Nigeria’s credit rating agency, Agusto & Co, has stressed that the country will require a chutzpah of economic reforms to get its economy out of the present state of economic recession and remain above waters.
The economy had traditionally posted strong Gross Domestic Product (GDP) growth numbers of between five and seven per cent in the last decade but struggled with job creation crooner the years, which led to the “jobless growth” description of the country’s GDP numbers.
But the latest figures by the National Bureau of Statistics (NBS) released last week, showed that the economy contracted by 2.06 per cent year-on-year in the second quarter of 2016, as against the 2.4 per cent recorded in the corresponding quarter of 2015, thus confirming the nation to be in a recession. The deepening of Nigeria’s economic decline was largely due to the troubled oil and gas sector, which contracted by eight per cent year-on-year in the second quarter of 2016, as against the 6.8 per cent in the comparable period in 2015.
Nevertheless, Agusto & Co, a Pan-African firm pointed out that this time around, Nigeria must grow its economy and create jobs as well, just as it highlighted reforms required for the country.
Furthermore, they stated the reforms required would entail a clear ideological understanding of government’s role in the economy.
The firm reiterated that it had long argued that the core function of government in the Nigerian economy should be the generation of revenue through taxes and the prioritisation of government spending.
“We believe that taxation remains by far the largest and most sustainable source of government revenues. The change in mind set to taxation will require three major principal objectives. The first is that businesses will be encouraged to thrive because the more profitable the businesses, the higher the tax revenue generated thereon.
“The second is that revenues generated by the government will be used to finance its spending and thirdly, the tax revenue will be used to redistribute income from the rich to the poor. It is these time tested principles that have worked successfully for the rich global economies and it is on this premise that the diversification of the Nigerian economy will need to be built,” it added.
According to Agusto & Co, by adopting progressive tax rates for individuals, competitive tax rates on profits of businesses and discriminatory rates of taxes on spending the economy can begin to evolve into a more competitive one even while consolidating on the social contract between government and the citizens.
Furthermore they noted that through the diversification of government equity holding in state owned enterprises (SOEs) especially in key sectors like energy and transportation, the economy can be gradually weaned off its statist leanings that have long stymied output, productivity and tax revenues from these sectors.
“We believe the private sector is best equipped to create jobs and the government should seek to transform more SOEs into private sector firms. Similar reforms in the telecommunications and pensions industry and seaports, have worked in this Fourth Republic and will also work in other high impact sectors like energy and transportation. With bold reforms, Nigeria can attract capital, generate revenues for social investments and stimulate job creation,” the report added.
The NBS latest data showed that the country entered recession, the first in the lives of over 60 per cent of the country’s population. Nigeria last experienced a recession in 1991 when the country was still in the throes of military rule. The country got bailed out from that recession by an oil windfall triggered by the Persian Gulf War.
The Bureau had also released other data indicating the country is in dire economic times. Inflation for July rose to 17.13 per cent—its highest since October, 2005 (18.6%)—driven by a rise in the broad categories of core inflation and food inflation to 16.93% and 15.8% respectively. Though, the Central Bank has adopted a taciturn approach to forward guidance on prices, the last published inflation target of 6—9 per cent is a clear reflection that prices have gone astray.