Moghalu: Nigerians Don’t Pay Taxes Because They Lack Faith in Govt

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MONDAY INTERVIEW

A former Deputy Governor of the Central Bank of Nigeria, Prof. Kingsley Moghalu believes that the federal and state governments are not doing enough in terms of their approach to revenue generation. Moghalu, in this interview with Chika Amanze-Nwachuku and Obinna Chima, stressed the need for a fundamental response from Nigerian citizens, especially the youths, in order to address the leadership deficit that has long contributed to the poor policy choices. Excerpts:

Now that the economy is out of recession, what measures do you think should be put in place to achieve sustainable growth?

First of all, it is a good thing that, even if it is simply technically speaking, we can say that the recession is over. Economic growth will be anaemic for a while, and it will also be fragile. The reason it will continue to be fragile is because from what I can see from the numbers, growth has not been very strong in manufacturing. Manufacturing is what should drive jobs and productivity in developing economies. To a large extent, the growth we have seen this year has been driven a lot by the oil sector, which is always volatile because of possible price shocks from external factors. Relying on the price of a raw commodity is not a secure basis for economic planning. So, that is my caution.
When we speak about the path forward, I believe that the fiscal management of Nigeria needs to be completely overhauled. I worry about the debt burden that Nigeria is getting into. I see that the government recently requested the approval of the National Assembly for $5.5 billion in borrowing. If you consider that more than 60 per cent of revenues earned by Nigeria are already going into debt servicing, you can see that we are going into dangerous territory. The argument is always there that these loans will be used to execute some important infrastructure that can accelerate growth. But in practice, the quality of the use of foreign debt in Nigeria has not been encouraging. All the foreign loans that were taken in the past have not significantly improved economic growth and development in Nigeria. Therefore, we have to worry about whether or not this is not a politically inspired move, seeing that the government is facing difficulties and may want to be seen to be staying afloat. I worry about the implications of all these loans because this debt will hang on subsequent governments and future generations of citizens. After former president Olusegun Obasanjo wiped out the debts that were taken by previous governments, we are once again becoming heavily indebted. We are told that with our debt to Gross Domestic Product (GDP) ratio at 19 per cent is safe to borrow more. That is shallow economic thinking. What matters is the debt service- to-revenue ratio. For a developing country like Nigeria, that is what should concern us.
I feel that the federal and state governments should look inward a lot more. I see a bit of laziness in both the federal and state governments, in terms of the approach to generating revenue. There is a knee-jerk reaction to go for foreign borrowing because it is easy and once you get it, you can spend it. But if states and the federal government look inward, I think they can generate a lot more revenue. Let’s give an example with the federal government – taxation. If you look at Nigeria today, you find that the penetration of mobile telephones is very high, about 140 million lines out of 180 million people. You also find that the informal economy is huge in Nigeria – 65% of our GDP according to the IMF. But, what is the effort that is being made to bring the informal economy into the formal economy? It is when you bring the informal economy into the formal economy that you can generate massive amounts of tax revenue. Now, how do you bring the informal economy into the formal economy? The path to achieving that runs through the mobile telephone. If the government were to follow mobile telephone ownership in Nigeria, they would get to nearly every Nigerian. If you get to every Nigerian whose sim card is registered, then you do a tax audit of that individual. If you are not paying tax, why not? What is the arrangement that can be set up now so you can pay taxes? Even if you are a street hawker and you have a mobile phone that is registered, why would you not pay tax to the state?
But I will tell you why a lot of people don’t like to pay tax and try to avoid tax. It is because there is no social contract between the government and the citizens of Nigeria. There must be a social contract. People do not trust the government. They don’t trust that if they pay taxes, the taxes they pay will be used appropriately. So, because of this lack of confidence, people try to hide their earnings. How can this problem be solved? This trust deficit must be addressed and overcome. If the government says to the people: we are going to make a new social contract and if you pay your tax, this is what we promise you at a minimum that we will deliver in terms of security, healthcare, social security in your old age, and so on. For example, we have about 300,000 policemen in Nigeria, with a population of 180 million persons. That is an extremely low investment in the security of life and limb, which is the number one duty of the state to its citizens. Even worse, half of the 300,000 policemen are guarding Very Important Persons (VIPs). Do you see where the breakdown of the social contract begins? Fundamentally, people have no trust that their security is being invested in. So, they rather invest their resources in their own security. So, there is no social contract between the state and the individual in Nigeria. I think this is where we must begin. If we start from there, we can get a lot of monies into the revenue coffers of the federal and state governments.

