Says private sector shrinking
•Lists massive running costs, deficit financing, loans, wobbling Naira as high hurdles
•‘You cannot tax a dead company’
•Narrates how Nigeria lost top GDP ranking in 10 years to adverse domestic policies
In its New Year message, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) said the 2024 economic performance was unsatisfactory for the private sector, calling for economic reforms to address imbalances threatening the private sector in the country.
The body explained that all data, metrics and statistics had confirmed that the private sector bore fully the negative burdens of the nation’s current economic reforms, facing very harsh conditions including high inflation, increased borrowing costs, and currency devaluation.
It emphasized the urgent need for reforms to avert further economic strain on the private sector as the New Year begins, noting that Nigeria is a country with huge potential, innovative private sector minds, capital and opportunities, and deserves a listening economic team and team players who must recognize the private sector as stakeholders. ”We should agree that the 2024 economic performance was unsatisfactory for the private sector. All data, metrics and consequent statistics confirm that the Nigerian private sector has borne fully, the negative burdens of the current economic reforms”, NACCIMA stated.
”While in contrast, the public sector continues to thrive and expand, all economic benefits of the recent economic reforms have been translated to the public sector through high capital transfers and revenues. “The private sector faced higher inflation, higher cost of borrowing/repayment for existing loans, the 2.4 billion USD CBN unpaid forwards, currency devaluation and higher costs in all sectors of the economy.
”This continued imbalance caused by increased public sector expenditure has destroyed value in the private sector due to excessive fiscal deficits which are financed through government borrowing at very high unsustainable interest rates. We are therefore making recommendations and suggestions that may be considered in the short to medium term.
”Fiscal deficits arise when public sector expenditure exceeds public sector income. The funding of these fiscal deficits through borrowing results in high interest rates and high inflation. ”The solution to high interest rates and high inflation is for the public sector to spend less and to start becoming an efficient productive unit.
”We also need to debunk the myth of the government earning more revenue under the pretext of improved productivity. For the avoidance of doubt, payment of customs duties and taxation are not due to improved government productivity. ”These revenues are purely private sector revenues which constitute a transfer of wealth and capital from the productive private sector to an ever expanding unproductive public sector.
The public sector does not own factories nor does it produce any goods and services sold to the customers. Rather it extracts value from the citizens through regulatory fiat. Awarding contracts is not the same as enhancing production.
“For 2025, the expenditure framework is skewed towards huge capital transfers to certain sectors which will not add value to the national wealth. The payment of high interest rates to local and overseas creditors regardless of asset class is close to financial “hara-kiri”. Financial assets (loans) should be created and counterbalanced by equivalent investment in productive assets which are expected to repay the loans.
”If these assets are offloaded to the capital markets, it will be possible to transfer many unproductive public sector loans off balance sheet thereby unburdening the government from excessive borrowing. Please note we do not advocate transferring public monopoly to private monopoly or creation of private uncompetitive markets.
”Government should learn from past experience and avoid engaging in new ventures that will create further bad loans, liquidity, lower interest rates and regulation of public sector borrowing by the Central Bank.
”Aggressive repayment of domestic loans using the excess revenues will result in lower interest rate payments which will lead to more cash flow for FAAC and lower borrowing requirements. Early repayment or transfer of government loan assets will improve Liquidity and result in cheaper single digit loans to the Private Sector. ”Generally, public sector loans must be secured with real assets or must be within the tenure of the government. Longer term loans must be investments in real assets and not on the government balance sheet. This shift would promote private sector growth and ensure that capital is allocated efficiently. ”The successful Eurobond offer was received with mixed feelings.
“We congratulate the financial team on a successful outing. However, the nature of over subscription confirms the coupon offered was beyond market offers. “Perhaps we need to consider a hybrid offer which allows a Dutch auction that mops up the best offers at each coupon level. The successful bidders made instant profits overnight on the offer”. It added that government should be looking to reduce financing cost on an aggressive basis where possible”.
While the improved liquidity gives the government access to international financial markets, NACCIMA stressed that they do not guarantee long-term economic stability.
“Relying heavily on foreign borrowing may expose the country to external shocks and currency fluctuations”, the body added. On foreign reserves, support for local industries and the private sector, NACCIMA advised, “Introduction of public sector expenditure guidance at all government levels for purchase of locally produced goods and services will reduce pressure on foreign exchange demand by government agencies and their contractors.
“Investment in public infrastructure should result in utilisation of more locally sourced inputs, higher investment on local infrastructure and improving local productive capacity. Areas like transportation, power, and technology are key for both manufacturing and services.
”Nigeria needs a coordinated approach to delivering the latest technologies and digital infrastructure to facilitate delivery of social services, public health, educational and digital infrastructure.
“Government should introduce reforms and policies to facilitate, attract and retain private sector investment in digital education and modern skills acquisition, technical skills education for our teaming youth.
“Many employers are unable to find adequate skilled workers in many industries. ”The Industrial Park and Skills centre at the Abuja Free Trade Zone at Idu, FCT and many more around the country should be encouraged and supported by all tiers of government in Nigeria and the Organised Private Sector in Nigeria to produce a different positive outcome for Nigeria.
”By public sector philosophy, all government expenditure is necessary. The government should undertake a rigorous review of its current size and expenditure to identify and eliminate wasteful spending. Efficient allocation of existing resources can help reduce excessive borrowing.
”Other countries like Argentina have made political choices to eliminate recurrent budget deficits. The Nigerian budget for elected and unelected politicians can be adjusted. The size and number of government funded agencies can be reduced and taxes should be further reduced which will attract greater private sector investment. ”The government should create an environment where the private sector can take the lead in economic ventures.
