• Caution against VAT increase
• Govt pleads for understanding, vows to reduce cost of lending to SMEs
Crusoe Osagie
The National Association of Chambers of Commerce and Industry, Mines and Agriculture (NACCIMA) and the Manufacturers Association of Nigeria (MAN), the two largest arms of the Organised Private Sector (OPS) in the country, at separate events yesterday, has urged the federal government to consider tax reduction to save the economy from further decline.
The President of MAN, Dr. Frank Jacobs, lamented that all the available economic indices showed that the Nigerian economy might slide into a free fall, stressing that urgent pronouncements and decisions of the government in the next few weeks would be critical to its recovery.
He noted that the federal government had to quickly decide whether or not to raise taxes.
According to him, the plan by the federal government to increase Value Added Tax (VAT), the new high lending interest rate of 26 per cent minimum, scarcity of forex to procure raw materials and machinery parts by factories and new machinery for start-ups constitute disincentives to investment in Nigeria.
‘When an economy is contracting as is the case in Nigeria today, countries work closely with the private sector by providing incentives and support to encourage them to maintain their investments and thus sustain employment levels. Under such circumstances, taxes are reduced and impediments to growth are removed as Britain did recently following the Brexit,” he said.
He noted that the news of government withdrawing the pioneer status tax incentive enjoyed by the cement industry is not only disturbing but also amounts to a shot on the foot of government, as it would send a bad signal to both current and prospective investors of local and foreign origins.
“Similarly, the rumour that VAT would be increased must remain a rumour, else that would spell a disaster to what is left for businesses in Nigeria, because neither the ordinary consumer nor the companies whose margins have been stretched to the limit can afford such increase at this time,” he said.
The MAN president said the interactive session of the organisation was timely because of the challenges the manufacturing sector had been encountering over the years, which had been exacerbated by recent monetary policy somersaults.
According to him, “I believe that it would provide a platform for us to assess the performance of the sector vis-a-vis the economy, with a view to articulating strategies for resolving them.”
He said as manufacturers, the association had taken a number of positive steps that were aimed at resolving some of the challenges, particularly those within the ambit of its resources and initiatives, especially on the use of local raw materials.
The MAN president also raised the issue of the Nigerian Industrial Revolution Plan (NIRP), which he described as an excellent economic diversification tool apparently abandoned by the current government.
According to him, the well-conceived and thought-out policies had remained a policy on paper without implementation.
Jacobs explained that the policy believed to be a catalyst to the diversification agenda of the present administration was yet to see the light of the day, lamenting that the present policies of government did not support the diversification of the nation’s economy.
The NACCIMA President, Dr. Bassey Edem, in his report on the state of the nation yesterday, joined in the call on the federal government to take urgent steps to redeem the economy, which he said was fast ebbing away.
According to him, in the last six months, January to June 2016, the outlook of the economy had been bleak. The rate of inflation had almost doubled, electricity generation had reduced by almost 50 per cent, and the price of petroleum products had also doubled.
He added that foreign exchange earnings had continued to drop significantly due to reduction in output caused primarily by the vandalism of infrastructure and low crude oil prices in the global market.
Edem said: “Although, we acknowledge the effort of the federal government in addressing these issues, these efforts have not translated into measurable positive indicators; rather it has led us into recession which has become a thing of worry to private sector operators.
“At the beginning of the year, a fixed exchange rate policy of N197 to the USD was implemented in the official market from January to June 2016; and the naira hovered between N300 and N330 to the US dollar in the parallel market. However, with the introduction of the flexible exchange rate policy by the Central Bank of Nigeria in June 2016, the official exchange rate has risen to a figure between N280 – N310 to the US dollar with the parallel market rate hovering around N360 – N375 to the US dollar.
“Inflation rate has almost doubled since the beginning of the year, from 9.55 per cent to 16.45 per cent, the highest point since 2005.
“GDP Growth Rate: According to the Nigerian Bureau of Statistics, GDP growth rate in the first quarter of 2016 was minus 0.36 per cent. In comparison, the GDP growth rate in the fourth quarter of 2015 was 2.11per cent while the GDP growth rate in the first quarter of 2015 was 3.96 per cent.