When you borrow more and more, you have very little left to provide services. The less we borrow, the more we can have expendable revenue that can be spent on development. The percentage of Nigeria’s spending on development, is one of the lowest in Africa. My thinking is not to increase taxes, but to improve tax collection. When you improve tax collection, you have more revenue to spend on the things that can stimulate the economy, including infrastructure. We claim to be focused a lot on physical infrastructure, which we do not even deliver well in terms of the quality of the projects, but we ignore social infrastructure such as health and education. What is the spending of the government on health and education? Very low! And these are the things that are also tied into the absence of a social contract. If people don’t feel that they can go to a hospital and get treatment, they won’t feel that they owe their government anything.
Another requirement for economic growth is to restore local international investor confidence with the right policy adjustments. I see that the government is talking a lot about improving the Ease of Doing Business. But we have to see the results. I tried to register a think-thank as a company limited by guarantee in Nigeria. The process took more than one year. At a point I was so frustrated that I incorporated a foreign version of the same organisation in the United States so that the vision would not die. It took me all of two days to do it in the US. Two days!! So, compare two days with one year and you will see what the problem is with doing business in Nigeria. The bureaucracy in Nigeria is humongous and it strangles private enterprise. It is one thing to talk about Doing Business reforms, but until people begin to see in a practical manner the efficiency of registering a business in Nigeria, you have a lot of economic growth being stifled and people may be going into other countries. We see a lot of foreign investors now trying to go into West African countries like Ghana.

From all you have just said, I think the country needs to urgently address the issue of leadership deficit. What do you think can be done to address the issue of quality leadership in Nigeria?

There is no other solution to the leadership deficit in Nigeria than a fundamental citizen response. The current political leadership class in Nigeria has failed Nigeria. Broadly speaking, with very few exceptions, this is the case. We don’t have good leaders in Nigeria because our democracy is all politics and no leadership. It’s all transactions but no substance. The real purpose of politics is to produce leadership. But in Nigeria, the purpose of politics is not to produce leadership. It is to entrench vested interests – whether ethnic irredentists or people who are trying to get returns on their political investments or godfatherism. So, the whole purpose of politics in Nigeria is warped. It therefore cannot produce the type of leadership that can take Nigeria forward.
I would recommend some things. First, Nigeria’s citizens need to wake up to their responsibilities. Every country gets the leaders it deserves. So, if we are sitting around complaining about the leadership we have in Nigeria, it is because we have not taken the action to elect a better set of leaders. So, the citizens in Nigeria have a big share of the responsibility for the leadership crisis Nigeria faces today. We have huge practical problems in Nigeria today – we have 29 million Nigerians unemployed; we have 10 million children out of school, the highest in the world; we are 187 out of 189 in the health system’s ranking of the World Health Organisations – these are practical problems that need to be solved. How do you solve these problems? We need technocratic leadership in Nigeria in the phase we are going into. We need leadership that has the knowledge base, the experience base and the global network base to be able to address these practical problems. If the leaders you are producing are people who have spent their political careers distributing bags of rice or hiring thugs, how can they address the problem of 29 million unemployed people or 10 million kids out of school? Like I said, our politics and politicians are not solving these problems. On top of that, we need three things. Number one, I think we need a lot of leadership training within the Nigerian political class. People need to be trained on what leadership means so that they understand that leadership means vision, that leadership means the ability to mobilise and inspire, set targets, and ensure accountability and delivery. That is what leadership is! Leadership is not about ‘my tribe is in power’, ‘it’s our turn’ or invading the public space with religious chauvinism that leads to conflicts and instability. In fact, we are regressing into a primordial dark age. We are led in this journey into backwardness by the very people who ought to secure our future. We are not making real progress because of this leadership crisis. If this leadership- competence crisis is not fixed, we will keep running around in circles. Leadership training is very important. Also fundamental is citizen action and responsibility which is needed to hold leadership accountable. Nigerian citizens can decide to go for a different set of leaders. Let’s try technocrats and people who have the knowledge of economics, political economy and other practical skills we need in order to solve these problems. That is what we need. This is how the leadership problem, in my view, can be solved in Nigeria. We focus too much on political party loyalties but not on the quality of candidates, and our political parties are not based on any real ideologies.

