The federal government has been advised to initiate policies to improve National Disposable Income (NDI) in the country.
FSDH Merchant Bank Limited, stated this in its latest economic report.
The report reviewed the total income available for residents and ﬁrms in Nigeria, usually referred to as NDI, between the first quarter of 2016 and the second quarter of 2018, and concluded that it was weak and cannot take the country to the ‘Promised Land’.
“Therefore, something urgent must be done so that the country will not continue to rely on excessive borrowing or avoid a situation where savings will continue to drop,” it stated.
The total income available for use by residents in Nigeria comes from four major sources. The total remuneration of employees in the formal sector, operating surplus (proﬁt of businesses), total taxes payable on products, minus any subsidies received for the product, and the net income, transfer and proﬁt from abroad. However, the report pointed out that operating surplus dominated the total national disposable income, which represented an average of 69 per cent during the period. But the growth in inﬂation rate during the same period, at 37.14 per cent, was higher than the growth in the operating surplus at 32.85 per cent. Therefore, in reality, the operating proﬁt contracted, the report showed.
Again, household compensation was low. This is made up of salaries of employees in the formal sector including beneﬁts in kind (such as pensions).
To this end, the firm noted that if an individual, business, government or, by extension, a country wants to increase its spending and savings power, there must be a plan to increase the ability to generate income.
It pointed out that any entity that desires to increase its spending and savings without a plan to increase its ability to generate income would surely have to borrow to ﬁll the gap, all things being equal.
“And you know that a borrower can easily become a slave to a lender if he is not able to meet his obligations to the lender.
“The high costs of running businesses in Nigeria caused by ineffective institutions to enforce law and order, insecurity, defective infrastructure, and inadequate support systems for new businesses are the major factors responsible for the weak growth in proﬁt.
“The high unemployment level in the country, insufﬁcient new job opportunities and the large informal sector are all responsible for weak growth in household compensation,” it added.
FSDH noted that the weak NDI limits consumption of households, government and investments by ﬁrms.
“We note that little income is channelled into savings and investments. This is also one of the reasons the interest rate on loans is high, and a single digit interest rate may not be achievable in the short-run.
“As noted earlier, one can also link the weak income generation to the weak household consumption. Low level of household consumption also reduces government tax, particularly Value Added Tax (VAT).
“In addition, it reduces the amount that is available to purchase goods and services produced by ﬁrms. Ultimately sales drop, proﬁt drops, tax income drops and a ﬁrm will not be able to sell as much as it should sell to enable it to expand production; the ﬁrm will not be enabled to employ more people,” it added.
The firm noted that it was cheaper to stimulate the economy through appropriate policies to grow the NDI, than relying on borrowing, adding that there must be removal of all administrative delays in obtaining licences and approvals. This includes titles to landed properties for building and agricultural purposes. “Government should also invest in data generation in the solid mineral sector. It can sell the data to potential investors interested in the sector.
“This will reduce the risk inherent in this untapped sector of the economy. There is the need for human capacity building in business management and leadership. This must not be left to business schools, which are only affordable to a few people,” it added.