That Monetisation of Fringe Benefits in the Nigerian Public Service

INTRODUCTION

This brief commentary is the recently-released report of the Committee on the Monetisation of Fringe Benefits in the Public Service of the Federation which was set up by President Obasanjo on November 11, 2002, under the Chairmanship of the Secretary to the Government of the Federation, Chief J. Ekaette.

At one level of emotional analysis, monetisation of benefits appears good.  At another level of deep analysis, the jury is out of its benefits.

I have reproduced below the announcement by Secretary Ekaette.  It is peppered with phrases like "It is believed…it is hoped…" -  in short, long on wishful thinking and short on deep analysis.

What a sensible government should do is the following:  before announcing this policy, it should provide a clear ECONOMIC ANALYSIS of the financial benefits that the policy will have to the country, on a short term and on a long-term basis, not just wishful thinking.

RELICS OF COLONIALISM

When the colonialists were with us, they provided their EXPATRIATE staff - ie  to the "White" civil service administrators who were ruling the Natives -  with free housing, free transportation, free slaves, etc.   The staff did not have to pay for these benefits from their salaries, which invariably were paid to them abroad anyway!  In fact, it was a HAZARD allowance that they were being provided for while abroad, since they were in HOSTILE territory, and they were in any case TEMPORARY workers in a foreign land.

They were generally very few in number compared with the total income that the colonial government was extracting from the colonies that they were superintending.

When these colonialists left, the indigenous civil "servants" that took over also took over those benefits, with the first significant one being living in GOVERNMENT RESERVATION AREAS (GRA) apart from the other natives.

That is part of the colonial relics that we are talking about.  Maybe they never left us; just that their skin changed to ours.

ARE WE ALSO MONETIZING THE ABUSE OF BENEFITS?

But then came the abuse of the benefits: instead of ONE CAR, our indigenous civil service "oga" has 10 government cars at his beck and call; has 10 servants; has three government houses (in Abuja, Lagos and Kaduna) because, yes, each can have more than one wife (the colonialist had only one, if any), rides in first class plane (there were no planes then, just boats), including for the week-end to London; has free medical treatment for the entire family (the colonialist in general had only his wife, if at all) - all while getting a fat BASIC salary in additional to other allowances.

And the post-colonial officers are many:  federal, state and local government executives, legislators and judges; parastatal and institutional directors and sub-directors;  university lecturers, etc.  Although they are only about 2% of the population of the country, to maintain them requires almost 60-75% of annual national budget expenditure.

Those benefits are now to be MONETIZED, with the hope that the abuses will not be monetized along with them.

If the abuses will not be monetized, then that will be ONE AVENUE of savings.

But there is another avenue of savings:  SHOULD some of the things that they were having before be MONETIZED at ALL?  That is, should some of the colonial relics be MONETIZED at all?  And if they are, HOW MUCH are we really saving, bearing in mind:

 (1)  the immediacy of the cash involvement;
   (2)  the time value of money.

Those are the real questions.  In fact, for those of us who live abroad and earn our pay, some of the benefits to be monetized look quite funny, and one asks:  why do you earn a salary if part of it is not to buy your own furniture?  Why, for example, give "furniture allowance"  (350%!) separately?  Why give "leave allowance", when you will ACTUALLY be paid while you are NOT working during the leave ?  Why can't you save your own money to spend during your leave?

And so on!   Where else but crazy post-colonial developing countries do public officers get these kinds of allowances?

For example, once you MONETIZE, that total sum in effect becomes the SALARY that each receiver expects to get.  If you cannot pay salaries right now, how will you be able to pay the monetized benefits?  Some will get new salaries, while others will not. 

Whether he or she spends it on what you MONETIZED it for is another issue.  If you MONETIZE his house at 300% of his salary, and he spends only 100% of his salary, what have you done but unnecessarily increase his salary by 200%

EPILOGUE

What would love government to do is the following:  go ministry by ministry, parastatal by parastatal, institution by institution that it is responsible for, and see over a 1-year horizon and 5-year horizon what it REALLY expects to save from giving some or all of the benefits that it expects to give.

For starters, I would like the government to just take ONE MINISTRY - say Transport; one PARASTATAL - say NEPA; one federal institution - say University of Ibadan, and tell us what the savings are -  for the world to know.  Or give the information to an independent consultant to come up with the numbers.

