My article titled “The Buhari Government and the Winds of Decline of the Nigerian Economy” effectively painted a very worrying picture for the Nigerian economy under Buhari caused by a confluence of reasons ranging from the incompetent management of the economy by Okonjo-Iweala, the ill-considered antiquated forex policies of the current CBN and the somewhat conflicting fiscal policies emanating from the current Buhari government.
As we are all too aware, criticizing government policy is very easy to do. I have attempted to list a number of measures in basic form that the government should consider doing instead of its current policy of borrowing its way out of a FG revenue shortfall shortage and a possible recession.
CBN
We all agree that the economy needs to be stimulated. My view is the stimulants have to be done by the CBN with the use of monetary policy. The CBN should reduce interest rates to 2-3% from its current level. Additionally, the federal government should put in
Place tax incentives to be given to the commercial banking sector that encourages banks to give small business loans to young entrepreneurs. The trade and industry ministry and all state governments should work together to ensure that all new small businesses are given a two year tax free holiday. This may mean less money to the state and federal government in the short term but will invariably widen their tax base in the near term.
The CBN should also significantly reduce the amount of money it requires the commercial banks keep with the CBN. This will put more liquidity into the system and aim to stimulate the domestic economy. For years the CBN had played the role of sapping up excess liquidity from the system as a result of the reckless policies of the Iweala led Finance ministry under Jonathan. The time has come for the role reversal between the FG led fiscal policies and the CBN led monetary policies.
Finally, the naira should be allowed to find its level. In the short term this will lead to an increase in inflation but the downward pressure on the Naira will be balanced against the massive inflow of Foreign direct investment into Nigeria of foreign capital which has upward pressure on the Naira. It may also get the JPM to relist Nigerian bonds onto its index (another source of inward foreign exchange in the Nigerian system).
FG Fiscal Policy
What is clear is that a huge gap exists between government revenue and government obligations. The difference is meant to be addressed by massive borrowing. The problem is that its service burden is 35% of 2015 incomes. With FG income levels set to fall significantly in 2016, the proportion of FG revenue to be eaten up in debt service obligations may reach 40-45% even before the new borrowings have been effected. My solution would be daring and harsh but necessary. The FG should massively lay off workers and significantly stream line government parastatals. The FG cannot pay federal workers and should not borrow to pay for the services it cannot afford. 170 million people should not have to pay to keep 200,000 or less federal workers in a job that we cannot afford to pay for. The Federal Government should also consider selling off very many state owned government parastatals, refineries and other state owned enterprises. The FG should also consider selling off Federal universities and schools (either to state governments or private entrepreneurs). The preferable object of sale should be to foreign investors. This brings vital foreign exchange into the economy and keeps the various organizations up and running despite federal government revenue shortages.
On taxes, the FG seems to be working very well on this sphere. It is increasing tax coverage so that all businesses pay their fare rate of tax without increasing the burden of tax on those already paying their fare share to the federal government.
State Governments
Everyone has recognized that Lagos and perhaps Rivers are the only states that are viable. That may be true when one considers the amount of IGR each state generates relative to their obligations. That however is a distorted view. As the FG owns all assets found underneath the ground in every state, the state government can only get income from businesses and people resident within their states. Businesses will generally tend to set up within the western axis (Lagos, Ogun and possible Oyo) and the South Southern axis (Rivers, Akwa Ibom and possibly delta). All other states will struggle to attract enough businesses to be able to raise IGR levels to sustainable levels.
The FG and NASS should change the law to allow all states to own minerals under their soil. The State governments will then pay a certain percentage (say 30%) to the federal government. This ensures that each state government spends more time exploiting all mineral, oil and gas deposits within its territory without waiting on the single federal ministry of solid minerals to get round to determining which of the many solid minerals within the 774 local government areas needs to be prioritized. Secondly, the state governments know their states better than the FG. It can therefore absorb some of the staff let go by the FG and focus their respective efforts on making their states viable by a mixture of revenue from taxes on corporates, businesses and exploitation of solid mineral deposits under the soil within their respective states. This approach would require a change in the constitution. The situation is sufficiently grim from a revenue perspective for the state and the federal government that this approach seems to me to be the best possible option of competing bad scenarios.
Infrastructure
I will advise the FG to focus its fiscal spending on infrastructure such as roads, railway lines and bridges that connect most of the states. Crucially and importantly, the North East, eastern part of the North central and Rivers and Akwa Ibom should be connected by rail. Additionally, the North west, western part of the North central and Lagos and Ondo should be connected by rail. This ensures that there is quick and efficient access to ports in Lagos, Ondo, Rivers and Akwa Ibom for all states within the federation that have worked to efficiently increase revenue generation within their states.
The FG should play an advisory role to the various state governments that choose to act in a more business focus way. Those states that refuse to become more business focused should be left to their voters.
INEC
What is key is that INEC should be strengthened to ensure that the voters are able to change an incompetent government. Once all residents of states have that right, then it becomes a matter between the residents and government should state governments refuse to act responsibly.
Lagos, Nigeria
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