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By Merit Ibe, [email protected]
AS President Muhammadu Buhari’s administration comes to an end in 4 days time, the challenges of his 8 year tenure for the manufacturing sector will perhaps haunt the economy for many years to come.
Stakeholders believe that although the outgoing administration tried its best in some sectors, it it may indeed be difficult to listing the manufacturing sector among those that benefitted from it. This because the barrage of challenges was worsened by the economic depression that precipitated high unemployment, rising inflation, decreased consumer spending, massive debt crisis, policy somersault and other economic issues.
While many believe that there were little improvement during Buhari’s eight year rule in the road, rail, airports and relationship between the centre and the sub-national entities, other stakeholders say macro economic indices like the power infrastructure, manufacturing, oil and gas and security, which have great implications for the domestic economy suffered great deficit.
It was concluded that the policy failures of the outgoing government posed a huge setbacks to the growth of the economy, including its policies on foreign exchange, tax, trade, naira redesign, among others, which weakened the economy.
The outgoing government got into power in 2015, promising Nigerians a better deal, but all expectation failed to crystalise at its sunset.
Going down memory lane, by 2015, when Buhari took over power, Nigeria’s inflation rate averaged 9 per cent, but that has surged to close to 23 per cent as he plans to exit from his exhalted seatby next Monday.
According to the National Bureau of Statistics (NBS), under the current administration, the country’s inflation rate hit a 16-year high amid increases in prices and poor purchasing power.
Under the Buhari administration, food inflation has been on the rise across the country with most staple food going out of the reach of ordinary.
Nigeria has since been hit by unemployment, poverty and economic disempowerment.
Buhari is leaving behind more than 23.2 million unemployed people, the highest in at least 13 years and the second-highest rate in the world.
In November 2015, barely six months after Buhari was inaugurated as president, the naira exchanged against the dollar at N197. Between then and now, the currency has hit the N750 mark to one dollar.
In the same vein, Nigeria’s debt profile has risen considerably since Buhari took over power, as budgetary proposals have been designed considerably around debts. As of now, President Buhari’s administration will be leaving a debt burden of about N77 trillion.
With the above record on unemployment, inflation, exchange rate, GDP and recession, food prices and debt level, one could without doubt conclude that the Nigerian economy went from bad to worse under the outgoing administration.
With these challenges that the incoming administration would have to face, stakeholders have advised that overcoming them would be a determining factor in its achieving success or failing. It would require a deliberate effort to overhaul the current system as well as put new systems in place for a renaissance in the manufacturing sector.
Commenting on the President performance in 8 years, Dr Frank Onyebu, Chairman, Manufacturers Association of Nigeria (MAN) Apapa branch, said there is no doubt that the outgoing administration tried its best in some sectors, “but it’s hard to come up with some positives for the manufacturing sector. We are happy, of course, that Dangote refinery and the petrochemical plant have been commissioned, but the manufacturing sector is still grappling with a lot of challenges. He lamented that “infrastructural issues are far from being resolved. Roads leading into industrial areas are dilapidated. Some manufacturers find it difficult to access their factories. The bad roads have also contributed to increased stock of finished products since customers are unable to access some factories. Power supply is still epileptic – it’s getting worse rather than improving. At the same time the cost of alternative power sources has skyrocketed. The cost of generating sets have quadrupled owing to the sharp depreciation of the Naira. The cost of diesel has also risen several folds.
Our ports are still congested and mostly inefficient. Goods that should normally take days to clear take weeks. This has led to tremendous increases in the cost of shipping, demurrage and local transportation, and hence increased cost of production.
Foreign exchange scarcity has persisted with no end in sight. Manufacturers therefore have to continually worry about sourcing of machinery, equipment and supplies. The high cost of imported inputs makes Nigerian manufacturers highly uncompetitive. And with worsening security, it has become increasingly difficult to source local inputs.
Multiple taxation, levies and other forms of over-regulation have also increased the plight of manufacturers and made the operating environment rather unattractive for investment. The recently introduced excise duties have only compounded the already bad situation. Manufacturers also have to contend with non-state actors who the government appears to be helpless in dealing with. These touts, who come in various guises, appear to be law unto themselves. They harass manufacturers on the roads and in their factories, sometimes with the aid of law enforcement agents.