“This includes deregulation in most areas, reducing bureaucratic red tape, and enhancing ease of doing business in Nigeria. (Regulatory Agencies like Standards Organisation, NAFDAC etc can be reformed to adopt internationally acceptable standards for Nigeria.)” In this interview first aired on Arise News, NACCIMA President, Mr. Dele Oye, elaborates on the New Year message and stressed the urgent need for the Tinubu government to engage the private sector in the implementation of its reform agenda as, according to him, the private sector has the formula to make Nigeria’s economy the best in Africa again as it did in 2014. Excerpts:
What is your view on the NACCIMA perspective that corporate taxes should be reduced?
The issue is not that we have a bad bill; what is important is that we normally have inflation when government has spent its revenue, and the tendency is for the government to try to borrow or to increase taxes to fill that gap. If you do that, you only make Nigeria poorer. If you look at our current GDP, in 2014, we were at 568, and we are going down every year. So you cannot use the same treatment for a sickness that had never worked before. Look at the real terms of the 2024 Budget, we are declining. Look at this year’s budget, it is far lower.
Also look at our standing in the African GDP; we are at about No. 5 going to 6. All these are due to the domestic policies that had been laid. So what we are saying is that the private sector is shrinking, while the public sector is expanding. So, government must listen more to the business because it is the business that would generate the income that would be used to pay back these loans. The loans are not sustainable, but if we start cutting down costs on the government side, it will be quite difficult to grow from them. So the government must listen more to the private sector.
We are not unaware of the effort the government has made in giving us two Ministers recently in the Ministry of Industry, Trade, and Investment. We are grateful, and we are fully engaging with them. But what is important is that the government must also get its other MDAs, like the Central Bank and Ministry of Finance, to key in and work with the private sector because we are the ones to pay the loans back from our production. The government does not produce any goods or services. Awarding contracts is not an economic activity. What pays this bill is the effort of the private sector. Look at the current budget and show me anything that is different from 2024. The people telling the President that he’s doing very well should show us.
All the indices show there’s a decline. So it is not to tax us more or to reduce tax; in fact, to increase our competitiveness, you must find a way to reduce tax. Anytime we are making laws in Nigeria, look at what our neighbours are offering. We have to be competitive, as we cannot tax ourselves out of this problem; we have to increase the capacity of the private sector. We are not asking for handouts or money from the government. We have a formula that would bring down the interest rate so that people can borrow at a sustainable level. The President himself gave us an 8-point agenda that he would give us single-digit loans.
What are some of the major things NACIMA is looking out for as major reforms?
We highlighted 12 recommendations in our New Year message. In addition, the government must take the issue of the Naira (very seriously). It is the biggest driver of inflation. Nobody will invest in a climate where its currency melts every day. Throughout 2024, we kept shouting; we engaged privately before we went to the public space. The government needs to find a way to cut down its running costs, reduce deficit financing, and pay back the loans they owe. They should stop borrowing. The President should not allow himself to be deceived again.
But if we start the way the budget is structured, we are going to end up smaller next year. So it is better if we work together. Nigeria has one of the best private entrepreneurs that have the capacity to turn around the economy. If the government is truly willing to drive this economy, he must use the capacity of the private sector. If you look at some of the areas where things are working, the government is not yet there. Look at the creative industry; look at the small POS business too. But when the government entered, you can see what has happened.
How can the private sector organise itself for the new reality?
Well, we are not advocating for a reversal of the government reforms. All we are saying is that the way they are currently implemented would not lead us anywhere. This government has been here for almost two years. If it was working, we were not supposed to inherit these reforms. It is supposed to happen during the life span of the four years of this government.
If it is not working, the economy is shrinking; it is time for the government to change the procedure instead of trying to use the imperial way that most of the agencies have used when dealing with us. The government must listen to us and use our ideas for policies.
The reason why the Naira is falling is because the government is running a deficit budget. With a 13 trillion deficit, what do you expect? If you cut the government expenses down, the Naira will start appreciating. Until the government cuts its expenses, we are going to continue to borrow in an unsustainable way.
The government must work with us. In 2014 we became the best in Africa. Those sectors that brought about the rebase in our economy are all suffering today. MTN has lost over N100 billion in currency depreciation, and you and I know it’s an industry that requires continued investment for them to continue to be competitive because of the technology involved. We must find a way to give them their sense of security back by building an environment where they can work and make more money.
You cannot tax a dead company. You must find a way to listen to us. The problem is at home. It is not about traveling abroad, seeking foreign direct investment. They should tell us how much has come in those several trips. It is not the business of the government to be in business. Government should be a facilitator.
Are you accusing the government of hypocrisy, or does the partnership they talked about not exist?
I started first by thanking Mr. President because there’s a tendency to change strategy because for the first time we have two Ministers. We had a four-hour strategy meeting with the Minister of Trade and Investment. There’s likely to be a change. If the government does not domicile it in the private sector, cut its excesses, we are going to have the same result. Anybody telling the President we are moving up is lying to the President. We need better engagement.
The fight between CBN and Bureau de Change must stop because we are the losers. We must find a way to use everyone’s talent and make Nigeria work. I want us to go back to 2014 when we were the best in Africa; this is all I am asking for. We are ready. We have the formula to work with the government on some of these things. If the government succeeds, we make money.
If the government fails, our members lose. So it is in my interest for the government to succeed. So let’s move this issue from the blackboard to a drawing board where all of us can contribute.
(Vanguard)
