Economic hardship: What Tinubu, govs must do to reciprocate understanding shown by Nigerians —Muda Yusuf

Dr Muda Yusuf is a former president of the Lagos Chamber of Commerce (LCCI) and Director, Centre for Promotion of Private Enterprise (CPPE). In this interview with DARE ADEKANMBI, he outlines steps government should take to lessen the burden imposed on Nigerians by the various fiscal and monetary reforms.

 

As a Director in the Centre for Promotion of Private Enterprise (CPPE), the news of the Executive Orders recently signed by President Tinubu will excite you.

CPPE applauds the recent Executive Orders which covered the following: suspension the Excise duty escalation contained in the 2023 Fiscal Policy Measures imposed by the previous administration; suspension of Green Tax on some categories of vehicles; and the deferment of the effective date of the Finance Act 2023 and some customs tariffs.  This was to ensure compliance with the mandatory 90 days’ notice prescribed in the National Tax Policy as well ensure reasonable notice for customs tariff reviews.

We commend this move to normalize policy implementation processes consistent with the national tax policy and best practice principles. The executive orders also demonstrate the sensitivity of the Tinubu administration to the predicament of the manufacturing sector amid overwhelming headwinds and hassles to real sector activities in the Nigerian economy.  The manufacturing sector is a troubled part of the economy.  The sector’s growth slowed to 1.6 per cent in the first quarter of 2023, from 2.8 per cent in the fourth quarter of 2022 having contracted by 1.9 per cent in the third quarter of 2022.  It barely contributes 10 per cent to the Gross Domestic Product (GDP) in the first quarter of 2023.

Among others, the sector is grappling with the following: challenges of depreciation in the exchange rate which is impacting adversely on the cost of production, a situation which is severely inhibiting production and productivity in the sector. Intense pressure on the cost of production arising from numerous structural bottlenecks. This situation is creating sustainability challenges for investors in the sector, especially those in the SME segment. They have experienced significant spikes in the cost of raw materials, cost of fund, high import duty, elevated energy cost, prohibitive cost of transportation and high cost of logistics. A huge proportion of these costs cannot be passed on to the consumers because of high consumer resistance. The economy is currently characterised by weak purchasing power amid intense inflationary pressures and recent fuel subsidy removal.  Disposable income has been considerably diminished.  This is taking a huge toll on sales and turnover of many manufacturers. Many manufacturers are currently struggling with unfair competition, especially from products imported from Asia which have flooded the Nigerian market, largely because of the porosity of the borders. These imports are often much cheaper than goods produced locally. Energy costs remain high. Though the cost of diesel dropped slightly in the last one month, it still remains high at about N700 per litre. The cost of gas is also prohibitive just as in electricity tariffs remains exorbitant. The cost of logistics has continued to be on the upward trend. Some of the reasons for this are the states of the roads, the limited freight capacity of the railway system, the crisis situation at our major ports, the traffic gridlock around the Lagos ports, the numerous check points around the ports and beyond.

 

In the light of the failure of the labour unions to mobilise its members and Nigerians to demand reversal of some of these policies, most Nigerians appear to have lost confidence in the labour unions…

At CPPE, we commend the Nigeria Labour Congress (NLC) and the Trade Union Congress (TUC) for opting for dialogue in resolving the impasse triggered by the fuel subsidy removal. In truth, the pains inflicted on the citizens, especially the vulnerable segments of the society, are very severe. A strike action would have further exacerbated an already difficult situation for the citizens.  Opting for strike should only be a matter of last resort.

Meanwhile, we urge President Tinubu to reciprocate the thoughtful stance of labour by speedily coming up with measures to mitigate the pains of the fuel subsidy removal.  The suffering is real and affecting the citizens across all segments of our society – public service, private sector, informal sector, artisans, students, SMEs, the unemployed, the aged, pensioners and so on.  There is, therefore, a need for urgent responsive actions from all tiers of government. The mitigating measures should be holistic and inclusive and should be driven by a combination of direct interventions, fiscal policy measures and monetary policy actions.

 

Nigerians generally have shown understanding with the government by not pouring out on the streets to express their displeasure over the discomfort that has trailed the removal of subsidy. What do you think the government should do in return?