I know that SFG Ekaette has said somewhere that the government would do that. But the policy began July 1, 2003! 

That is putting the cart before the horse.

Best wishes.

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BRIEF ON THE MONETISATION OF FRINGE BENEFITS IN THE PUBLIC SERVICE OF THE FEDERATION
 
The Committee on the Monetisation 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 J. Ekaette, CFR, mni.

2. Justification of the Programme: 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.

3. The merits of monetisation include efficiency in resource allocation, equity in the provision of amenities and encouragement  of public servants to own personal houses. It also enables public servants to plan for a more comfortable post-service life. Furthermore, it minimises waste, misuse and abuse of public facilities. For these reasons, the concept of monetisation has gained worldwide acceptance.
Even in Nigeria, some organizations such as the Central Bank of Nigeria (CBN), Nigerian Telecommunication  Limited (NITEL), Federal Mortgage Bank of Nigeria (FMBN), the Nigeria National Petroleum Corporation (NNPC) and most private
sector organisations have adopted it with positive results.

4. In more specific terms, monetisation of facilities, such as housing, furniture and vehicles will reduce capital cost, maintenance and running costs. It is also hoped that rent will come down, as public servants who make up over 80% of the tenants, especially in Abuja, will have little money to offer to the landlords. It will also promote the observance of maintenance culture and discipline in the use of public utilities since the individuals will now have to pay for such services, which hitherto were paid for by government. In addition, the monetisation of medical treatment will go a long way in curbing submission of spurious bills and delays in processing refund of medical bills. Finally, it is believed that savings made from monetisation will enable government to prosecute more capital projects.

5. Some benefits enjoyed by public servants have already been fully or partially monetized. These include leave grant, entertainment allowance, meal subsidy, domestic servants allowance and duty tour allowance. Other benefits that are to be monetized under the programme are residential accommodation, provision of vehicles, fuelling/ maintenance of vehicles, consumption of utilities including electricity , water and telephone, provision of drivers and medical treatment.
6. Components of the Programme: After a critical examination of the principles and justification for the monetization programme, the items recommended as its main components include residential accommodation, furniture allowance, utility allowance, domestic servant allowance, motor vehicle loan, fuelling/maintenance and transport allowance, medical allowance, leave grant, meal subsidy and entertainment allowance.

Government has already signed into law the "Certain Political, Public and Judicial Office Holders (Salaries and Allowances etc) Act, 2002" and it was substantially adopted in making recommendations on the monetization of the fringe benefits of civil and other public servants not covered under the Act.

(i) Residential Accommodation
Provision of residential accommodation should be monetized at 100% of Annual Basic Salary as residential accommodation allowance which should be paid enbloc to enable an officer to pay for accommodation of his choice. In order to avoid exerting undue strain on present occupants of Federal Government quarters and to fund the monetisation of residential accommodation effectively, in the first year of the monetisation exercise,current occupants of Government-owned quarters would pay 100% of their accommodation allowance as rent for the quarters they occupy. Also government residential quarters across the country would be sold off by public auction at the end of the first year of commencement of the monetization programme with their 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 schemes in satellite towns nationwide in order to assist public servants, who would prefer to build their own houses acquire land.

ii Furniture Allowance
The payment of 300% of Annual Basic Salary is recommended as furniture allowance in line with the provision of the "Certain Political, Public and Judicial Office Holders (Salaries and Allowances etc) Act, 2002".
However, considering the likely problem to be faced in paying huge furniture allowance of 300% of annual basic salary enbloc, this allowance would be paid annually at the rate of 75%, which amounts to 300% in four years.

iii. Utility Allowance

.The allowance had already been. monetized in the extant circulars for public servants as well as the Act for the Political office holders as follows:

GL 01 -06 -N3,600 per annum
GL. 07 -10 -N6,OOO per annum
GL. 12 -14 -N7,800 per annum
GL.15 -17 -N8,400 per annum
Permanent Secretary -N16,800 per annum
( Head of Service -N16,800 per annum
Political Office Holders -20% of annual basic salary

iv. .Domestic Servant Allowance

This allowance has already been monetised 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 -Nl19,586 per annum
GL. 16- 2 domestic servants -N239,172 per annum
GL. 17- 3 domestic servants -N358,704 per annum
P S -4 domestic servants -N478,344 per annum HOS -4 domestic servants -N478,344 per annum Political office holder -75% of annual basic salary .