How do you think this will happen considering the level of poverty in the country where the electorates are always willing to trade their votes?

I talked earlier about leadership training, citizenship action for accountability, but I missed the point of citizenship education. This is why I decided to return home and set up the think-thank – the Institute for Governance and Economic Transformation (IGET) as my own contribution to solving this problem. IGET is not going to be doing the kind of technical research that only professors can read. We want to do it very simply and accessibly, to educate the citizens on governance and economics. This is because when citizens are empowered with that sort of knowledge, they can now demand for their rights. When the citizens understand that you are doing yourself a disservice by selling your votes every four years; the politician comes and gives you N5,000, buys your vote and disappears, only to reappear four years later. After four years of unemployment and other maladies, they come again and give you another N5,000 and you sell your vote. So, this issue of poverty is real, and Nigerians are selling their democratic rights and their future for a mess of porridge. But we must let the citizens know that they can create a medium to longer term prosperity for themselves if they can look beyond their short-term. By electing the right types of leaders and working together, the problems can be solved in a more durable fashion, rather than electing the wrong type of leaders because they buy your votes every four years. It all comes back to the citizens. They are poor, that’s true, but they need to be educated to know that the solution to their problems is in their hands. How can you have a country like Nigeria, which has numerous global talents and, as far as human capital is concerned, is number one in Africa. And yet we get third rate leaders most of the time. There is a disconnect. It is true that politicians rig elections, but that is because citizens allow them to rig elections. If the citizens were to rise up to protect their votes, it becomes difficult. I keep saying it: the citizens must take responsibility too. They are not yet angry enough. If and when they are angry enough, they will change their destiny.

And to a large extent, Nigerians do not believe the electoral body is independent. How do you see that?

One of the biggest indicators of leadership failure in Nigeria is the extreme politicisation of pretty much all the institutions of the state. That has led to the death of professional excellence. But I keep coming back to the citizens. If millions of Nigerian voters were to decide to set new standards of leadership in Nigeria, and demand independent and accountable institutions that are impartial, they can identify and vote in people who understand and believe in the importance of such institutions. The basic answer to these problems is with Nigerian citizens. It is not with the politicians who are doing what they know best. In most democracies, on what basis do people win or lose elections? People win or lose elections based on performance or perceptions of their performance. But if you as a citizen are not looking at performance, but you are looking at tribe, religion, then you are the author of your own poverty and the creator of your own misfortune. Why blame the corrupt politician when you the citizens are keeping him or her in power, even though he or she is not serving your interest. So, that is the Stockholm syndrome. Nigerian citizens are like hostages and they have exhibited the Stockholm syndrome in which hostages fall in love with their captors! They need to snap out of it and say it is time to take our power and country back. That it is time for this democracy to serve our collective purpose rather than to serve the purpose of the politicians or the vested interests.

But all these require a lot of re-orientation?

True, but let me tell you where to begin. Where to begin is in the masses of Nigerians who are young and not trapped by all the vices that our aging politicians have, such as the vices of tribalism, political religion and corruption. I am not saying the young people are perfect, but if you look among young Nigerians today, you will find a lot of entrepreneurship. That zeal is there. Now, if you look at these young Nigerians, you will also see for example, that they are not as tribal as the older Nigerians. They are more cosmopolitan. The rate of inter-ethnic marriages, for example, is very high in this age group. I find this very encouraging. It means that they are not caught in the antagonisms of our older generations. That is where to begin the change in Nigeria’s leadership cycle. We need to educate the youth on how to use their voting power. If young people wake up, Nigeria will wake up.

In your book, ‘Emerging Africa: How the Global Economy’s ‘Last Frontier’ Can Prosper and Matter,’ you described the continent as the ‘last frontier’. With what we are seeing across the globe, do you think Africa is taking its rightful place in the global market?

