By Peter Egwuatu, Assistant Business Editor, Yinka Kolawole & Naomi Uzor
Director-General of Lagos Chamber of Commerce and Industry, LCCI, Mr Muda Yusuf, in this interview, says for there to be economic growth in the next four years, the Federal Government should drop its protective approach to industrialisation, monetary and fiscal policies among others and work for a competitive economy.
What economic agenda would you advise the Federal Government to pursue in this dispensation?
Fixing the country’s infrastructure is at the very heart of building a competitive economy and a fundamental requirement for economic diversification and sustainable job creation. Transformation in the agricultural and manufacturing sectors depends to a large extent on the quality of infrastructure. It should be stressed that it is a resilient private sector that could ensure a resilient economy, create jobs and guarantee the welfare of citizens in a sustainable way. The LCCI feels strongly that proper policy choices by the government could go a long way to mitigate the challenges and shocks earlier highlighted. The new cabinet should focus on the policy choices that accelerate the growth of the economy. Governments at all levels should refrain from the imposition of new taxes or raising tax rates for the private sector.
The current investment climate is bad enough. An added tax burden would completely stifle and strangulate the private sector and the economy. We believe that governments at all levels could achieve a marked improvement in revenue through improved efficiency in the collection and administration of existing taxes. Revenue will also grow if the economy grows. Fiscal prudence in the public sector is now more critical and imperative than ever before. Governments at all levels should demonstrate greater prudence in the management of their finances. The spending patterns of the last two decades are no longer sustainable. Thus drastic cuts in public sector spending, especially recurrent spending are imperative in the spirit of the prevailing economic conditions. The Reform of the downstream oil sector should be revisited. Public sector dominated petroleum downstream is not helping the economy. The downstream has greater potentialities to contribute to growth than what currently contributes. The government should ensure a level playing field for all operators in the economy. This is necessary to ensure the unfettered growth of a private enterprise.
Do you think the African Continental Free Trade Agreement, AFCFTA, can be instrumental to the economic growth you are talking about?
The decision of the Federal Government to sign the African Continental Free Trade Agreement, AFCFTA, is laudable. Of course, this is predicated on the recommendation of the Presidential Committee on Impact and Readiness Assessment of AFCFTA. We had earlier called for the signing of the agreement as we believe that the country stands to gain more than lose from signing the free trade agreement. There will be access to a larger market of 1.2 billion populations and a $3 trillion economy. This offers tremendous opportunities for economies of scale for our firms. Not signing before now has denied our the opportunity to put our views and the table to shape the structure of the agreement. But the reality is that the agreement is work in progress and we can always revisit the gaps in the agreement that may not be favourable to us. We maintain that while this would improve trade among African countries and provide an opportunity for Nigeria to export to other African countries, appropriate safeguard measures should be put in place to protect vulnerable sectors of the economy within the framework of the agreement. It is critical to ensure that there is effective enforcement of the Rules of Origin and urgent structural reforms to ensure the needed infrastructure support. Meanwhile, we think that, in the long run, we should focus more on building an economy that is competitive rather than having a disproportionate focus on the protectionist approach to industrialisation. We need to fix infrastructure to bring down operating and production costs in the economy. Our policies and institutions must also be in consonance with the quest for a competitive economy.
Given the delay in the appointment of ministers by President Buhari, do you think the government would be able to meet its target in 2019, especially in the area of infrastructure like power, and roads among others?
The delay will affect the implementation of the components of the budget, especially the capital component. Vital policy and implementation decisions cannot be taken in the absence of ministers and the Federal Executive Council, FEC. At the core of the transformation programme of the economy at this time is the diversification of the economy. We cannot afford the current level of dependence on the oil sector. It is evidently not sustainable.
What are the critical policies that government should put in place to drive diversification of the economy?
