As Nigeria’s fiscal situation continues to deteriorate and the gulf between the official and black market currency rates yawns ever wider, the finance ministry is trying to cut costs wherever it can.
The latest target: government travel.
There is good reason for this focus. According to figures released by the ministry, travel was the single biggest government line item from 2012 to 2014, at N248bn ($1.25bn) for the three years combined (the ministry did not provide annual figures). This is equivalent to an extraordinary 18 per cent of total government spending.
The finance ministry reckons it can shave N4bn a year from travel costs by negotiating discounted airfares with carriers, or just under 5 per cent of the approximately N85bn yearly average.
“The Efficiency Unit has engaged in negotiation discussions with local and international airlines for discounts commensurate with the large number of ticket purchases made by government annually,” the ministry said in a statement.
“The savings generated will increase funding available to the government for capital investment,” it added.
Unfortunately these savings are a drop in the ocean. The country is staring at a budget deficit that is set to double to N2.2tn in 2016.
Falling oil prices have battered the economy of Africa’s largest oil producer while the government’s refusal to let the naira devalue has eaten away at foreign reserves and caused black market exchange rates to rocket.
| Year | Fiscal deficit, % of GDP |
|---|---|
| 2014 | 1.24% |
| 2015 | 0.79% |
| 2016 | 2.16%* |
| Sources: World Bank, Reuters *estimate | |
According to President Muhammadu Buhari, the country will borrow up to $4.5bn on foreign markets this year to plug the gap. In January, it approached the World Bank and the African Development Bank for a $3.5bn emergency loan.
The high cost of travel for government officials is unsurprising. The Nigerian elite has a taste for luxury travel, shown by the proliferation of private jets in the country.
A 2012 investigation by Nigerian newspaper Punch found that wealthy Nigerians spent $6.5bn on private planes between 2007 and 2012, making the country the biggest market for them in Africa.
Not all of them were bought with private funds. Under former president Goodluck Jonathan, Nigeria’s Presidential Air Fleet (PAF) acquired several new private jets, bringing its total to 11.
According to the UN, 46 per cent of Nigerians live in poverty, rising to 70 per cent in rural areas.
It is not clear whether the finance ministry’s targeted savings will address the lavish amounts spent on private jets by officials. The ministry did not respond to repeated requests for comment.
The PAF is financed from the defence budget and overseen by the Air Force. President Buhari has faced criticism for failing to cut down the fleet more than a year after he took office.
The revelation that the presidential fleet cost N5.8bn to staff and maintain in the first six months of his administration caused a furore in the national media.
The governors of Nigeria’s 36 federal states are not known to fly commercial, either.
Under former governor Rotimi Amaechi, the oil rich southern Delta state, for example, owned two private jets including a brand new $50m Bombardier jet purchased in 2012, and operated several helicopters.
Mr Amaechi is now Nigeria’s transport minister.
The cost of operating private planes is high. PrivateFly, a UK-based charter service, estimates fixed costs for a medium-sized private jet at around $1.8m a year.
“The biggest cost is the depreciation of the aircraft itself,” says CEO Adam Twidell.
He estimates that aircraft lose 20 per cent of their market value in their first year and 10 per cent yearly thereafter. Crew, engineers, maintenance, taxes and fees also factor in.
Many large companies and governments avoid such high costs altogether. Oil company BP, for instance, relies entirely on charter contracts. JCB, the world’s third largest equipment manufacturer by volume, has a single long range aircraft.
Mr Twidell estimates that three to five aircraft would suffice to service the entire UK government and royal family’s travel needs.
If Nigeria’s finance ministry is serious about cutting costs, targeting the government elite’s private air fleets might be a good place to start.
FINANCIAL TIMES