I don’t think so. The reason that Africa is not taking its rightful place in the global market is because we do not have a worldview of the future and how to create it. That again goes back to the leadership deficit. Let me tell you something: there is something to be said for intellect, even though many Nigerian and African politicians would want to make it look as if being an intellectual is a crime. But, ideas rule the world. From computers to your Samsung Galaxy phone to Facebook, these are all people’s ideas that affect the quality of our lives. If you look at African countries that are doing very well in the global economy, if you look at Ethiopia, Rwanda, Mauritius, Botswana, you will see that their leaders have a certain level of intellect. Intellect doesn’t necessarily mean having a PhD, it just means being interested in knowledge. It means seeking knowledge for its own value, and applying the knowledge that is acquired to public policy. We must find a marriage between ideas and political power in the future Nigeria.
So, you will find that to the extent that African leaders believe that their economic prospects are tied to the sale of raw commodities, that is a lack of intellect. That is largely why we are poor, while the vast majority of wealthy countries have nothing under their soil. In Nigeria, many political leaders wake up watching the price of oil. That is the god they worship. That is because if oil price is high, they are happy, if it is low, they are sad. When you have leaders with this type of mindset, you can never emerge in the global economy. The wealth of nations is never created just by raw materials. The wealth of nations is created by complex products. What does it take to manufacture and export complex products? It is called productive knowledge. So, investing in human capital is the key to transformation. Leaning towards science and technology and vocational skills and practical types of education is the key. In my view, we produce too many lawyers and social scientists. Not that they don’t matter, they do. But, it is important to focus our training in our universities and institutes on science, technology and entrepreneurship. That was how China developed. It doesn’t mean there are no lawyers in China, but the emphasis in the Chinese government’s policies is not on lawyers, it is on people who are engineers, people who are scientists and entrepreneurs. So, when you produce the right type of human capital and you provide the opportunity in terms of the business environment and venture capital, the society thrives in the modern world.
Venture capital is the key for Nigeria because access to credit is difficult. Why is access to credit difficult? It is because the macroeconomic environment is rough. We do not generate enough capital from within our economy. Here we return to the issue of the tax base again, which is the lowest in Nigeria among most African countries. Infrastructure is also weak, which pushes up the cost of capital and doing business. So, if you are looking at the banks, which have a short-term horizon in which their loans to borrowers must be repaid, to pump capital that would create prosperity for the common man, you will wait forever. In fact, in most countries, most financing in the private sector does not come from the banks, it comes from venture capital, private equity and development banks. So, my recommendation is a constitutional amendment that the newly established Nigeria Development Bank should have a first line charge on the Consolidated Revenue Fund. That is the way it is done in Brazil. The reason this is so is that if the development bank has a first line charge, it will be able to fund big ticket items at lower interest rates. So, that development bank must be empowered to finance development in addition to private investments. Now, it is this mixture of public and private investment that will create a booming economy. With that you develop human capital. But what you have is that a lot of people go to school, come out, but they have no jobs. That is because the demand side of the labour equation is not being addressed.
Of course, electric power infrastructure is a key area. How do we deal with that? Look at what is happening in Nigeria – 3,000 megawatts of electricity for a country of 180 million people. When we get 4,000 megawatts we begin to celebrate. This type of low level ambition tells you that the leadership does not have a worldview. If it did, they would be ashamed proclaiming victory when we have 4,000 megawatts when South Africa with 50 million people has 40,000 megawatts of electricity. Brazil has 120,000 megawatts with 200 million people. So, what is stopping us from doing this? Nothing, other than corruption. That is what is preventing a power revolution in Nigeria. There is vested interest in the electricity sector. So, what do you do? You move from the current focus on fossil energy to renewable energy. Renewable energy is the key. Renewable energy would power millions of households. It may not power industrialisation. Firstly, you have to move away from a national grid system. In my view, I believe the Nigerian grid should be decentralised and focused on areas with industrial activities such as Aba, Onitsha, Nnewi, Kano and Lagos. For the other normal residential population, solar energy can power most of their needs. If you follow this approach, you will solve the power problem within five years. But there is this focus on the way things used to be – let’s borrow money from China to develop the national dam. Everything is so centralised, instead of focusing on a decentralised approach to electricity and focusing that effort on the areas of industrial productivity in Nigeria. If those areas have power and begin to produce with regular power supply, the price of goods would go down. We need a leadership with the economic thinking to be able to create this type of new Nigeria. If you have a leadership whose future is behind it, if you have a leadership that is focused more on the past than the future, a leadership that believes in selective, distorted and self-serving versions of history instead of uniting its citizens with hope and a vision, you cannot move forward.
What Nigeria needs is a paradigm shift. The current system cannot produce that paradigm shift. What has brought the current political leadership class to power and what maintains it in power is antithetical to the paradigm shift that Nigeria needs. So, it is for the citizens to organise and produce that paradigm shift. They can, because it has happened in many countries. Look at what is happening in France today, there has been a paradigm shift with Emmanuel Macron and he is reforming. Reforms are not always popular, but he has a vision and he is pushing it. Leadership is not always a popularity contest. Nigerian so-called leaders always want to be popular, but they don’t want to be effective leaders. If you think that leadership is all about being popular, then you are not yet a leader. Your job as a leader is to take the people from where they are today, to where they need to be tomorrow. Sometimes, you may need to take them against their own wish because the reason you are the leader is that you see far, you see what they don’t and that is why you bring them along with you on the journey. That is what leadership means. But if you are focused on being popular, then you act only short-term and ad hoc, not strategically and longer term. You go into economic populism, for example, with what we saw with the exchange rate policy, where government was not prepared to make the necessary policy adjustment. They maintained a fixed forex rate and because of that, dollars became scarce. Factories that could not access forex stopped producing and laid off workers, unemployment increased by the millions and we went into a recession. Of course, forex corruption became king. Economic populism promotes the wrong incentive for economic activity.

