Joseph Uwaleke is a Professor of Finance and Capital Market at the Nasarawa State University, Keffi. In this interview with Clara Nwachukwu, the Managing Editor, Sustainable Economy, he believes that although the National Economic Sustainability Plan did not record significant successes as expected, it can still be salvaged in subsequent economic plans. Excerpts:
What is your view about the recently-expired Federal Government’s National Economic Sustainability Plan, in terms of achieving set targets and goals?
I will like to start by saying that in you know it was something that came up as a stop gap on the back of the COVID-19 pandemic, and the ERGP was running to stop in December, and government needed to put a plan in place to quickly help the economy recover from the COVID, so it was an emergency package that was meant to last for one year. This is why all the plans you find there are meant to be concluded within one year. It is a stop gap in the sense that it is supposed to come in between the old ERGP and the new one that is being developed that will run from 2021-2025.
I think the plan is well-articulated, If you look at the provisions we will have there, if you take the infrastructure component for example, it outlines massive programmes in agriculture for example where it talks about getting between 20,000 and 200,000 hectares of land from each state for agriculture. The agriculture plan is massive and if well-implemented will go a long way in helping this food inflation challenge we are having. If you look at the plan for housing in the ESP, there is a plan to build 30,000 homes in the next one year and this will also go a long way in helping to stimulate the economy; the main idea is to fast track economic recovery through various activities. Yes, the economy is recovering but the pace is very slow, so if these programmes are implemented it will go a long way.
If you also look at the energy plan, where the government talked about ensuring that five million homes get solar energy, this will create a lot of both direct and indirect job opportunities. What we then require is actually that there should be a sense of urgency in implementation, and I don’t think the implementation moved as fast as one would expect given the fact that it is meant to last for just one year.
If you look at all the targets in terms of implementation you would tend to think that it is progressing rather slowly. This also required the operation of not just the Federal Government agencies but also the states, because in the case of agriculture for example it is the states that control and release the land. So the cooperation of the states government and of course the private sector was required to drive the ESP.
It is a good plan, but it’ implementation is not as fast as one would expect otherwise by now we will be seeing a stronger growth rate than just the 0.51% that was recorded in quarter one of 2021, because this are plan that was launch since the middle of last year, and is meant to last for 12 months. Implementation of that plan would have ensured that the growth rate is stronger than what it is now because the whole plan targeted a growth rate of more than 2%, and we actually need to do a rate of more than 2.6% above the population growth rate for it to have the desired impact on the masses or the people.
Implementation is key, and the aspect that I feel that has achieved some tremendous progress is the area of health, and that has gone very far, which is why the country did not experience serious crises as a result of the COVID. If you check the GDP growth rate for quarter one of 2021, the health sector is expanding and that is a reflection of the attention the government has given to health, but the other sectors a lot of them are still in the negative territory including manufacturing. For agriculture, in quarter 1 the track is still positive, but it is reduced, so we need some serious work in agriculture, housing, infrastructure especially with off-grid power solutions, which are very much emphasised in that plan – the solar energy we need to see traction in that area.
The national grid with all the challenges the country is experiencing with the private hands that are running generation and distribution. I’m happy the government is talking about doing something on generation by selling some more infrastructure – Benin, Ogun about five of them, but the government is still having a challenge with handling the distribution companies (Discos), because of legal issues. But the solution to all of this is to migrate away from the national grid and explore off-grid solutions.
There is a proposal to increase VAT to 15%, do you think that will solve some of our revenue challenges under the current realities?
No, no, no; it will not. I’ve always been in favour of rebalancing the tax mix in favour of consumption tax. I’ve always said that tax in Nigeria is very low; even at 7.5% it’s one of the least. Increasing VAT to 15” will be too high; if we’re increasing from 7.5 to 10%, then we should also think of reducing company income tax from the current 30% for large companies. As you know, the Finance Act made some changes including reducing CIT for small companies to 20% and some other categories to even zero. For large companies, it is important that this is reduced to about 27% before the government can then talk about increasing the VAT to about 10%.
The emphasis now is on indirect tax or consumption tax than on direct taxes. Once the income tax is reduced, it will create opportunities for jobs in the economy. I don’t subscribe to 15% because it is too high and if you must do this, direct taxes must also be reduced.
You must also ensure that the tax base is widened to compel those who are not currently paying taxes that they do through the use of technology. Already, the FIRS is deploying technology to improve tax collection and this can be improved upon. The banks too and those the FIRS has engaged should continue to train their staff and deploy newer technology to improve collection. Recently, we heard that FIRS and Customs collections have improved and that is gladdening, but in terms of tax payment, it is not in doubt that there are a lot of tax evasions and with the deployment of technology in partnership with the banks, this can be checked.
