Nigeria’s fiscal policy opportunities

Our current dalliance with democracy has been going on for 16+ years. That is a lifetime in politics. Given that our structural imbalance has been a challenge for even longer and remains substantially unchanged, it is extremely annoying that President Buhari and his government remain largely lacking of strategic short, medium and long term solutions to our challenges. Whilst it is true that APC as a party was unprepared for governance, those elected at the very least have had 16years to fine-tune their ideas or fraternise with those that have ideas. To now have a federal cabinet lacking ideas is quite frankly irksome given the goodwill enjoyed by this government when it assumed office in May 2015.

President Buhari was presented with a huge opportunity to reset our economic, political and social structure, an opportunity that even small (positive obviously) policy changes would have had meaningful impact. The President has the opportunity to change our approach to the fiscal side of policy at all levels of government. The possibilities are plentiful:

We can be a low tax economy. CIT at 10% or lower for the FG, States can bolt on their own CIT rate. VAT need not be as low as it currently is at 5%. FG can collect 5% VAT with States and even LGs bolting on their own. States can compete for businesses through tax or other infrastructure. So States with better infrastructure will be able to get away with charging higher business and consumption tax. Nigeria can become the destination of choice for international corporations looking to set-up in Sub-Saharan Africa. Like Ireland has done in Europe, Nigeria can do same. We’ll need to sort out our education sector though but there are enough young people to employ to make it attractive. Like India did with technology, Nigeria can do same with the recent ZuckPress on NigeriaTech. Government can use fiscal policies to induce global corps to set-up shop in Nigeria as their African hub. Whatever is given up in CIT can be made up with PAYE. Our PAYE seems competitive at current levels so little need for downward review in my opinion.

Government can devise fiscal policies that stimulate exports and incentivise Nigerian companies to be globally competitive. For example, the FG can grant CIT relief on a sliding scale that is linked to export, number of Nigerian employees and the volume of returned exported goods and if service, foreign customer complaints. So Dangote could get 0.5% CIT relief for every 100k Nigerians he employs, 0.5% relief for every $1bn of exported cement up to a maximum of 2% (so gets the 2% relief if he exports more than $4bn worth) and 0.1% charge for every $10m of returned cement. The foregoing assumes the nonsense that is the “Pioneer Status regime” is scrapped permanently across all sectors. I prefer giving relief to economic activity ex-post (e.g the relief could be claimed on a three year cycle ex-post). This focus on export and job creation will need to be matched with reforming our customs process so that goods are processed in double quick time by linking their pay to the volume rather than value of goods they process. Checking that the quality of products (by industry regulators like NAFDAC) meets the requirements of foreign trade agreements would need to be done before goods ship out of factories. This will intensify and place the cost of low quality product squarely on the shoulder of manufacturers as they won’t want their warehouses clogged with defective goods. The pay of industry regulators too could be linked to returned exported goods that they passed as having met quality standard by reducing their pay accordingly.

Government can also use fiscal policies to incentivise manufacturers on import substitution rather than through monetary policy or currency manipulation. For example, manufacturers like Cadbury could be incentivised through CIT relief to use more of Nigerian cocoa than imported cocoa (I don’t know if Cadbury’s imports cocoa just using it as an example). The amount of relief obtained can be linked to the level of import substitution.

Given how competitive and integrated the global economy is becoming, the need to continue to find ways to innovate and improve productivity to ensure a nation not only retains its share of the world economy but also increase it is forcing governments to think of smarter ways of organising their affairs. Serious governments (eg UK’s Civil Service Reform plan 2012, Singapore’s Public Service Development 2011 etc) are reforming public service to support and promote the private sector and local economy by finding new ways to get more for less. As we all know, our governments and budgets have been burdened with huge personnel cost and ghost workers for years. The amount we spend on civil servants given the output does not indicate value for money. Personally and if I were President Buhari, I’d spend a considerable amount of political capital on forcing the civil service commission to place every federal civil servant at risk. That is everyone should reapply for their job. Prior to doing this, I’d request the World Bank in conjunction with one of the Big 4 consulting firms to review and advise the FG on what the size of the federal civil service should be given our current revenue challenges. Upon completion of this review, I’d ask the Commission to create new higher minimum qualification (educational and non-educational) criteria to be used for a merit based reappointment of civil servants.

