Recently, the Lagos Chamber of Commerce and Industry (LCCI) revealed that for government to achieve proper sustainable economic diversification in the country, it must put in place three critical factors, infrastructure, policies and institutions. Taiwo Hassan reports
Indeed, the Lagos Chamber of Commerce and Industry (LCCI) has admitted that President Muhammadu Buhari’s administration’s quest to have a sustainable economic diversification in the country during its first term in office was not successful in all ramifications despite efforts being put in place to rejig the ailing economy.
In fact, the chamber alluded to the fact that constraints trailing the country’s non-oil sector were the reasons that hampered the successful implementation of the Federal Government’s diversification programme.
However, it has been said in different fora that Nigeria’s solution to aggressively compete favourably at the international level is to adopt diversification into non-oil sector and investment in human capital development.
Tinkering along this line, President Buhari in his first time in office had listed three key sectors of the economy, namely manufacturing, solid minerals and agriculture, as part of its diversification programme towards reviving the country’s economy aftermath of downturn in the prices of crude at the international market.
In fact, it was emphatically stated that diversification into no-oil sector of the economy was the only way out for Nigeria’s economic development but myriads of problems in manufacturing and other sectors have been stalling this plan.
Commenting on the three critical factors (quality of infrastructure, the quality of policies and the quality of institutions) that would jump-start the economy, the LCCI Director-General, Muda Yusuf, in a press statement made available to this newspaper, noted that it was crucial to get these key parameters right.
He also added that it was equally critical to ensure proper alignment among these key variables to ensure sustainable economic diversification.To him, the policy factor has many dimensions, namely, monetary policy, forex policy, interest rate policy, tax policy, trade policy, procurement policy and investment policy. Each of these policies has a major role to play in the economic diversification process, stating that the policy mix must be right for the desired outcomes to be achieved.
The LCCI director-general explained that monetary policy, for instance, should be designed to drive domestic investment through a moderation of the monetary tightening stance of CBN. This is needed to moderate interest rate in the economy.
According to him, it is difficult to drive domestic investment at current levels of interest rate, which is well over 25 per cent for most economic players.
He noted that the economy needed investment, especially domestic direct investment to drive diversification.
“The foreign exchange policy is another very important policy component which impacts on economic diversification. A forex regime that perpetuates a rent economy would not serve the cause of diversification.
“It creates opportunities for arbitrage, corruption, resource misallocation, impede the inflow of investment, and create transparency issues in the allocation of forex.
“The current multiplicity of rates is inimical to sustainable economic diversification,” Yusuf added in the statement.
The LCCI boss noted that the renewed aggressive tax drive is focused more on investors than consumers.
“The burden of taxation is more on the investors in the economy than the consumers. The Federal Inland Revenue Service (FIRS) has scant regard for due process in its drive for revenue. It is therefore inherently a disincentive to investment and economic diversification. The three tiers of government targets investors more than consumers. This is not in consonance with best practice principles in taxation. In an economy which is almost 50 per cent informal, this structure of taxation is not investment friendly. The formal sector of the economy bears the largest burden of the tax system,” he noted.
Yusuf explained that the tax policy needed to be better attuned to economic diversification through a reversal of the tax burden from investors to consumers.
According to him, the use of banks as collection agents for the FIRS (in its current form) is very disruptive, distracting, arbitrary, oppressive and unfair to investors. He said that it is a serious disincentive to investment and the promotion of financial inclusion.
He said: “This approach should be discontinued. Taxation should not be seen only as an instrument of revenue generation, it is also a potent instrument for stimulation of investment.”
Speaking on the trade policy, the director-general said that it was a key determinant of Nigeria’s import and export.
“Inappropriate trade policies could aggravate the cost of production of economic players. This happens when critical inputs are restricted from imports and local substitutes are grossly inadequate. A thorough sensitivity analysis of trade policy impact on the economy is essential before major trade policy moves are made. The same logic should apply to the forex exclusion policy of the CBN,” Yusuf noted.
He explained that trade policies should be guided by sectoral competitive and comparative advantage to ensure sustainability. In fact, institutional capacity to enforce the policies should also be considered in trade policy formulation.
For instance, the LCCI boss explained that the Nigeria Customs Service needs to demonstrate better sensitivity to the plight of investors.
According to him, one of the biggest headaches of the business community is the Nigeria Customs Service.
To him, policies should be focused on incentivising resource-based industries which typically has competitive advantage and good impact on the economy because of the high multiplier effect.
While speaking on the importance of trade tariff, Yusuf stressed that the relativity of tariffs between the Nigeria and neighboring countries should also be considered in the formulation of trade policy.
Procurement policy is another very important dimension of policy that has high implications for economic diversification.
To achieve the set objective, it is time agencies of government facilitated investment growth rather than see themselves as revenue generation agencies. Also, they should consider the limitations faced by investors, especially the SMEs and should not become a burden on them.
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