.
Utility Allowance
The allowance had already been monetized in the extant circulars for public servants as follows:

GL. 01- 16                               15% of ABS
GL. 17 and above                    20% of ABS
Political office holders             20% of ABS

Domestic Servant Allowance
This allowance has been monetized for public servants. The provision of the Act is recommended to be retained for political office holders. The provisions for domestic servant allowances will be as follows:

GL. 15-1 domestic servant           on GL 03 step 8
GL. 16-17    2 domestic Servants on GL 03 step 8 each
Permanent Secretary and above             3 domestic servants on GL 03 step 8 each
Political office holder               75% of ABS.

Motor Vehicle Loan and Transport Allowance
The provision of motor vehicles to public officer is to be monetized by provision of motor vehicle loan of 350% of the annual basic salary in line with the provision of “Certain Political, Public and Judicial Office Holders (Salaries and Allowances, etc), Act 2002”. The loan, however, would be recovered in 6 years for both public servants and political office holders. In granting the loan, government would retain the existing interest rate of 4% on motor vehicle loan. For the successful monetization of this service, Government would ensure that:
a.                 No new vehicles would be purchased by all Ministries, Extra–Ministerial Department and Federal Government Agencies.
b.                 Officers currently entitled to Government vehicles would return them to the Presidency for disposal or pooling in the CVU as may be appropriate.
c.                  Each Ministry/Agency would be allowed a specific number, approved by Government, of utility vehicles including buses for essential office services (out – of station duty tours and meetings). No Ministry/Agency will exceed the number without prior approval of Mr. President.
d.                 A Committee is to be set up to handle the issue of disposal of vehicles. In disposing the excess vehicles, an entitled officer would be allowed to purchase one car for personal use at approved discounted value.
e.                  Where there is the need to purchase (a) new vehicle(s) by the Ministry, Extra- ministerial Department or Agency, a request shall be made to Mr. President for approval.
f.                   Provision of drivers to entitled officers would be monetized as follows:
             
              SFG/Minister/HOS   2 drivers     N239, 172 p.a.
              Permanent Secretary 1 driver       N119,586 p.a.
              Director                     1 driver       N119, 586 p.a.
             
The allowance will be the same with the current provision for domestic servants, i.e. total emolument of an officer on grade level 03 steps 8.
g.            Service- wide staff buses will be pooled under the management of the office of the head of the civil service of the Federation. Staffs who utilize the facility will be made to pay at a rate equivalent to their support allowance and funds so generated would be used for the maintenance and fuelling of the vehicles. This facility will be progressively withdrawn when the public transport service improves.
h.       In addition to (g) above, Government and the private sector will assist in the provision of urban mass transit at commercialized rates.
On the fate of excess drivers in the system as a result of the new policy, the following steps are recommended:
Those with relevant and adequate qualifications would be retained and redeployed appropriately.
ii.                   Depending on the need, others will be deployed to drive staff buses under the office of the Civil Service of the Federation.
iii.                Those that will not be deployable will be rationalized but to be assisted by the National Poverty Eradication Programme under KEKE NAPEP programme.
Transport allowance– For all grades levels is (25% of ABS). The vehicle loans are not to be granted by the government they are to be granted by financial institutions, government will negotiate with interested banks.
Medical Allowance
The provision in the public service Rules, Chapter 9, Section 09203 has been prone to abuse and sharp practices, particularly with the submission of fake bills and claims to Government. Government is therefore proposing the payment of 10% of an officer’s annual basic salary as medical allowance. However, special cases requiring government intervention would be considered on merit.

Meal subsidy
The allowance had already been monetized through the provision in the Circulars Nos. SWC.04/Vol IV/991, dated 15th may, 2000, issued by the national salaries, Incomes and Wages Commission as follows:
GL. 01- 06                               N6,000 per annum
GL. 07-10                                N8,400 per annum
GL. 12-14                                N9,600 per annum
GL. 15-17                                N10,800 per annum
Permanent Secretary               N16,200 per annum
Head of service                        N16,200 per annum
Entertainment Allowance – Abolished for all category of staff. In addition, Government would, from the first year of implementation, make some savings under a number of Recurrent and Capital sub- heads on the services and facilities being monetized in the annual budget, which will no longer feature independently in the budget. This is in addition to the fact that there are a number of the Federal Parastatals e.g. Nigerian National Petroleum Corporation (NNPC), National Maritime Authority (NMA), Nigerian port Authority (NPA), Central Bank of Nigeria (CBN), etc, which are self- financing and which will not draw from government annual budget. The economic rent to be realized on Government properties during the first year and the revenue accruable from the outright sale of the houses during the second year of implementation will equally ease the funding of the monetization programme. The take- off date is proposed as 1st July 2003.               
3.0       MACROECONOMIC EFFECTS OF MONETISATION POLICY
   3.0 MONETIZATION AND EFFICIENCY
According to the committee on monetization of fringe benefits the merits of monetization includes efficiency in resources allocation, equity in the provision of amenities and encouragement of public servants to own personal houses. Furthermore, if well implemented it will minimize waste, misuse and abuse of public facilities and etc. Now if the public servants will be opportune own the houses then that will beneficial, but the auction is going to be made such that the highest bidder will be considered and hence private individuals will benefit from the accommodation and workers will be worse off, and the multiplier effect will be reduction in productivity, late coming and etc. This is so because it has been observed that proximity to working place is a significant factor that contributed to workers productivity.
Monetization of facilities is also expected to reduce capital cost, maintenance and running cost, it will also promote observance of maintenance culture and discipline in the use of public utilities since individuals will pay such services, in addition it will curb submission of spurious medical bills and if that is done there will be a lot of savings and that will enable government to undertake more capital projects for development purposes.

