Setting Agenda For Buhari's Economic Team
Notwithstanding the high level of hopelessness and decay met by the Buhari administration, it is a blessing in disguise because by giving government sleepless nights government should over time throw up some unconventional solutions to these inherently daunting economic problems. The overall agenda of the economic team should be finding some creative ways to grow and diversify the economy away from oil.
Fiscal Stimulus Policy: For the Buhari administration to reverse the looming economic recession, the economic management team should pursue a pro-growth, pro-investment, and pro-jobs fiscal policy direction. This should be the team's first step. The team's comprehensive fiscal stimulus package should focus on an unprecedented infrastructure investment. Here, the target should be on power sector with an ambition to generate not less than 100,000MW within the next 10 years.
This time around full power generation diversification is the sustainable answer, which should include coal, solar, hydro, wind, gas, nuclear, and geothermic. Next is a comprehensive master plan for a road network crisscrossing the entire nation, linking up important parts of the country for easy and quick access. We must invest in massive infrastructure development without which there is no way we could reduce the current high cost of doing business, one of the highest in the world, and which is standing on the way of industrializing our oil-based economy.
National Infrastructure Bank of Nigeria: For a nation now with a long-term focus on developing its infrastructure, there is the urgency to establish National Infrastructure Bank of Nigeria, modeled after China Infrastructure Bank. Nigerian government through NIBN should begin negotiation with their Chinese counterparts about securing an infrastructure development loan from China. The goal of this unconventional source of financing is to tap into China's $4 trillion foreign exchange reserves for the country's massive investment in infrastructure, which is long overdue.
Nigeria should offer China about 10 billion barrels of Nigeria's 45 billion oil reserves as strategic collateral with 20-years repayment of the loan without interest on the principal. Since oil swap was used in the 1990s to give Abuja its current excellent road network, why not use oil also as strategic collateral to secure up to $350bn from the Chinese? We all know that with $350bn kept in NIBN, China Infrastructure Bank should from there make payment directly into international construction companies involved in the construction work, meant in addressing Nigeria's currently embarrassing infrastructure deficit.
Rather than interest on the loan, Nigerian government should include in offer, what Beijing should hardly refuse, which is, that Chinese companies should enjoy first offer of refusal in at least 50% of all the power generation and transmission contracts funded with the Chinese loan.
Such infrastructure construction contracts should include contracts to Chinese companies to build in Enugu and Kogi a number of coal-fired power plants with about 50,000MW target. An ambition of 30,000MW nationwide solar power generation should be offered to a number of Chinese companies. Since China recently built the largest dam in the world—the three Georges Dam in Hubei, China, which generates 22,500MW—we should include the building of a similar dam in Nigeria with 10,000MW target. It is pertinent to note that since the infrastructure construction contracts should be an international bidding, contracts are only awarded to Chinese companies or any other companies meeting all quality standards as specified. Russia and China after all have similar agreement based on a long-term gas supply to China by Russia worth about $400billion.
Revenue Generation Diversification: In the effort to drastically increase internally generated revenues of the federal government from its currently less than 12% to as high as 50% of its budgets during the next four years, which should be the lowest target in any modern economy, government should focus all its energies on aggressive diversification of its revenue generation. This diversification effort should be the paramount agenda of the economic team.
For this reason, VAT should be increased to not less than 20%, which is the lowest percentage for a country at our stage of development having to deal with our kind of infrastructure deficit and expectantly running large budget deficits going forward.
Carbon tax as a special tax should be imposed on automobile through annual number plate renewal fees. Here, all automobiles should renew their number plates based on the engine capacities of the automobiles. For instance, V12 engine and above cars should annually renew their plates with N200,000, V8 and V10 engines pay N150,000, V4 and V6 pay N100,000, and below V4 pay N50,000. State governments being responsible for providing these number plates should keep 85% of the tax while remitting 15% to federal government.
Tollgate policy should be returned on the country’s highways in a way that cars and trucks should pay according to the costs they impose on the roads. To ensure that the toll fees are not diverted as was previously the case, e-collection rather than manual should be used. Government should privatize the roads so that the private owners remit certain percentage of the toll fees to government while retaining the rest for maintenance and expansion of the roads.
Our capital gains tax (profit incurred by individuals or corporations on the sale of non-inventory assets, mostly realized from the sale of stocks, bonds, precious metals and properties) which is one of the lowest in the world should not only be increased from 10 per cent to as high as 40 per cent but also should be fully enforced with high evasion cost and consequences.
Property should be made an important source of government revenue, taxing both owners and renters of both residential and corporate property. If not for any reason, be it for providing security and policing as well as for cleaning and beautifying streets and neighbourhoods. As an important source of revenue for local authorities, property tax should however be designed in a way that discourages double taxation. Property tax along with street and road traffic offences--wrongful parking, traffic light offences, driving on pedestrian lanes, driving without number plates, drunk driving--when fully implemented, could be a major revenue source, particularly for state and local governments.
Taxing foreign made drugs should be used by government besides being an important sources of revenue should also be a way of discourage importation of drugs that could be locally produced. In an effort to ensure that their products are competitive in the Nigerian drugs market, big time drug exporters to Nigeria will see the urgency to relocate their factories to Nigeria.
Since national lotteries and jackpots have been discovered as a kind of money minting machine in so many countries, by organizing biannual multibillion naira lotteries, federal, states, and local governments should surprisingly discover how important lotteries and jackpots are could be as sources of revenue generation.
