These decisive decisions, according to the NESG should include addressing mounting insecurity challenge in the country and crude oil theft, ending the multiple exchange rate system which it stated was keeping foreign investment away from Nigeria as well as to be decisive in removing petrol subsidy in a manner that would not hurt the vulnerable segment of Nigerians adversely.
It also tasked the government to take necessary steps to restore Nigeria back to fiscal and debt sustainability.
The appeal by the NESG was contained in communiqué titled, “Of Hope and Despair … Not Too Late to Turn the Curve,” obtained by THISDAY yesterday.
The advice by the NESG came just as the Lagos Chamber of Commerce and Industry (LCCI) expressed concern that almost all assumptions in the federal government’s Medium-Term Expenditure Framework (MTEF) for 2023-2025 were seemingly unrealisable and tasked the federal government to rethink its sources of debt by embracing equity financing and commercialisation of corporate national assets as cheaper financing options with less pressure on revenue.
Also yesterday, the Nigeria Employers’ Consultative Association (NECA) tasked the federal government to prioritise the manufacturing sector in the allocation of the country’s foreign exchange (FX).
The NESG communiqué, which was signed by its Chairman, Mr. Asue Ighodalo, stated categorically that there was no doubt that Nigeria was at an inflection point, but added that the actions and inaction of the country’s political leadership would have significant implications for the direction of inflection.
Ighodalo stated: “It is still possible to turn the tide, and it is not too late to bring the nation out of the current quagmire. Our appeal to Mr. President is that a lot can still be done to turn the curve within the remaining 10 months of this administration. This requires tough choices and decisive actions, with no sacred cows.
“As one to whom providence has bestowed the honour of leading this nation time and again, your administration can begin to lay the groundwork for a legacy that a new government can build upon from Monday, 29 May 2023.”
The communiqué surmised the threatening socio-economic challenges besetting the country, including Nigeria’s inability to appropriate the benefits of the prevailing global high crude prices as a result of low crude oil production largely due to oil theft and pipeline vandalisation, declining investment and divestment caused by oil theft, high cost of production, and a harsh operating environment.
The NESG added: “The country’s external reserves have been declining for most of 2022 while the Naira continues to depreciate, and the country still operates multiple exchange rates.
“Amid this crisis, fiscal pressure is imploding because of declining revenues and soaring public debt. Only recently, the Honourable Minister for Finance, Budget and National Planning, Dr. Zainab Ahmed, alerted Nigerians that the cost of debt servicing has surpassed federal government’s retained revenue as total public debt continues to rise.
“Meanwhile, CBN’s Ways and Means financing to the federal government peaked at N19.6 trillion as of May 2022, and the country maintains an unsustainable fuel subsidy regime.”
It pointed out that the, “growing deficit means that Nigeria would rely on borrowing to finance the 2022 budget.”
It added that despite increased budgetary allocation to defense and national security, the current state of insecurity is indicative of a nation under siege.
The corollary, according to the communiqué, was that, “Nigerians now live in a permanent state of fear as bandits are able to hijack a train and kidnap dozens of passengers, overrun prisons and release hundreds of convicted criminals, and hold hundreds of kidnap victims for months at a time.”
The NESG, therefore, recommended specific actions government could take to restore momentum to the country’s economy and national life.
These include, “a decisive action to tackle the government’s revenue challenges which cannot be divorced from leakages through the large-scale crude oil theft; difficult operating environment for businesses, and lack of innovation in tax collection/administration, among others, that have resulted in low accretion to the nation’s revenue base.
“We strongly believe these leakages have continued unabated because of the absence of sanctions and ineffective tax systems.”
It also recommended that the country must be returned, “to the path of debt sustainability in the face of dwindling revenues,” rather than creating “a debt burden for future governments and, indeed, future generations.
“We must prioritise our expenditure, limit our spending to items we can sustain, and eliminate wastage and graft in government. Governments, across all tiers, should lead by example through a drastic reduction in governance costs to reflect the austere times we face.
“We strongly advise greater transparency and simplicity in the management and communication of various subsidies (petroleum products, electricity, etc.) to establish their true costs that benefit the people.”