3.2             MONETISATION POLICY & EMPLOYMENT
Under the monetization programme drivers, domestic servants and the like are to be retrenched (though few drivers with qualification will be redeployed, and few to drive staff busses) and it is argued that the NAPEP programme will absorb the rest. The policy was silent on how to take care of the domestic servants that will be retrenched.

The labour market is already saturated as there is high level of unemployment and these retrenched workers cannot be successfully absorbed into the labour market without training hence the rate of unemployment and dependency will be increased, some drivers of course will be employed privately by top government officials who are entitled to drivers, now while some  have reached GL 05 - GL 07, which means if they are lucky to be employed by an officer they will be paid a salary of GL 03/8 invariably demoting them, reducing their personal income and hence decreasing their total welfare.

3.3        MONETISATION AND GENERAL PRICE-LEVEL
It has been observed in Nigeria that whenever there is an increase in workers pay prices goes up, this is because of expectation of more spending from the workers and hence business men anticipate more profits. Since July 2003 businessmen are dreaming of this monetization and consider it as a new salary structure as such they are ready to increase prices whenever it started and hence the end result will be inflation. The increase in prices is of course going to be geared by the increase in income of public workers. While high prices will corrode the purchasing power of Naira making people to be worse off. According to 1991 census Nigerian civil servants constituted less than 3% of the total population and if prices go up all categories of people will be affected irrespective of whether they benefited from the policy or not hence reduction in the total welfare of the country.  

 3.4 MONETIZATION AND CORRUPTION
Corruption have been identified as the pervasion of anything from its legal form, in public offices a lot of benefits and properties are being abused leading to corruption, instead of 1 car most top government officials uses 4 – 10 cars some have 2-5 domestic servants and maintain 3 government accommodation (possibly because they have three wives, all while getting a fat salary and the maintenance of the above government properties is done by government). Now if monetization could be implemented effectively that insanity and wastage will be reduced and there will be fair distribution of income and resources, government can make additional savings and the tendency of public property to be used on private commitment could also be reduced as public workers will be more transparent and accountable.





4.0     CONCLUSION
Monetization policy is designed in order to cut unnecessary cost of governance so that the revenue saved could be used to finance development projects. If effectively implemented it is expected that public workers will own houses and they will live close the grassroots, feeling their emotions pains and happiness, workers are also given a chance to plan their income on their own accord. However this is one side of it on the other hand if not effectively implemented it will lead to inflation, income inequality, unemployment and the overall effect is the decrease in people’s welfare. Up till now the policy have not taken off, possibly due to inadequate financial resources.

4.1            RECOMMENDATIONS
Based on the discussions of this paper the followings are recommended

The Federal Government should re-visit the policy of auctioning government quarters so that public workers could be opportuned to own it and that can be done on a kind of owner occupier basis where deduction could be made from workers salary over a period of time. The auctioning proposed based on highest bidder to buy will only allow private individuals and politicians who are financially more sound then an ordinary worker to acquire government quarters.

There is the need to look into the issue of retrenching drivers and domestic servants, what should be done is to appropriately redeploy them in the system since the labour market is saturated, they could be trained to do other things not necessary skilled work.

Government should also provide a clear economic analysis of the financial benefits of the policy in the short run and long run respectively. Also there is the need to strongly establish accountability/transparency so that the benefits of monetization could not be abused by few.

To ensure fairness and even distribution of income, there is the need to re-visit the percentages approved for all categories of staff. Looking at accommodation allowance for example the percentage is higher for high ranking officers and in most cases highest for political office holders, while junior workers are at disadvantage due to low percentage and above all their basic salary is low. This implied that the policy favors political office holders most, it is therefore recommended that as the government wanted to succeed  so also it should protect workers interest as the activities of both political office holders and those of civil servants are complement to each other.





REFERENCE
Adetola B. (2003) What Happens to Taxes? http: //www.Daily independent online. Com.

Aforja and Ogwumbe (1996) Poverty & Welfare in Nigeria: A country appraisal of interstate relationships .

Davidson B.(1964) Which way Africa? The Search for a New Society Longman.

Federal Republic of Nigeria  Circular No: BD/2000/BP/2003/T/19

Obasanjo O. (2003), “Approved Rates for Monetization of Fringe Benefits in public Service”.

Thisday online (2003) http://www.Thisdayonline.com/archive/2003 /08/16/20030816.html

Turkur (2003), Monetization will bring public officers close to people. http://ww.Vanguard online.com

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