If President Buhari and his cabinet continue to struggle for ideas, they can steal ideas from our most recent decent economic team. They can go back to implementing the NEEDS, SEEDS and LEEDS economic programme initiated under President Obasanjo. The programme was well on its way to making meaningful impact. Dr Ngozi Iweala’s book on “reforming the unreformable” describes the programmes successes and challenges in detail and how it can be improved on and moved forward. This will be like giving expo to a student before sitting for an exam. If they can’t be original with ideas, they also can’t struggle with copying best ideas or can they?

As I’ve argued previously, President Buhari should not be dragging economic policy with experts. Not when he is struggling to deliver excellent public goods/services. The output from his own sector cannot be so underwhelming yet he’s spending time dragging the quality of output from the private sector. The private sector is needed to pull us out of this recession, but that is a very short-term focus. The public sector needs to be operating effectively and efficiently first and foremost and that includes letting go of what should be in the remit of the market and letting economic data determine policy thrust.

UPDATE

The best thing about changing our approach to fiscal policy or any of the above is that it is cheaper to implement when compared to the nonsensical monetary manipulation that has been going on with currency and CBN. Government would not require to go cap in hand to IMF or other multilaterals for borrowing. Yet, it is the very measure our saintly President is dilly dallying on.

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Nigeria’s fiscal policy opportunities

Thinking ahead of the 2019 election

A positive outcome of the current awful presidential term is that in 2019 anticorruption will not be the anchor of any campaign. President Buhari has clarified to all that incompetence is more debilitating than corruption on a nation. There’s nothing worse than fighting corruption incompetently. You don’t only make corruption worse, you also run a greater than evens chance of halting economic activity and making growth anaemic.

Therefore, between now and 2019, we need to come up with a list of competences that we will use to assess anyone that seeks elective office especially the Presidency. APC successfully made the 2015 election a referendum on Goodluck Jonathan. That presupposes Goodluck Jonathan’s government as a qualitative benchmark for what good governance is. We will only be playing ourselves if we repeat the same in 2019. President Buhari and his government will not and should never be the benchmark by which we must judge whichever actors parade themselves for the presidency job in 2019. Our yardstick of who should be worthy to be our President must go above and beyond the last occupier of the office. By defining this yardstick, shallow but ambitious candidates will readily rule themselves out of the running and not abuse our collective sensibilities by still picking up a form. We also need politicians that have demonstrated without any shadow of doubt, that it is Nigeria before self. We need politicians that will find it worthy to sacrifice their personal ambition if it means the greater good for all of Nigeria.

In my opinion, beyond any other specialist skill that a candidate may have in 2019, we need to ensure that potential candidates have demonstrable capacity of political, economic and social inclusion. This is especially important given the powers vested in the President and the Executive arm of Government by our Constitution. We cannot afford to vote for anyone that has strength in one but weakness in others. Whoever offers him/herself up for President must be strong in all three areas. By strong, I mean we should be able to award them a 70% pass mark after vetting them during the primaries and general campaign. To get 70%, they must demonstrate consistency in any capacity they’re claiming as supportive of their candidacy. The consistency will demonstrate that they are principled. It will demonstrate that the public should expect fewer policy flip flops. Why is this important?

Nigeria’s problems are longstanding, structural and strategic – meaning that the solutions are equally longstanding and structural. There’s been no significant reduction in our problems over the years despite the significant cost – human and capital – expended by successive governments. We are still deficient in the same areas, still running a patrimonial society, governance is still based on patronage and government revenues are still based on resource rent. Ideally, on a principles and structural basis, our political elites shouldn’t really be flip flopping on policy rhetoric because the circumstances haven’t changed, all new information are still confirming ancient problems. What we need most from them is credibility, integrity and stability of policies so economic actors can plan and commit their investment capital over the long term.

I emphasise “inclusion” because our nation is multi ethnic and multi cultural. It is through inclusion that we can turn our diversity into a developmental weapon that acts as a catalyst for our national progress. We can place all other ideal characteristics needed in a President under one of the three overarching requirements of a) Political, b) Economic and c) Social Inclusion.

By creating this yardstick, we can already rule out some actors currently being promoted for the race to be President in 2019. For example, we can rule out Governor Tambuwal. If we are to consider the integrity of our democracy, Governor Tambuwal shouldn’t have retained his position as Speaker when he decamped from PDP to APC in 2014. Whilst there was enough loophole in our Constitution for him to use, he should have taken an ethical stand and vacate the position. It was an opportunity to demonstrate that his ambition was not worth the appearance or perception that questioned the ethical standard of the House or our democracy. Unfortunately, both he and the APC were quite happy to sacrifice Nigeria for their political benefit. So if Governor Tambuwal comes out in 2019, preaching he’s an adherent to the spirit and letter of our constitution and that he is committed to the progress of our democracy, we should ask him why this wasn’t the case in 2014.