“These challenges are further compounded by the shocks of a depressed economy resulting from high unemployment, rising inflation, decreased consumer spending, massive debt crisis and other economic issues. Many factories have been forced to shut down while some have had to relocate to neighbouring countries.
“These are major challenges the incoming administration would have to face. Overcoming them would be a determining factor in accessing the success or otherwise of the new government. It would require a deliberate effort to overhaul the current system as well as putting new systems in place for a renaissance in the manufacturing sector.
Also commenting, a Development Economist, Dr Nathan Owhor, argued that the past eight years have seen significant addition in the road infrastructure while the national rail grid received a boost.
“The physical infrastructure in the airports have improved and the relationship between the centre and the sub-national entities have also improved. Apart from these indicators, other macro indices; like the power infrastructure, manufacturing, oil and gas and security, which have great implications for the domestic economy have suffered great deficit during the past eight years. “The domestic economy has remained fundamentally weak because of the poor power infrastructure. The generator led economy has slowed down economic activities and promoted poverty. The domestic economy is largely led by artisans who require significant amount of power to sustain and run their businesses. But the government in eight years did not sufficiently deal with the challenges in the power sector. The economy will only develop if the capacity to generate and distribute power is enhanced and sustained. “Manufacturing sector, a major employer of labour and a huge source of government revenue did not also receive sufficient government attention in eight years. The failure of the government to deliberately seek urgent ways to invest in the manufacturing sector has continued to slow down the road to economic recovery. The textile industry despite several policy pronouncements has remained dormant. This is inexcusable for a country that has huge unemployment ratio. The prime place of the textile industry in the economies of China and India should be able to challenge the political elite. But the textile industry in the past eight years has not received any prime attention.
“The domestic refineries in eight years have remained inactive despite several promises to restore hope in the sector. The failure of the government to fix the refineries after eight years is beyond comprehension. The government has announced in this eleventh hour of it’s desire to repair the ailing refineries. This is rather too late in the day. The security challenges have continued to negatively impact on the economy. Despite assurances by government. The farmers are still in great danger in their farms in most part of the country. The level of food scarcity has driven prices to the roof top. The government is winding down and all the expectations appear unattainable. It is hoped that the incoming government will make the expected difference and the citizens will have a reason to celebrate.
For his part, Director, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the outgoing administration did not manage the cost of governance well. “While we are grappling with the revenue problem, the cost of governance was increasing. And there were no deliberate efforts to cut down on the cost.
“So, we have unhealthy bureaucracies and political appointees that are unworthy. And there were so many political offices and parastatal agencies created with no well-crafted purposes. The government has just been spending money. And once there is no more money to spend in the main revenue stream, the Federal Government will run to the CBN, which is why the ways and means finances roll up to N23 trillion.
At the beginning of the current administration, this thing was just about N2 trillion. In fact, as of February, credit to the government from the banking system was about N28 trillion. So all these issues have contributed to where we are at the moment in the economy.
“And we all know that the oil and gas sector is a major source of revenue. But we all saw the kind of losses the government was incurring in the sector. First of all, we have the oil theft, which you know, for several years, people have been stealing crude oil.
And to the estimates of the GMD NNPCL, the country has been losing about N400 billion every month. And this thing has happened over a number of years. So, there has been a major loss of revenue arising from the oil and gas sector because the sector is a major source of revenue even though it may not be contributing so much to the Gross Domestic Product. But it is doing a lot to revenue and our foreign exchange earnings. So failure to manage the oil and gas sector well has been an issue for the outgoing administration. And then, even in the oil and gas sector, apart from oil theft, the environment itself was not conducive for investors, especially the multinationals, who have the capacity to invest and boost our production. So because of problems of insecurity, lack of clarity and uncertain policies, many oil-producing companies were divested from Nigeria. And they left the country. So, we were not even able to meet our own oil quota requirement. That’s why I said our failure to manage the oil and gas sector well is a major issue.
“Another issue has to do with optimising our tax revenue. It is only very few people that are in the tax net. There are quite a lot of billionaires who are not even in the tax net. So the deficiency of our tax system has also been a contributing factor. Our tax today I think it’s about six percent. It is one of the lowest and this is because we have many people in the country that are not paying taxes. So the pressure of taxation is only on a few people who are compliant, especially in the formal sector of the economy. So there is the issue of optimization of the revenue.
