By Omoh Gabriel
The 2012 budget contains policies that may on the surface attract adverse or perhaps outright opposition to government. The desire of the President to promote locally made products and grow the economy will certainly set him on a collision path with those who have benefited from the economy through commissions, rents, and corruption.
Many in government and even the organised private sector have in one way or the other benefited from waivers, concessions etc. Rice importation has thrived and many party financials are those who import rice. At a point in this economy, rice importation became almost the exclusive right of some business gurus in the country.
A bank once attempted to import its own brand of rice but the ship that brought the rice consignments sank at the wharf. That was the beginning of the problems of that bank. Today, it is one of those banks in the Nigeria Deposit Insurance record of banks in liquidation.
This government plans in 2012 to confront these high profile importers by not granting any concession or waivers to them. The President said: “Effective December 31st 2012, all rice millers should move towards domestic production and milling of rice, as the levy of 50 per cent will be further raised to 100 per cent. Let me add here that no waivers or concessions will be entertained for rice and wheat importation.
“Government is also introducing policies to encourage the substitution of high quality cassava flour for wheat flour in bread-baking. Bakeries will have 18 months in which to make the transition, and will enjoy a corporate tax incentive of 12 per cent rebate if they attain 40 per cent blending. With effect from March 31st 2012, importation of cassava flour will be prohibited so as to further support this programme.
“All equipment for processing of high quality cassava flour and composite flour blending will enjoy a duty-free regime as incentive to bakers for composite flour utilisation. Consultations with the sector to ensure a smooth transition are on-going.
“ It is common wisdom that the best way we can grow our economy and create jobs for our people is for us to patronise Nigerian-made goods. This is why we are introducing enabling policies to drive this process. In this regard, we are introducing fiscal policy measures that will encourage the purchase and utilisation of locally produced commodities.
“From July 1st 2012, wheat flour will attract a levy of 65 per cent to bring the effective duty to 100 per cent, while wheat grain will attract a 15 per cent levy which will bring the effective duty to 20 per cent. Similarly, there will be a levy of 25 per cent on brown rice to bring it to 30 per cent.
In addition, to encourage domestic rice production, a levy of 40 per cent will be placed on imported polished rice leading to an effective duty rate of 50 per cent.”
Is the President serious about this? Where is he going to get rice and wheat from to feed the teeming population? Local capacity in this area is low at the moment. If pressure begins to mount on the President to reconsider this policy, will he say no in the face of hunger and starvation?
What the President has also proposed in the budget is a tariff review on wheat flour to 100 per cent from 1st July 2012; while wheat grain will move up to 20 per cent. Similarly, the duty on polished rice will move to 50 per cent, and by December 2012, it moves up to 100 per cent. Mr. President’s thinking is that with this policy, Nigerians will patronise locally produced food products.
Wait a minute! Isn’t there a need for caution here? Economists have long argued that protectionist policies work better if there is critical mass of investment in local capacity to fill the supply side gaps that would be created by such policies.
Secondly, there is always that chance of retaliation from the international trading partners who feel their products are blocked out; does the President realise that there is no institutional capacity to enforce compliance of this policy?
Has the economic management team considered the fact that the policy proposition on the tariff reviews poses some risk factors for the economy and the welfare of the average Nigerian? Will the situation in 2012 not worsen the poverty conditions of Nigerians as the prices of the two major staple foods – rice and bread – will increase considerably and be priced out of the reach of the poor in the short run?
Is the Nigerian Customs Service equipped to stop smuggling of these products, especially rice? How prepared is the President to ensure that the policy will not create new incentives for corruption in the Customs Service? What about loss of revenue to government that encouraged the lifting of ban on importation of tooth pick and furniture in 2011?
If the government does not make plan to educate the masses on the need for sacrifice, there would be serious social consequences arising from the discontent by the poor. Increasing tariff on staple foods is a very delicate and risky thing to do especially in a country with ravaging poverty and major crisis of unemployment.
This is also coming at a time when the government has taken a decision to completely deregulate the downstream sector of the oil industry. Focus of policy for now should be on building competitiveness of the agricultural sector through robust incentives to investors in the sector.
Lessons should be drawn from the outcome of similar policies in the textile sector. In order to expand the space of discussion on the budget, the National Assembly should arrange for public a hearing on the 2012 budget. This would provide an opportunity for stakeholders in the economy to express their views on this important issue and make the budgeting process more democratic and inclusive.