In the Finance Act, the law said banks should be made to check evasion such that before you engage in your transactions you should provide your tax certificates, and this should be encouraged and implemented because a lot of the rich and those who own a lot of properties. If you look at Abuja, there are so many unoccupied buildings because taxes are not being paid on them. But if the government ensures that the requisite taxes are paid the owners will do something about getting them occupied and the revenue base will be widened.
Although Nigeria managed to wriggle out of recession, however, the economy is not growing at the expected pace mostly because the government’s diversification efforts are not yielding the desired results. What else can the government do besides the NESP?
In terms of economic diversification, we’re saying that the economy is somehow diversified in terms of sectors but the problem is diversifying the revenue base because we are largely still relying on oil for over 90% of forex and over 70% of government’s receipts. We need to really diversify the revenue base, which is why we are carrying a big debt burden; the debt service-to-revenue ratio is very high because revenue is very low but If we diversify using agriculture and solid minerals that will be better for the country. We can explore the potential in the agriculture, solid minerals sector, and these are well-known, it’s just to implement the plans that the government has set out in these sectors.
The ERGP had a number of plans for exports to boost agriculture as well as for solid minerals, but the issue is poor implantation.
Part of the NESP is also to expand and sustain the MSMEs’ operations. Do you think that this has been achieved to a large extent?
In Nigeria we hear the number is over 40million, so supporting the MSMEs will go a long way in expanding the economy, especially in job creation. But then, MSMEs in Nigeria face a lot of challenges, including access to finance, which is a major problem and the CBN has been doing quite a lot in that area but because of their sheer number; they’re so many, what the CBN is doing appears to be like a drop in an ocean.
MSMEs also face infrastructure challenges, even if an operator succeeds in getting a loan of N1million, instead of putting the whole amount into the business as a working capital and for expansion, the person thinks about how to use the money to buy generators and other basic infrastructure. By the time he is done with providing these things for himself, the money is gone. You cannot run any business without sufficient power. This is why we are having high inflation in terms of food and commodities.
A lot of people also complain about multiple taxes, many MSMEs will say they face a lot of harassment from revenue agencies collecting multiple taxes from them which is part of what the government should look into and try to streamline these bottlenecks.
How can we sustain growth in an environment of high inflation, high exchange rate, and attendant dwindling purchasing power?
That’s the point I made about a harsh business environment, which starts with inadequate infrastructure. Also, the fact that this is an import-dependent economy, and the FX to import the raw materials that is needed to produce is not available, because of the high exchange rate.
The high exchange rate is a function of the inadequate forex supply because the major supplier is oil, and earlier we talked about the need to have multiple sources of income. Apart from oil, the other foreign investment yields are not usually substantial, especially now that a lot of the foreign investors have gone because of the Covid.
But if we can tackle the issue of infrastructure, we would have made it easier for businesses to have access to finance. For now, it is only the Central Bank that gives single-digit interest loans, commercial banks don’t, and there is a limit to what the CBN can carry. If the commercial banks are in a position to give out these loans to MSMEs at single digits or very low interest, it will go a long way to help their cause, because once they have access to finance, and basic infrastructure, a number of them would embrace integration and try to source the material locally instead of importing them.
Implementation of that plan would have ensured that the growth rate is stronger than what it is now because the whole plan targeted a growth rate of more than 2%, and we actually need to do a rate of more than 2.6% above the population growth rate for it to have the desired impact on the masses or the people.
The Federal Government is pushing import substitution with the support of the Central Bank, by restricting the importation of goods that are available locally. For instance the CBN’s Anchor Borrowers’ Programme in support of the production of rice. They are also giving support to the Textile industry, although they really require a lot, but by the time you escalate this, the local people will begin to also produce. The local producers are challenged because the foreign products are usually cheaper.
Finally, the NESP has expired without achieving many of its targets. Do you think the plan should be rolled over into other economic plans like the ERGP and MTEF ?
The 2021 budget implementation is still on and this budget flows from the MTEF of 2020-2023, part of its provision is also in line with the ESP. Although the ESP is now expired because it was billed for 12 months and the 12 months are now gone, but we have not been told officially that it is over, I expect that the faithful implementation of the 2021 budget will help to achieve some of those ESP goals and targets.
The thing is that some of the provisions in the ESP are very crucial and should not be discontinued because of the expiration of the plan but pursued to the end, for instance, the solar power project for homes, the housing scheme and the agriculture plans, which should also involve the states government. The plan to have new farm lands of about 100,000 hectares. No one knows the extent to which these plans have been achieved.
What is lacking so far in terms of the plan, is monitoring and evaluation to educate Nigerians the extent to which these targets have been achieved. We haven’t seen any reports on the MTEF, ERGP or even the budget. Also, the interventions by the CBN to support economic growth, it is important that there is a report on progress made. There should be an evaluation report on the Anchor Borrowers Programme to determine whether it has achieved set targets. Furthermore, we want to see evidence of what has been done across government plans because this will show how far they have gone, and what is left.