The citizens have demonstrated an incredible understanding, tolerance, patience and resilience. The government cannot afford to overstretch this gesture and cannot afford to be perceived as taking them for granted. Reciprocity by the political leadership at all levels is urgent, exigent and crucial. The hardship mitigating measures could be classified into immediate, short term, medium and long term.  Such responses would send the right signals to citizens and demonstrate government’s sensitivity to the devastating impact of the subsidy removal on the poor.

In many instances, transportation costs have gone up by between 20 and 50 per cent.  For most citizens, transportation is critical to their survival.  The hike in transport fares and the corresponding inflationary effect is already posing a threat to the livelihood of many, both within and outside the public sector. Wage earners, small business owners, informal sector operatives, artisans and the unemployed are all very vulnerable in the current circumstances.

This is the context in which the government needs to urgently respond to the current crisis, focusing on the scope of impact, effective targeting, inclusion and the right messaging. Immediate panaceas need to be activated, not just with respect to transportation costs, but the surging cost of living generally. The agreement signed with labour did not reflect the desired urgency of the mitigation measures.  It is also scanty on immediate actions and quick wins which are needed to immediately assuage the feelings of the ordinary citizens and stabilize the social environment.

Meanwhile, beyond the documented demands of the labour unions, the CPPE is recommending the following interventions in the interest of social justice and social stability. I call the first one direct intervention measures. Here, the NNPC should sell petroleum products at a price which is 10 per cent less than that of other private sector marketers.  This is to demonstrate the desired social sensitivity by the government in this transitional phase of the subsidy removal.  It is also of great symbolic significance to do so.  Government must be seen to be concerned about the social outcomes of this reform.  This is without prejudice to the new status of the NNPC as public liability company. Another action point here is the acceleration of the Presidential Power Initiative to upscale power supply in the country. State governments and private investors should be supported to leverage on the decentralisation of power supply and off grid power solutions. Quick wins in the power improvement strategy should be implemented immediately.  This would reduce the demand for petroleum products [petrol and diesel] for purposes of electricity generation by households and businesses. Also, government must put an end to the pricing of gas in dollars for domestic use, especially for manufacturers. Necessary urgent steps must be taken by government to put an end to this dollarisation framework to ensure a moderation in energy cost for the manufacturing sector. Still under direct intervention measure, government should take urgent steps to reduce the cost of LPG to households. Recent reduction in the LPG price is laudable, but the price reduction trajectory should be sustained to ease pressure on households and prevent deforestation.

The second point is what I call fiscal policy measures. In this regard, Import duty, VAT and other port charges on semi-knocked down parts for the assembly of mass transit buses should be waived.  This would not only make mass transit buses cheaper; it would enhance industrial capacity utilisation of the vehicle assembly plants in the country. Import duty on passenger buses of 15 passenger capacity and above should be reduced by 50 per cent for the next one year. Import duty on fairly used cars of engine capacity of 2000cc and below should be reduced by 30 per cent. This would enhance access of the middle class to vehicle ownership in the light of the high deficit in the provision of public transportation. Also, there should be drastic reduction in import duty on intermediate products for food processing industry in the country.  The government should engage major food processing companies to determine specific policy options for the realization of this objective. This would moderate food inflation. Government should introduce incentives to stimulate private investment in pipelines. This would sufficiently reduce distribution costs of petroleum products. I suggest the abolition of all forms of taxes and import duty on renewable energy equipment to boost the adoption of renewable energy by households and SMEs.  Such waivers would make renewable energy adoption affordable.  This reduction should cover relevant equipment like solar panels, inverters, batteries and so on. This would make citizens less reliant on the electricity grid.

All agricultural inputs – machineries, agrochemicals, fertilizer and so on should attract zero import duty and zero VAT.  This would boost investment in agriculture, especially commercial agriculture.  Higher agricultural output would boost food production and ultimately moderate food inflation. Generous tax and other fiscal incentives should be provided for private investors in healthcare.  This would help to conserve foreign exchange through a reversal of the growing medical tourism in the country. Generous tax and other fiscal incentives should be given to private investors in education.  This would enable the private sector complement the efforts of government in providing quality education, especially at the primary and secondary levels. Generous tax and tariff concessions should be put in place to incentivize rapid growth in investment in refineries.  The outlook for growth in refineries investment is very bright given the elimination of fuel subsidy.  This is also in line with the commitment to promoting competition in the petroleum downstream sector. Gross monthly salaries of N200, 000 and below should be exempted from payment of Personal Income Tax (PAYE). This will give the low-income earners some room to improve their spending capacity and reduce poverty.