“At the same time, external reserves decreased from USD28.02 billion as at February 4, 2016 to USD26.35 billion as at July 21, 2016.
“Monetary Policy Rate (MPR) has been increased to 14 per cent from 11 per cent as at February 2016.
“Interest rate maintained a double digit figure, with the Prime Lending Rate at 16.13 per cent and Maximum Lending Rate of 26.73 per cent.”
Suggesting steps that could help to improve the economic situation of the country, Edem said there was need for the federal government to fashion a plan that would ensure that the real sector received financing at concessionary rates, in order to ensure that while trying to mitigate crisis of spiralling inflation by raising interest rates, the relevant section of the economy is still stimulated to help the nation emerge from the ongoing recession.
He said: “With respect to the decision of the Monetary Policy Committee of the Central Bank of Nigeria to raise the Monetary Policy Rate from 12 per cent as at March 22, 2016 to 14 per cent as at July 27, 2016, we acknowledge and understand the decision of the committee as crucial to tackling the rising inflation rate.
“We also acknowledge the assertion by the committee that most of the factors contributing to the rise in inflation rate which include high cost of electricity, transportation, low industrial activities, and high prices of both domestic and imported food products are outside the direct purview of monetary policy.
“As we lend our voice to the calls by the committee for the urgent diversification of the economy away from oil to manufacturing, agriculture and services, we would like to point out that a call for stakeholders to increase investment in these select sectors of the economy should be followed by lower interest rates in these sectors, as the current rates are too high to stimulate the much needed growth to lift the economy out of its current phase.”
Meanwhile, the Minister of Industry, Trade and Investment, Dr. Okechukwu Enelemah, after a lengthy session with leaders of the private sector in Lagos yesterday, called for understanding, assuring them that the government was committed to stabilising the economy and returning it to growth.
He said the government was going to bring down the cost of borrowing to Small and Medium Enterprises (SMEs) in the country, noting that the ministry is not unaware of the challenges currently being faced by the sub-sector, adding that urgent steps were being taken to make funding available for the most vulnerable sector.
Enelemah assured them that the federal government, through its development finance institutions, would lend to SMEs at single digit interest rate.
According to him, “We are going to lend within the capacity of government and the government development finance institution at single digit interest rate. From my understanding, the Central Bank of Nigeria (CBN) wants to bring down the inflation rate because it steals from pockets of the citizenry and there are many ameliorating steps being taken to make sure that funding is made available for the most vulnerable in the society. As the economy takes off, we will be able to provide more supply which will help to tail inflation. We need to do more to improve production by making it easier for the producers to produce goods locally to act as a downplay for inflation.
“We have heard the stakeholders and we have taken notes which is going to form part of the engagement process we will be having with the rest of government agencies both at the federal, state and local levels to address the needs of our people. One of the ways we will be addressing the needs is the ease of doing business and I am happy to say that this is one of the areas where the president has taken interest by forming a presidential council on it to be chaired by the vice-president called the Presidential Enabling Business Environment Council and one of this council’s objectives is to work across ministries to identify those bottlenecks and challenges in doing business in Nigeria and you will be seeing the impacts in the weeks, months and years ahead.”
On the state of the economy, he pointed out plans to engage the private sector to seek ways to address issues affecting the economy, adding that in partnership, both parties could identify the problems and look at the ones that could be addressed immediately going forward.
“One of the areas of interest for us is how to reduce the cost of borrowing for SMEs, industries and the key players. One of the promises we made when we assumed office is that we said we are not going to work in silos and if you look at the way the government is running today, we have economic management team which cuts across including other inter-ministerial agencies to work across board to solve the problems to achieve a holistic and complete solutions rather than solutions in silos,” he added.
The Director General, Standards Organisation of Nigeria (SON), Dr. Paul Angya, who also commented, said the agency was developing capacity, improving standards, increasing its testing capacities with laboratories and promoting access to the export market.
“We are renewing our pledge that we will do everything possible to clean up the environment for local industries to thrive. We will also develop capacity for local industries to gain access into the international markets,” Angya said.