v. Motor Vehicle Loan and Transportation
The provision of motor vehicles to public officers 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 Departments 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 any 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:
SGF/ Minister/HOS -2 drivers -N239,172 p.a.
Permanent Secretary -1 driver -Nl19,586 p.a.
i i 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 3 step 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. Staff who utilize the facility will be made to pay at a rate equivalent to their transport 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:

i. 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 Head 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.

vi Fuelling/Maintenance and Transport

In line with current economic realities, 30% of annual basic salary as provided for in the "Certain Political, Public and Judicial Office Holders (salaries and allowances etc.) Act 2002" is recommended as Fuelling/Maintenance and Transport Allowance.
vii 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 as 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.

viii Leave Grant

The grant had already been monetized through the provision in the Public Service Rules, chapter 13, section 13213 at 10% of annual basic salary .

ix Meal Subsidy
The allowance had already been monetized through the provision in the Circulars Nos. SWC.04IVoi IV 1991, dated 5th May, 2000 and SWC.04/S.1/Voi IV /136, dated l5th, May, 2000, issued by the National Salaries, Incomes and Wages Commission as follows:

GL. 01 -06 -N6,000 per annum GL. 07 -10 -N~,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 -N 16,200 per annum ..
X Entertainment Allowance

The allowance for civil servants had already been monetized through the provision in the Circulars Nos. SWC.04/Vol IV /991, dated 5th May ,. 2000 and SWC.04/S.1/Vol IV /136, dated 15th May, 2000, issued by the National Salaries, Incomes and Wages Commission and the Act stipulates 10% of annual basic salary for Political office holders as follows:

GL. 15 -N8,400 per annum
GL.16- 17 -N9,600 per annum Permanent Secretary -N27,000 per annum Head of Service -N27,000 per annum Political office holders-10% of annual basic salary

7. Financial Implications of the Programme: In establishing the total cost implication of the monetisation programme, data was gathered from the Office of Establishment and Pension, Office of the Head of Civil Service of the Federation, the Judiciary , the Legislature, the Police, the Military , Para-Military and Parastatals. The number of officers and staff in the Federal Public Service is 996,744, while the total number of Political office holders is 1,448. The National Assembly, on the other hand, has a combined total of 469 and the Judicial Officers, 1152. The financial implication is being worked out for presentation to the Federal Government. The cost of monetizing allowances being recommended is to be arrived at using step 8 of each grade level in line with existing practice. It is expected that during the first year, the cost of monetization of these allowances will be quite substantial but by" the third and fourth years, the savings made would have positively impacted glaringly on the economy.

8. Implementation Strategy: For ease of annual budgetary provision and to reduce the financial burden of the monetisation exercise on government, a self sustaining revolving fund is to be set up as transport loan. Out of the aggregate sum which would be worked out as 350% of annual basic salary I 50% is planned to be released in the first year and 25% in the second and third years respectively. Once fully injected into the system, the revolving fund would not need to be replenished after the third year. Further funding will thereafter rely on repayment of the loan by the beneficiaries. Interested individuals are to source their motor vehicle loan from the fund. The funding of the revolving loan is to be sourced through the Supplementary budget.

9. In view of the huge financial cost in paying furniture allowance of 350% of annual basic salary in the four-year cycle enbloc and its budgetary implication, the payment of 75% of annual basic salary every year, which also amounts to 300% in four
years, is recommended.

10. By spreading the total cost of provision of the transport revolving loan over the first three (3) years instead of providing the total sum (350% of annual basic salary) during the commencement year only and paying 75% annually of the furniture allowance rather than 300% every first year of a four-year cycle, much of the pressure on the budget for the huge sum that would have been required for funding the exercise for the first year would be substantially reduced.

11. 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 monetised 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 implementing will equally ease the funding of the monetization  programme.

12. Reform of the Civil Service: Government is giving serious consideration to the reform of the civil service which will further impact on the monetization programme. As part of the effort to reduce cost of governance, the Federal Government intends to introduce a contributory pension scheme. The exercise on this has reached an advanced stage.

13. Take-Off Date: It is proposed that the take-off date should be 1 st July, 2003.