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

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