How do you think the country can harness the potential of its vast young population?

I think there are many ways Nigeria can take advantage of its youth population. One way is by creating more economic opportunities for them through this proposal of a public-private partnership venture capital fund. Let people and investors create businesses. That’s what creates jobs. Government doesn’t create jobs. Government creates the environment for jobs to be created. So, meeting a core need of those youths, which is capital to start their own businesses, is important. Secondly, it is important for the youth to claim the political space. They shouldn’t wait for the older generation to cede political space. They should organise themselves effectively because they have the numbers.

There is someone who holds same ideology, contested in the last local government election in Lagos under Kowa party, campaigned massively, but the allegation at the end of the day was that he was rigged out. Don’t you think things like that discourage young Nigerians from contesting?

These things will happen because we don’t yet have the necessary economies of scale for social change. If you have that, it would yield results. For example, if young people across the 36 states of Nigeria begin to rise up and organise themselves in political movement, it is going to be very difficult for the old order to dominate them. So, the youth have not yet made a serious reach for power. And for that to happen, they need to wake up, understand their power and use it. There are 50 million Nigerian citizens aged between 18 and 35, what does that tell you? You have power that is latent, but you are sitting around complaining in cyberspace. That is why people like us have said we are not going to sit on the fence and be arm chair critics. We are now going to get involved in the evolution of our democracy and in leadership selection. We are going to get involved on the ground at home, by at least educating the citizens on what they should know and how they should act, to produce a better type of democracy. That is one of the things the IGET think-thank will be doing. I have had a very successful career, globally and nationally, and am not looking for personal distinctions anymore. Of what use is that when all around me are poor, unemployed people? It’s time for a new Nigeria. We all should come together and focus on a different future and on how to create it. That is in our enlightened self-interest if nothing else.

Can you tell us more about what your think-thank is all about?

The Institute for Governance and Economic Transformation is a think-thank that is going to be focused on three things. Firstly, advising policy makers with the empirical bases to make public policy. Public policy in Nigeria is not based on any empirical information, it just based on the selfish and corrupt motivations of the people who are in power. That is why public policy doesn’t change our reality. But in countries like the United States, France, Singapore, Britain, China, public policy is a science. Governments conduct proper research before certain decisions are taken. So, the think-thank is going to try to do this. Secondly, the think-thank is going to try to educate the Nigerian masses on basic economics, basic governance issues, basic leadership and accountability issues. We are going to be focusing on inclusive growth, that is, how growth in Nigeria can lift poor people out of poverty. That is going to be the focus of our work. This is not academic type of research, but very easily accessible work that we will be sharing with Nigerians openly. We will be preparing short policy papers on various subjects of economic development and governance. And we will break it down, including in native languages so that people understand the things that affect their lives and are empowered.