There is also what I call competition framework in the petroleum products supply chain. By this, government should immediately entrench competition in the importation and refining of petroleum products.  This would put an end to the current monopoly structure of supply of petroleum products in the country. NNPC is currently a monopoly supplier of petroleum products which is partly responsible for exploitative pricing of petroleum products – diesel, aviation fuel and petrol.  The best strategy to protect consumers in any economy is to create a good and sustainable competition framework.

The private sector should not be left out in government interventions. Employers, especially thriving medium and large enterprises, should be persuaded by government to provide buses for their employees, if they are not already doing so.  This would complement the intervention of government in this respect. Where possible, employers should provide lunch vouchers for their staff. Reduction of the number of days workers would be required to be physically present at work.  We need to entrench remote working culture in the public and private sectors, where practicable.  Employers should leverage technology in their operations as the nature of work is changing globally. The private sector has a responsibility to provide palliatives for their employees.  Government should prevail on private sector employers, especially the medium to large enterprises, to complement the efforts of government in the introduction of measures to cushion the negative social effects of the subsidy removal outcomes.  It should be a call to give capitalism a human face. We should see an upward revision of wages in the private sector to reflect current inflationary pressures. They should provide mass transit buses for their employees; ensure the provision of health insurance and possibly provide lunch vouchers for their low cadre staff.

As part of monetary policy measures, soft loans for small businesses are an important component of the palliatives.  The microfinance banks should be incorporated into such a scheme in order to deepen inclusion. This would facilitate output growth and job creation in this very important segment of the economy.

Perhaps of the biggest measures will be to run cutting-cost governance. The sacrifices of the moment should not be limited to the working class and ordinary citizens.  The political leadership at all levels must commit to reduction in the cost of governance. Number of political appointees, advisers, salaries and allowances, foreign trips and so on should be trimmed to reflect the current mood of the nation.  In addition to its symbolic significance, this would support the fiscal consolidation agenda of the government.

 

What do you make of the unification of the exchange rate?

At the Centre for the Promotion of Private Enterprise (CPPE), we welcome the decision of President Tinubu to put in place a unified exchange rate regime.  It should be clarified that this is not a devaluation proposition. Rather, it is a pricing mechanism that reflects the demand and supply fundamentals in the foreign exchange market which allows for rate adjustments as and when necessary.  It is a model that is predictable, transparent and sustainable.  It is a policy regime that would reduce uncertainty and inspire the confidence of investors.  It is a policy framework that would minimize discretion and arbitrage in the foreign exchange allocation mechanism.

A unified exchange rate regime offers the following benefits for the economy: it enhances liquidity in the foreign exchange market, reduces uncertainty in the foreign exchange market and therefore enhances the confidence of investors. Also, it is more transparent as mechanism for forex allocation, just as it reduces vulnerabilities to corruption.

 

YOU SHOULD NOT MISS THESE HEADLINES FROM NIGERIAN TRIBUNE

I study 10 hours, sleep 5 hours daily — Imo first-class graduate with perfect 5.0 GPA, Igboanugo

Igboanugo Annastatia, who graduated with first-class honours, in this interview, reminisced about memorable moments that…

PHOTOS: How Aquatech College was demolished ‘with students on site’

It was a traumatic experience for students of Aquatech College of Agriculture and Technology on Thursday, as…

OFFCUT: You are only seeking relevance, ministerial position — Netizens slam Fayose’s support for Tinubu

Nigerians have slammed Former Governor of Ekiti State Ayodele Fayose over his sudden support for President Bola Tinubu, saying he only…

VIDEO: My father deflowered me at 10, made love to me thrice weekly, Lady opens up

A young Nigerian Lady identified as Precious has revealed the horrifying ordeal of how she has been sexually abused by…

Ronaldo beats Messi to become world’s highest-paid athlete

For the first time since 2017 (and third time overall), Cristiano Ronaldo has topped Forbes’ list of the world’s highest-paid athletes, earning…

The anarchy in the South-East

THE ongoing horror in the South-East being perpetrated by suspected members of the outlawed Indigenous Peoples of…