Real sector operators want lower interest rates, tax relief
While the economy’s structural defect of being heavily import dependent cannot be fixed in the short term, stakeholders in the nation’s real sector have sought government’s intervention in providing relief to operators through policy frameworks that would boost competitiveness.
According to the operators, the major challenge facing the Nigerian economy, currently, is perhaps inability to regain the confidence of investors, local and foreign, even as instability and inconsistency in the foreign exchange management policy complicate matters.
The real sector operators charged government with providing an enabling environment for businesses to thrive, noting that capacity utilisation had dropped drastically in the manufacturing sector, amid dwindling consumer purchasing power.
While at least 10 countries have emerged as the most competitive Sub-Saharan African economies, according to the Global Competitiveness Report 2016-2017, Nigeria slipped three places to 127 from 124 in the 2015-2016 rankings.
According to the report, short-run pressure on public funds may have long-lasting effects on African economies by reducing much-needed investments in infrastructure and education, while higher uncertainty about country financial risks could shrink private investments.
President of Manufacturers Association of Nigeria (MAN), Dr. Frank Jacobs, said the industrial sector, especially the manufacturing sub-sector, had to be strengthened through removal of obstacles restraining growth and competitiveness.
He said unveiling incentives attract potential and current manufacturers to the use of local raw material input. He emphasised the need for government to give urgent attention to the agriculture, solid minerals and petroleum sectors, to aid provision of inter-industry linkages for production of raw materials for the manufacturing sector.
On infrastructure, Jacobs said: “Development of support infrastructure is needed to facilitate the country’s industrialisation efforts. With the current situation, however, it might not be advisable to use borrowed funds only to finance infrastructure development. The private sector should be actively involved in infrastructure development. Government should, therefore, resuscitate the Public Private Partnership (PPP) programme through the establishment of Concession Agreements under Build-Operate-Transfer (BOT) in road construction and maintenance, rail construction and maintenance, among others.
“It is not advisable to increase CIT, VAT and PAYE, as the productive sector is already hit with dwindling investment. Any further tax increase will crowd out more investment in the sector. Taxes on luxurious goods and property may also be raised.”
Director-General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, explained that the current economic situation highlights the urgency of proper harmonisation of monetary and fiscal policies in the economy.
He said: “What is desirable is to stimulate growth and create jobs. And private investment is very critical in making this happen. A low interest rate regime will surely stimulate domestic investment. I submit that lower interest rates would benefit the economy more than it would hurt it. The reality is that the economy is afflicted by challenges of a multi-dimensional nature, rooted in structural weaknesses, tight monetary conditions, forex policy shortcomings, weak institutions and floundering investors’ confidence.
“Fixing the problems requires proper strategic response from the fiscal, monetary and political governance fronts. And these strategic responses are not necessarily mutually exclusive. Indeed, they should be concurrent. The economy surely has profound issues with infrastructure. But high cost of fund is also one of the major problems investors are worried about. High interest rate is a concern for investors across sectors, both for machineries and equipment procurement, as well as working capital.”
The Chief Executive Officer of X3M Ideas, Steve Babaeko, urged government to address challenges of doing business in the country. He said: “It has been challenging. I can tell you the areas where it is hitting our head against the rock. One is infrastructure. If I tell you how much we spend to run our generators. It is a lot of money in a month. And, of course, that will go into how much you will charge your customers, in order to remain in business.
“Getting the right human capital to work is another challenge. There are so many people that are unemployed. And at the same time, there are so many people that are unemployable because the educational infrastructure that is supposed to provide a whole pipeline of fantastic graduates, really good in different disciplines, to be able to come into the industry, has since collapsed.
“When you are caught sometimes between the Lagos Internal Revenue Service (LIRS) and Federal Inland Revenue Service (FIRS), it is like being caught between the devil and the deep blue sea, with issues of double taxation here and there. Those are still matters we have to address before you can breathe easily and establish a business.
“My point of view is that this is the point where government needs to begin to look at small and medium enterprises (SMEs) and say what kind of tax breaks they can give, because looking at the high rate of unemployment in Nigeria, this is the time to incentivise SMEs, to be able to employ labour. This is what most advanced countries have done.
“If you look at the American economy, there are statistics that say about 75 per cent of companies that make up the backbone of the economy are actually the SMEs. So, the blue chip companies account for less than 25 per cent. How do you drive that SME category? How do you power them up? How you incentivise them to even want to hire somebody is key. Instead of doing double taxation, this is the time to give tax breaks. I think we are getting tax policies wrong.”
Assuring stakeholders of improved action in tackling lingering issues of competitiveness, the Minister of Budget and National Planning, Udoma Udo Udoma, said government acknowledges the role played so far by the private sector in the growth of the country’s economy, but wants a greater commitment from operators in growing a sustainable economy for the country.
Udoma, who represented President Buhari at the closing of the recent three-day National Economic Summit in Abuja, said: “When the President was campaigning, he knew Nigeria was in a bad shape. He came to solve the problem and we are determined to solve it. We came up with an initial approach, the Strategic Implementation Plan (SIP), which was a short-term plan. We are working on a long-term plan, which should be out by the end of the year.”