Addressing competitiveness: The road less travelled

For many manufacturers and operators within the private sector, doing business in the country at this time is best described as caught between the devil and deep blue sea; the business environment doesn’t seem easy. Yet Nigeria is a potential market for goods coming from other countries. For government, reducing tax means losing available funds in recession, yet increasing the same amounts to stifling surviving businesses. Whichever way, hard choices have to be made. FEMI ADEKOYA writes on efforts to address the high cost of doing business in the country amidst other challenges.

Concerns over the international competitiveness of industrial sectors arise because applying an ambitious policy may have different impacts on the well-being of businesses operating in the economy.

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 want government to provide relief to operators through policy frameworks that would further aid competitiveness.

According to the operators, the major challenge facing the Nigerian economy at this time is perhaps the inability to regain the confidence of investors, both local and foreign, even as instability and inconsistency in the foreign exchange management policy complicate matters.

Indeed, the real sector operators charged government on providing an enabling environment for businesses to thrive noting that capacity utilisation had dropped drastically in the manufacturing sector amidst 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 stated that the industrial sector, especially the manufacturing sub-sector, should be strengthened by removing all obstacles restraining the growth and competitiveness of the sector.

According to the Manufacturers Association of Nigeria (MAN), unveiling incentives will go a long way in attracting potential and current manufacturers into the use of local raw material inputs.

Besides, MAN emphasised the need for government to give urgent attention to agriculture, solid minerals and petroleum sectors to aid the provision of the needed inter-industry linkages for production of raw materials for the manufacturing sector.

On infrastructure, Jacobs said: “Development of support infrastructure is needed so as to facilitate the country’s industrialisation efforts. With the current situation, however, it may 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.

“Adjusting taxes downward as the country has gone into recession with growth of the productive sector being significantly negative and consumption has whittled down as a result of inflation. 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 investments 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 present economic situation underlines the urgent imperative of proper harmonisation of monetary and fiscal policies in the Nigerian economy.

“What is desirable at this time 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 multidimensional nature, rooted in structural weaknesses, tight monetary conditions, forex policy shortcomings, weak institutions and floundering investors’ confidence.

“Fixing the problems requires proper strategic responses 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 infrastructures; but high cost of fund is also one of the major problems which 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”, he added.

On his part, the Chief Executive Officer of X3M Ideas, Steve Babaeko urged government to address challenges with doing business in the country saying, “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 are going to charge your customers to be able 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 graduate who are really good in different discipline 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 issues we have to address before you can say that you can breathe easy and establish a business.

“My own 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 can they give SMES, because looking at the high rate of unemployment in Nigeria, this is the time to incentivise SMEs for them to be able to employ labour and this is what most advanced countries have done.

“If you look at the American economy, there is statistics that say about 75 per cent of the companies that make up the backbone of the American economy are actually the SMEs. So the blue chip companies account for less than 25 per cent. So how do you drive that SME category, how do you power them up, how do 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 those kinds of tax policies wrong a little bit around here”.

Assuring stakeholders of improved action in tackling lingering competitiveness issues, the Minister of Budget and National Panning, Senator Udoma Udo Udoma, who represented President Muhammadu Buhari at the closing of the three-day National Economic Summit, 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.
Senator Udoma said government acknowledges the critical role of the private sector as the catalyst for economic growth and is determined to make the diversification policy a reality.

“I just want to explain that when we came in, we all knew we had a problem. When the President was campaigning, he knew Nigeria was in bad shape, so he came to solve the problem and we are determined to solve the problem; and we came up with an initial plan, the Strategic Implementation Plan (SIP), which was a short term plan, and we are working on a longer term plan which should be out by the end of the year, as promised in that document”, he added.