We can also rule out President Buhari. He has so far failed to demonstrate that he has the capacity to enshrine any kind of inclusion with his lopsided appointments, his economic policy flip flops and certainly his continued side-eyeing of politically expedient steps towards the South-South displays this. President Buhari has never run a business, it is no wonder he struggles to appreciate the challenges of the private sector or of small businesses. We know the President is a billionaire (his assets are worth billions per Garba Shehu’s statement on the President’s asset declaration), but we don’t know how someone without a business can become a billionaire. Becoming a billionaire shouldn’t be that easy – in fact it shouldn’t be normal. The President’s current fight against corruption that excludes members of his own party demonstrates Nigeria isn’t quite at the centre of his anticorruption drive but more of a settlement of scores. If his anticorruption fight was truly pan Nigeria, then flagrant disregard of court rulings will not be so common nor should some suspiciously wealthy members of his party be roaming so freely. Going after members of his own party may hurt its chances at the next election or his own chance of retaining the party’s ticket, but not doing so suggests he’s comfortable sacrificing Nigeria for his/party’s self-interest.

We can also rule out Governor El Rufai. His comments on social media in the lead up to the last general election further inflamed the fire of ethnic division. These comments were truly shocking. His recent comment pushing for interest rates by political fiat (further eroding CBN’s independence), being against devaluation or floating of the naira given our dire finances (nothing has fundamentally changed about our finances to influence this flip flop on devaluation, so what economic data influenced it?), his action or inaction during the army massacre of innocent Nigerians in his state all demonstrate a limited capacity for political, social and economic inclusion.

Some of these actions, if viewed through the lens of selfishness, are quite sound. But when we place Nigeria’s interest above self, then it is impossible for Gov El Rufai to justify his comments and actions as being beneficial and supportive of moving our nation forward. Governor El Rufai’s best track record in public office coincides with when he was able to implement ‘strong man’ politics when he was FCT Minister and DG of BPE. Given that ‘strong man’ politics isn’t what we need, thanks to President Buhari for clarifying, then we have to mark down this track record of Gov El Rufai when assessing him as a potential President.

I like Atiku Abubakar. He scores highly in my assessment of those in the running to potentially be President. He is politically inclusive – having demonstrated throughout his political life his ability to work with people from other ethnicity, economically inclusive – his businesses are successful, aren’t monopolies that have cornered government patronage but are also filled with competent people that he has assembled and demonstrably works well with. Turaki Adamawa is also socially inclusive – his agribusiness patronises local farmers and his educational establishments have supported pupils from poor backgrounds especially escapee Chibok girls. Unfortunately, he has been unable to shake the corruption tag on him which weakens any positive on economic acumen. We cannot afford any corruption drama to derail what should be a focussed presidency given the huge task at hand. More importantly though, Atiku will be 73 in 2019, we certainly need a younger President. So he too should be out of the running for president in 2019!

“It’s the economy, stupid!” – This statement will be used during the 2019 election campaign and rightly so. Any country that is serious about development has to meet its citizen’s expectations for jobs, economic growth and stability. So anyone serious about becoming President in 2019 must provide a demonstrable track record and capacity of delivering jobs, economic growth and stability. Obviously, the person will not be working alone, so they must demonstrate a track record that shows clearly that they have the capacity to identify, appoint and efficiently and effectively work with competent persons in their cabinet. They have to demonstrate that they can inspire and motivate appointees – knowing when to allow them run with ideas or when to keep them in check. The must demonstrate ability to grasp sophisticated and non-sophisticated economic and social policies for the greater good of Nigeria and be willing to sacrifice their ambition for the sake of Nigeria.

We cannot afford to put someone that doesn’t demonstrate a sound grasp of socioeconomic issues and their solutions in Aso Rock. Our procurement laws are not hidden, nor are the inefficient working practices in federal MDAs. You cannot get into office, waste time and be seeking emergency powers to implement what should have been covered in your policy implementation instrument. We have to ask the what, when and how questions on any economic rhetoric in campaign manifesto. They must show full workings.

 

Thinking ahead of the 2019 election