SMES Support Program: If China and the US create millions of jobs made possible by government SME support programs, we have no option but to give Nigerian SMEs all the support they need if we want to see them create millions of jobs also here. After all, the much talked about economic diversification should hardly happen without fully promoting and protecting SMEs. For this reason, federal government should workout modalities for the establishment of 37 industrial parks across the nation.
Industrial Parks: To ensure that start-ups and infant industrialists do not fritter away their scarce resources, trying to acquire land, build factory warehouses and offices, build roads, buy generators for electricity, and boreholes for water, provide security, and other services, all the 36 state governments and FCT should establish specialized industrial parks to provide these facilities and services in clusters. And to ensure that they are timely established, meeting set deadlines and standard, federal government should pick 50% of the park's establishment bill, supervised by the Nigerian Industrial Park Commission (NIPC) established with federal government and the 36 states and FCT having one representative each.
Model Factories: Like German and Japanese model factory programs, model factories should be built in strategic industries as a way of attracting indigenous industrialists and manufacturers into such industrial activities. Model factories should be leased to those who have what it takes to successfully manage them and be able to model factory mortgage. In other words, the recipient industrialist, not only should publicly demonstrate having the needed managerial and operational competencies, but would have the needed financial discipline for the mortgage arrangement.
Small Business Administration of Nigeria: SMEDAN should be renamed the Small Business Administration of Nigeria (SBAN) with the goal of making razor-focused, and truly a world-class development and administration of start-ups and SMEs. Besides providing all the mentoring and infant industry product development, technical and marketing support programs, SBAN should biannually organize nationwide Presidential Business Plan Writing Competition, where all the 36 state and FCT should be represented, and first, second, and third winners get cash of N1billion, N700 million and N500 million respectively. Given the kind of responsibilities, SBAN should be run by some seasoned professional technocrats, meaning highly knowledgeable and technically vast goal-getting Nigerians.
Venture Bank of Nigeria: Like governments in developed and fast developing economies providing special financing vehicles (debt and equity), in support of local entrepreneurial startups and SMEs business owners, federal government should establish a specialized bank providing seed and growth money to startup businesses as takeoff funds and SME financing. This highly specialized bank, fully dedicated to 'walking the talk' with entrepreneurs and small business owners should have the bulk of its capital from Nigerian Customs, where 50% of all import duties are injected into the bank.
Informal Business Formalization: With over 70% businesses in Nigeria operating informally, their formalization has become inevitable should the effort to modernize the economy and create millions of new jobs be realized by the Buhari administration. For this reason, a bill on informal businesses formalization should be set to the National Assembly. Besides the bill setting deadline for the formalization of all businesses in the country, the bill should also ensure that all businesses operating in the country should only operate legally if the business permit number and tax codes. Besides, doing so will help government extend its SME support programs to these formalized and mainstreamed micro and small businesses, it is going to legitimize the informal businesses by giving them business tax codes and business registration numbers, with which to pay the right tax and as when due.
Academic and Healthcare City: Like in Dubai, Nigerian government should establish an international academic city with the goal of attracting leading universities around the world to set up their foreign campuses in Nigeria. This will immediately reverse the current overseas education costing the country billions of dollars annually with Nigerians now studying and getting the same excellent education from leading universities sited in their country where they in naira. Also like Dubai's, our healthcare city should be designed to attract some of the world's leading hospital chain to set up their subsidiaries in Nigeria in order to take full advantage of Nigeria's 180 million healthcare seekers. This will bring to an end the medical tourism costing the country billions of dollars.
Pro-Investment Budgeting: Government budgeting and implementation should henceforth be timed with deadlines fixed by law as it is the case in most modern economies around the world. Budget to GDP ratio, which is currently about 5% should be increased to not less than 25% with our deficit to GDP ratio at less than 1.5%, which is one of the lowest in the world, be increased to not less than 6%. This will mean that next year's national budget shouldn't be less than N10trillion with as high as 70% capital spending. Also, Federal Executive Council weekly meetings should stop being where to lobby for contract awards, but instead where fiscal policy is fine-tuned and project performances are reviewed.
Pro-Real Sector Monetary Policy: On the monetary policy side, the new economic management team should work together with their counterparts in monetary policymaking with the goal of reducing imports' undue pressure on the country's scarce foreign exchange reserves. Forex should be strictly for imports essential for industrial inputs such as plants and equipment and industrial raw materials. Nonessential imports should source their forex from nonofficial windows such as the parallel market. However, importers should prove forex legitimacy or else, the country's anti-money laundering including seizure of the imported goods could apply.
MDAs Forensic Personnel Auditing: A comprehensive forensic personal auditing should be carried out by government in MDAs without any further delays. This has become urgent since this government want to reduce recurrent spending, starting with flushing out ghost workers and to increase efficiency, productivity, and wastages in all MDAs with the goal of driving down recurrent expenditure while driving up capital spending of the federal government.
Paying Government Debt: Government should pay off its current domestic debt currently hovering around N8 trillion using quantitative easing. This has become urgent because not doing so would amount to national debt servicing swallowing most of government's revenues. Therefore, since repayment of domestic debts denominated in domestic currency including printing currency when such debts are difficult to be repaid government should exercise that option.
Enwegbara, a development economist writes in from Abuja.