Three critical factors are crucial to driving economic diversification in the Nigerian economy. These are the quality of infrastructure, the quality of policies and the quality of institutions. It is crucial to get these key parameters right. It is equally critical to ensure proper alignment among these key variables to ensure sustainable economic diversification. Policy factor has many dimensions which include monetary policy, forex policy, interest rate policy, tax policy, trade policy, procurement policy and investment policy. Each of these policies has a major role to play in the economic diversification process. The policy mix must be right for the desired outcomes to be achieved. The monetary policy, for instance, should be designed to drive domestic investment through moderation of the monetary tightening stance of the Central Bank of Nigeria, CBN. This is needed to moderate interest rate in the economy. It is difficult to drive domestic investment at current levels of interest rate which is well over 25 per cent for most economic players. The economy needs investment, especially domestic direct investment to drive diversification. The foreign exchange policy is another very important policy component which impacts on economic diversification. A forex regime that perpetuates a rent economy would not serve the cause of diversification. It creates opportunities for arbitrage, corruption, resource misallocation, impedes the inflow of investment, and creates transparency issues in the allocation of forex. The current multiplicity of rates is inimical to sustainable economic diversification.
What can you say about the multiplicity of tax in the country?
The renewed aggressive tax drive is focused more on investors. It is therefore inherently a disincentive to investment and economic diversification. The three tiers of government target investors more than consumers. This is not in consonance with best practice principles in taxation. In an economy which is almost 50 per cent informal, this structure of taxation is not investment-friendly. The formal sector of the economy bears the largest burden of the tax system. The tax policy needs to be better attuned to economic diversification through a reversal of the tax burden from investors to consumers. The use of banks as collection agents for the FIRS in its current form is very disruptive, distracting, arbitrary, oppressive and unfair to investors. It is a serious disincentive to investment and the promotion of financial inclusion. This approach should be discontinued. Taxation should not be seen only as an instrument of revenue generation, it is also a potent instrument for stimulation of investment.
What about Nigeria’s trade policy, is there anything that the government can do to make it better?
On trade policy, it is a key determinant of our imports and exports. Inappropriate trade policies could aggravate the cost of production of economic players. This happens when critical inputs are restricted from imports and local substitutes are grossly inadequate. A thorough sensitivity analysis of trade policy impact on the economy is essential before major trade policy moves are made. The same logic should apply to the forex exclusion policy of the CBN. Trade policies should be guided by sectoral competitive and comparative advantage to ensure sustainability. Institutional capacity to enforce the policies should also be considered in trade policy formulation. The Nigeria Customs service needs to show better sensitivity to the plight of investors. One of the biggest headaches of the business community is the Nigeria Customs Service. Policies should be focused on incentivizing resource-based industries which typically has a competitive advantage and good impact on the economy because of the high multiplier effect. The relativity of tariffs between Nigeria and neighbouring countries should also be considered in the formulation of trade policy. Procurement policy is another very important dimension of policy that has high implications for economic diversification. The procurement policy should be structured to favour sectors that have the potential to be diversification champions as well as leading backward integration firms. Due priority should be given to the patronage of made in Nigeria products as an important component of procurement policy and should be properly implemented. Resource-based industries should naturally get preferences in the deployment of incentives. They promote inclusiveness, poverty reduction, and job creation. This should be a major focus of investment policy.
What can you say about regulatory agencies in the country and what areas can they improve their services for the progress of the nation?
Regulatory institutions should properly think through their regulatory policies and actions to avoid causing dislocations in the economy. Regulator-induced sectoral crisis as witnessed in the past should be avoided. Commitment by the government to the philosophy of Public-Private Partnership, PPP, should be given greater practical expression in the second term of the present administration. This has become even more critical because of the severe resource constraints which now face all levels of government and their agencies. There are enormous human, financial and material resources that could be harnessed from the private sector to facilitate the realisation of the economic and social objectives of the government. But an appropriate and sustainable framework should be in place to inspire investors’ confidence in this arrangement. The problem of port congestion continues to persist. There are still issues about the parlous state of the roads leading to the ports, documentation procedures, limitation of space, suboptimal use of the bonded terminals, the multiplicity of government agencies at the ports and many more.
What can you say about the cost of doing business in the country?
The additional cost to business breeds demurrage, interest payment, freight costs, insurance costs, disruption of production cycles, the inability of firms to meet contractual obligations to customers and many more. Although the matter is already receiving the attention of the proper authorities time is of the essence. The intervention has to be expeditious to bring an end to the congestion.