It pointed out that, “urgent action is required to ensure food self-sufficiency by prioritising critical value chains and supporting private sector-led interventions to curtail this crisis and build a vibrant and sustainable food ecosystem in Nigeria based on consistent incentives and sanctions.”
The NESG argued that failure to address the current prevailing condition of multiple exchange rates has continued to reduce the much-needed flow of foreign investments and official diaspora remittances.
“International investors, being savvy and rational, will not invest where there is a real risk to their ability to access and repatriate investment proceeds or when the functional currency is in sporadic depreciation.
“Multiple foreign exchange markets with significant price differentials create room for speculation, round-tripping, cronyism, and outright graft– with an attendant adverse effect on the economy. There is no better time to harmonise the FX rates than now.”
It noted that it has become, “clear that the current fuel subsidy regime’s debilitating impact on our fiscal fragility cannot be overstated,” and urged “the federal government to explore a systematic subsidy removal programme that cushions the impact on our most vulnerable population through a well-coordinated and effectively transmitted social protection regime.”
The NESG also urged the government, “to devise a pragmatic national security strategy that unconditionally guarantees the safety of lives and properties within the country,” adding that, “the ongoing face-off between the federal government and the Academic Staff Union of Universities (ASUU), which has resulted in the closure of universities for about six months, has become a national embarrassment.
“In order to signal the government’s commitment to a speedy resolution, we now need direct and strong presidential leadership in the discussions and negotiations to get our students back to school.”
The NESG also pledged to support the government to evolve sustainable governance and funding strategies for tertiary education in the country as the frequency of this face-off between government and university teachers has indicated a failure in the current funding model for tertiary education.
The NESG also called for a new social contract between the government and the people of Nigeria to reduce the growing trust deficit, since “the goodwill that a government enjoys from its people is no different from the operation of a bank account – in this case, an emotional bank account. Good governance yields additional deposits while each governance failure gradually depletes the account.”
Notwithstanding, the board of the NESG commended “the federal government for commencing the implementation of the Medium-Term National Development Plan (2021 – 2025).”
It also “acknowledges and commends the efforts of President Muhammadu Buhari and the National Assembly in passing into law the Electoral Act, 2022, which is already proving to be a veritable tool for improving our electoral process. These are good legacies, but there is much more to be done.”
LCCI: MTEF 2023-25 Now Unrealisable, Tasks FG on Cheaper Financing
Meanwhile, the LCCI has also advised the federal government that accumulation of foreign debt would pose significant exchange rate risk and put more pressure on domestic inflation due to the weakening of the Naira in the foreign exchange market.
These views were expressed yesterday by the President of LCCI, Dr. Michael Olawale-Cole, in a statement titled: “Nigeria’s Debt Burden.”
It explained: “There are already concerns that most, if not all, of the assumptions in the MTEF 2023-2025 will be missed as we continue to experience unprecedented levels of disruptions to supply chains and agricultural production. The 2022 budget assumptions have already fallen short in terms of inflation, exchange rate, and GDP growth rate. All of these assumptions have become inadequate.”
“The commercialisation model proposed for NNPC Limited is the right direction to go. Once this plan succeeds next year, it should be replicated with other national corporate assets scattered across the country.
“Nigeria must manage its debt burden to avoid further pressure on revenue. It is also imperative that more spending is needed in supporting productive infrastructure instead of spending borrowed money on subsidising consumption. Government must rethink its sourcing of debts and spending of borrowed funds.”
Olawale-Cole cautioned that, “with the high component of Eurobonds as part of Nigeria’s external debt, the weakening of the naira signifies a significant exchange rate risk that is likely to put pressure on inflation and its attendant consequences, which we already see today. A weaker naira means a more expensive foreign debt for the country.”
He identified the recent listing of N250 billion Sukuk on the Nigerian Exchange Limited (NGX) by the Debt Management Office (DMO) as proper alternative financing source to bridge the infrastructure gap in the country.
He said: “The issuance and subsequent listing of the Sovereign Sukuk on the NGX platform aligns with the Chamber’s persistent call for cheaper government financing away from debts by leveraging innovative and cost-effective revenue sources.”