And of course, our budgetary process has not been transparent enough when it comes to transparency in the procurement processes. And we have heard all manner of allegations of corruption.
And then again, the investment environment is very difficult. If you want to grow the economy and you want to grow investments, it is the private sector that will invest, not the public. What the government is expected to do is to facilitate and possibly influence some infrastructure. All other kinds of investment are supposed to be done by private companies across all sectors. But if the environment is not conducive, they will not invest. And if there is no investment, there can never be economic growth and revenue. So this is also a contributory factor.
One of the major policy failures of the present government was the foreign exchange policy, which has been a total mess. And this is because the whole foreign exchange environment became very transactional and not transparent as we had a lot of commission agents, who were making quick money by getting foreign exchange at the official rate and selling it at a parallel market rate. So this creates some kinds of foreign distortion. And whenever there is a huge gap between the official rate and parallel market rates of a product, investors will not come in.
And both the World Bank, IMF and Lagos State government have complained about this.
Another terrible policy under Buhari’s administration was the naira redesign policy. This one affected everyone, especially the poor people. It caused a whole lot of problems and practically grounded the economy.
Then, there are issues around our policy on taxation. You see, it is true that we need money, but we should be taxing the right things. The present administration has made too much focus on taxing investors, not necessarily taxing their profits, which is okay. But when you are taxing their inputs and production, it puts a lot of pressure on the investors and it makes it difficult for them to contribute to the economy, either by way of revenue or employment. So the tax policy was also an issue.
And then, the trade policy of this administration, which is about import and export, has been too focused on income generation. If you turn to the customs, all they know and care about is how to meet their revenue target. They don’t care what is happening to the investors and job creation. So in the process, the investors suffer a lot.
On the Dangote refinery, you see, we need to manage expectations around this Dangote refinery. We shouldn’t forget that the refinery is a private investment and it will operate on purely commercial principles. And then, the refinery has creditors and shareholders that it has to pay, both in and out of the country. These people have put their money into the company and will be expecting dividends. So the Dangote Refinery won’t run with any subsidy model. The only difference it can make is if the Federal Government decides to do some swap with the company by giving them some crude oil and taking fuel in exchange to sell to Nigerians at whatever price. That may work. And the only thing that the government will save will be the cost of transportation. In other words, instead of bringing the fuel from Singapore and other countries, the government can get the fuel from Lekki and save on the cost of transportation. But as for the price, I don’t think the company will give any concessionary price, because it will have two options: either to sell the fuel locally or do so abroad. And considering the fact that some of the money he borrows is in dollars, it will have to export some of the products to generate some foreign exchange to clear off some of its foreign debts. So, I don’t think the Dangote refinery will take away the hard effects of the subsidy removal, it will only help to manage the process.
The Nigerian economy is in a stumbling and fragile state and in dire need of a new direction. The current political transition offers a remarkable opportunity to chart a new course. The incoming administration should establish quality economic governance consistent with tested economic principles and empirical evidence and contextualised within socioeconomic peculiarities. This is critical from the onset of the administration for signalling and investors’ confidence. A good economic governance framework would entail setting up a transition committee on the economy to come up with propositions of what needs to be done differently and ensure the delivery of quick wins in the first month of the administration.
It will also require a technically sound economic team to give guidance and direction on general economic policy direction, policy conceptualisation, and urgent reforms.
The new government should also endeavour to emplace a competitive economic environment with minimum monopoly dominance and expand the role of markets for value delivery and boosting of private enterprise in the economy. Also, there should be robust monitoring and evaluation framework to regularly review the effectiveness and impact of economic policies and regulatory practices. The government must also ensure robust and regular stakeholder engagement by key government agencies to ensure proper alignment of policies with investors’ sentiments. Lastly, the government institutions that play technical roles should be headed by tested technocrats. More importantly, the incoming administration should prioritise macroeconomic stability with an emphasis on moderating inflationary pressures, stabilizing the exchange rate, and boosting economic growth. It should reform the tax regime to ensure efficiency in tax administration, reduce tax evasion and tax avoidance and eliminate multiple taxation.
The government should demonstrate unmistakable commitment to the implementation of the Petroleum Industry Act [PIA]. This would attract more investment into the oil and gas sector. The government should also remove the petrol subsidy in a manner that would inflict minimum shocks to the economy and the citizens.
