Finance Ministry’s efficiency unit devises strategies to cut procurement costs

Kemi Adeosun, Minister of Finance

In furtherance of its commitment to re-prioritise spending and cut cost on recurrent expenditure, The Efficiency Unit of the Federal Ministry of Finance has said it is planning to introduce detailed price guidelines to ensure value for money in procurement by Ministries, Departments and Agencies (MDAs).

To reduce the incidence of cash, the deployment of Ministerial Debit Cards is being piloted.

The Unit, which carried out an extensive and detailed review of the Overhead Expenditure data of the government for the period 2012 to 2014, found that the overhead spending pattern was concentrated on a limited number of items including travel, maintenance, local and international training, welfare and office stationery / computer consumables.

Speaking at a media interaction in Lagos on Wednesday, the Head of the Efficiency Unit, Patience Oniha, stated that “The Cumulative Expenditure on these five items was N825 billion, representing 61% of the Cumulative Total Overhead Expenditure of N1,353 billion for 2012 to 2014. This means that the average amount expended annually on these five items during this period was N275 billion. The estimate for 2015 shows a continuation of this trend.”

Overhead spending exceeded allocations to capital in all the years reviewed.

Another finding from the review was the large expenditure on honoraria and sitting allowances, refreshment and meals, books, fuel, publicity and adverts.

In relation to procurement, which has been identified as a major source of potential savings for government, the Efficiency Unit has prepared a list of good and services which are regularly procured by MDAs.

By pooling the demand of MDAs, there will be opportunities to leverage the resultant bargaining power and secure price discounts and other benefits from suppliers,” the unit said.

This strategy will deliver savings and reduce the administrative costs inherent in the current procurement process, which is rather fragmented.

She recalled that “developed countries such as the USA, UK, Canada and Hong Kong have used this strategy successfully to manage their expenditure. Within Nigeria, large and diversified private sector organizations manage their procurement in a similar manner. As a country, Nigeria should be no exception, more so when resources need to be managed tightly to promote spending on capital projects such as infrastructure.”

She disclosed that the Unit has initiated discussions with suppliers of air travel services for the purpose of price negotiation. This expenditure area was prioritised because local and international travel represented the single largest overhead expenditure item in the period under review, with an average of N83 billion spent annually. This presents a potential savings opportunity of N4.14 billion annually at an estimated price discount of 5%.

Honoraria and sitting allowances is another expenditure item where the Unit has identified potential for cost savings. This was one of the top eight expenditure areas with an average of almost N13 billion spent annually.

Ms Oniha assured that, with the support of the Minister of Finance, Kemi Adeosun, she was confident that the Unit would pursue the implementation of its recommendations to deliver cost savings to government, while it continued its engagement with stakeholders in order to achieve its objectives.

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