The president of LCCI observed that public borrowings have been increasing significantly from N39.56 trillion in December 2021 to N41.60 trillion by the end of the second quarter of 2022, as revealed by the DMO, adding that Nigeria had been struggling to service these debts due to revenue mobilisation challenges and an increased fuel subsidy burden.
He also observed that Nigeria’s fiscal situation was being worsened by the rising level of insecurity that has battered investors’ confidence and affected FX inflows into Nigeria.
Olawale-Cole said: “The rising debt stock incurred by the government is becoming increasingly problematic in the face of dwindling government revenue and the unsustainable burden of subsidy payments. The fact that the most recent statistics on government revenues show a poor performance and mounting government costs makes it evident that Nigeria is going through a debt crisis.
“It is disturbing to know that debt servicing alone is higher than actual retained revenue in the first four months of this year. On the path of caution, we urge the Federal Government to discontinue this unsustainable pattern.”
NECA to FG: Prioritise Manufacturing in Forex Allocation
On its part, NECA has tasked the federal government to prioritise the manufacturing sector in FX allocation.
This call was made yesterday by the newly appointed Director-General of NECA, Mr. Wale Oyerinde, who also enjoined the government to commence a deliberate consultation with stakeholders in Nigeria’s organised private sector for alternative policy options that would re-energise Nigeria’s economy.
Ayorinde said: “Economic interventions aimed at improving living standards and enterprise sustainability should be implemented. While FX scarcity persists, allocation of the available foreign exchange to manufacturing and other productive sectors of the economy should be given priority.”
He noted that although the government had been making efforts to salvage the economy, there is, however, need for a more holistic approach to resuscitate the stuttering economy.
He said: “A deliberate and economic priority influenced approach and wide consultation with stakeholders should commence, with the view of harvesting alternative policy options to re-energise all sectors of the economy.”
Oyerinde stated that there was no better time than now when, “the nation is currently faced with multiple challenges. With dire combination of spiraling inflation, rising energy cost (aviation fuel, diesel, etc.), scarcity of FX, dwindling value of the naira, an almost comatose aviation sector, stuttering education system, rising debt, depleting foreign reserve and rising fuel subsidy expenses among others, which threatened to lay bare the country’s economy” to commence this consultation.
He averred that Nigeria has always lived dangerously on the precipice by relying on the complexities of global crude oil demand and supply for about 90 per cent of its foreign exchange earnings and 80 per cent of its budgetary revenues.
He added that, “a dangerous blend of self-destructive tendencies, insecurity and fiscal and monetary policy inconsistencies have also conspired to make the situation worse. While revenue has continued to shrink, the nation continues to dig its feet deeper into debt.
“While some stakeholders have canvassed that the revenue to GDP ratio of the country is healthy, recent announcement by the minister of Finance, Budget and National Planning that revenue to debt service ratio is in the negative calls for urgent concern.”
Oyerinde observed that the prediction of the World Bank in April 2022 that Nigeria’s rising cost of fuel subsidy could significantly impact public finance and pose debt sustainability concerns is almost happening and has been confirmed by the Fiscal Performance Report that was released recently by the federal government.
He opined that “the combination of a struggling aviation sector and roads taken over by bandits have also conspired to fuel the situation, leading to rising inflation at 18.6 per cent (according to the NBS).
“These have continued to worsen the promotion of commerce and the increase the rate of de-industrialisation of some regions of the country.”
Oyerinde also advised the government to widen its tax net, reduce wastages in governance, and focus on economic projects that would stimulate the Nigerian economy and guarantee an enabling environment for businesses to operate.
An enabling environment for local businesses, according to him, would create the platform for “new foreign direct investment, which could increase foreign exchange inflow into the country.”
He also tasked the government fix the four national refineries and encourage the development of modular ones as a precursor to total removal of fuel subsidy.
“With over N5 trillion budgeted for subsidy payment in 2022, an amount larger than the budget for education and agriculture, this is unrealistic and unsustainable.
“While the challenges of revenue shortage are acknowledged, burdening businesses with new taxes or levies will be counter-productive and a self-destructive action.
“Over-burdening already burdened businesses will only lead to business closure and an escalation of job losses with consequential effect on our social and economic stability.”
