Taskforce on 2010 Tariff & Fiscal Incentives Beware! by- Les Leba
President Yar'Adua, on Tuesday 24/11/2009, by proxy, laid before the Legislature the 2010 National appropriation Bill. In view of the results and products of our national budgets over the years, it has become patently obvious to even a blind man
that in spite of abundant resources at government's disposal, the annual budget rituals of the three tiers of government have had little or no positive impact on the welfare of majority of our people.
Nonetheless, journalists and intellectuals continue to dignify the budget and the budget process every year with meaningless debates in the media to the satisfaction of corrupt leaders who are the usual beneficiaries of such budget failures. However, budgets remain the most critical instruments of control and direction for serious and successful economies everywhere.
The 2010 appropriation bill, which regretfully has all the trappings for abysmal failure has further been diminished in stature by the battle of seniority between the Senate and House of Representatives. Even if some uncharitable critics have inferred that the logjam was stage-managed to excuse Mr. President the rigours of a joint House Budget presentation in view of his well-known frail health, the reality is that Yar'Adua missed the live and real time opportunity to gauge the popularity or reaction of the Legislature to some of his 2010 budget proposals. Granted that the simple process of laying the appropriation bill in absentia before each house satisfies constitutional provisions, the existing tradition of the once in a year convention of both the Legislature and the Executive under one roof working in apparent concert to set the country's economic agenda for another 12 months is symbolic of the same togetherness of family members sitting at dinner table to celebrate on Xmas or Sallah day! The event in itself may produce no better tangible results than bloated tummies from turkey and well-fried mutton, however, the love that brings the members together as one family, under one roof, sharing same meal, remains the intangible bond that keeps the family structure together and the longing to convene again for the same ceremony the following year.
But the above is by the way; the main thrust of this week's article is not an attempt at a comprehensive review of the 2010 Appropriation Bill, which may best be described as a 'Budget of Further Deceit'. Instead, I will only discuss what some may describe as an innocuous item in the budget statement. In this regard, we will examine the issue of 'tariff and fiscal incentives' in the 2010 budget proposals.
“A review of tariff and fiscal incentives is ongoing to enhance productivity in the real sector and facilitate rapid economic growth, and a Presidential Task Force has been set up to identify the priority sectors to benefit from these measure….” (3rd paragraph, 2010 Appropriation Bill).
The above passage would only induce hope in neophyte and simple minded investors and entrepreneurs who have never kept track of the woeful results of the multiple and unending task forces that were created in the last two decades, including the 2 – 3 years of the current regime, to revive the real sector. Nigerians would readily recall the existence of the Presidential Economic Team, the Governors' National Economic Council, the Presidential Steering Committee on the Economic Meltdown, and other such ad-hoc teams to address perceived weaknesses in various sectors, ranging from agriculture to textile, etc. Needless it is to say that there is no positive impact so far recorded from our usual fire brigade approach to our predicaments. Now, once again, a new Task Force on Tariff and Incentives has been inaugurated; again, the odds against the achievement of their defined objective is made more daunting by the history of failures of such bodies, even after considerable estacodes and sitting allowances have been paid to committee members from the public treasury. Interestingly, in spite of these failures, members of such committees continue to be recycled into fresh task forces with the hope that they will perform better in the new assignments!! Hope springs eternal, they say!!
However, for what it is worth, I will humbly point the attention of the new tariff committee to major areas they would need to recognise if they desire to succeed in “enhancing productivity in the real sector and facilitate rapid economic growth” (budget 2010 proposals).
First, let us recognize the role of Small and Medium Enterprises (SMEs) as an engine of growth in successful economies. In addition, we should also recognize that the growth of consumer goods manufacture, whether they are textiles, plastics, soaps, biscuits, bread, candies, agricultural produce, etc, usually impact positively, not only on employment, but also on aggregate demand, with attendant security and revenue benefits for government. These real sector industrial activities, of course, cannot be sustained when cost of borrowing is in double digit. For this reason, many industries and commercial houses have continued to collapse over the years in Nigeria as a result of heavy interest burden!
In recognition of the role of low lending rates for stimulating industrial growth, the 2010 Appropriation bill proposes to “establish special intervention funds to provide credit facilities for commercial farming and support necessary agro-processing linkages to resuscitate industry”. Without any hesitation, we observe that such specialist intervention funds have always been promised but hardly actualized, as in the case of the long promised N70bn textile fund or the meager fund of N100bn so far released for agriculture after several years of 'jawjaw'!!
In any event, we are yet to witness any success so far from any such special intervention funding by government. The naira's suicidal devaluation of the late 1980s killed NERFUND (Nigeria Economic Reconstruction Fund) and former CBN Governor, Soludo inexplicably in 2007 summarily terminated the 10% mandatory profit contribution from banks for direct and low cost funding for SMEs, on grounds which were rather flimsy and indefensible, since the identified challenges were obvious even before the commencement of what was a laudable, but poorly implemented SME resuscitation scheme. So, we can once again confidently predict the potential failure of the new Fund intervention scheme! In any case, in view of the huge funding requirement to resuscitate industry, and in spite of the N517bn set aside for debt servicing in 2010, it is unlikely that government will be able to inject more than N500bn for industrial intervention. Meanwhile, this amount is peanuts compared to the actual funding requirement of trillions of naira, if Nigeria will become truly industrialised with adequate infrastructural base.
The solution to funding is actually less intimidating than it appears from the above. If selective sectoral funding arrangements have always failed, why don't we engage our creativity to bring about low single digit interest rate regime across the board for all sectors? This is actually possible with the correct infusion of our dollar export revenue into the economy with the payment of dollar certificates for dollar derived revenue. In place of the substituted grossly bloated naira sums, this procedure which is constitutionally compliant, will translate into low interest rates of 6 – 8% across the board without a need for sectoral preferential selection! Only when this is done will our industrial landscape be positively reinvented and also remove the recklessness of paying annual domestic interest of over N500bn for removing excess liquidity from the system!
We have earlier mentioned the economic significance of consumer industries in this article. However, a cursory excursion through major supermarkets and major wholesale markets will reveal a very disturbing trend; over 80% of supermarket shelves are now stocked with imported consumer goods!! It appears that license to bring in such consumer goods was made possible by our government's blanket approval for supermarkets to bring in provisions and other such consumer goods under a global listing process without individual product NAFDAC endorsement! Needless to say, this global approval has been seriously abused and constitutes a serious threat against the patronage and the survival of our industries, while we continue to consume such imports and create jobs for other economies abroad. If the Presidential Tariff Taskforce will succeed, it is imperative that the global approval for the import of supermarket products be immediately abolished! The above notwithstanding, it is most probable that termination of the global approval for supermarket products importation may induce smugglers to bring in such goods in addition to their other contraband cargoes, but we should not be daunted by this prospect. The success of smugglers and the extent of damage they do to our economy can be mitigated by reducing or eliminating their sources of cheap foreign exchange for such imports. There is no serious country that sells official foreign exchange to bureau de change, (BDCs) such that our own CBN officially allocates in excess of $2bn to BDCs every month; this is in spite of the recognition that most of these valuable foreign exchange is snatched up by smugglers and looters of the public treasury. Thus, our own CBN's free BDC dollars' regime will certainly work against the efforts of the government's Taskforce to resuscitate our economy and the viability of local industries will be undermined with adverse and serious consequences for employment and security in Nigeria.
Six months or more from now, we will take another look at the results of the intervention of the Presidential Taskforce on tariffs and incentives, but I daresay it will be a scorecard of failure, if the issues raised in this column are left unaddressed!
SAVE THE NAIRA, SAVE NIGERIANS!