I welcome you all to this special press briefing which is to set an agenda for the administration of President Muhammed Buhari, GCFR in his second term. The past few months have been characterized by uncertainty which had affected investors confidence and caused a deceleration in the tempo of economic activities.
Investors were worried about the possible outcomes of the electioneering campaigns as well as the entire electoral process. There were also apprehensions about the unpredictable response to the outcome of the elections. Times like these are typically characterized by high political and policy risk. Happily, the presidential and national assembly elections have taken place and the leading political parties have demonstrated commendable maturity in their responses to the outcome.
It is gratifying to note that they have counselled their supporters to maintain the peace. Meanwhile, as investors’ confidence begin to be restored with diminishing uncertainty, we expect to see a rebound in the tempo of the economic activities. This is therefore a good time to set an agenda for the administration as it prepares for its second term.
The last three years have been characterised by upsides and downsides in the economy. Some of the drivers of economic conditions are internal, while others are external. I will be drawing attention to these issues subsequently in this press briefing.
GDP GROWTH AND INVESTMENT
The National Bureau of Statistics reported that the nation’s GDP grew by 2.4% in the fourth quarter of 2018 compared to third quarter 2018 growth of 1.8 %. The full year GDP growth was 1.9%; better than 2017 of 0.8%. This performance is still weak and fragile. It is also far below 3% annual population growth. This remains a cause for concern due to its implications for poverty and sustainable growth in the country.
The government should therefore commit to policies and programme that will accelerate economic growth and ensure that the growth rate surpasses the rate of growth of population. Private sector investment is a critical growth driver; therefore, the government should commit to the creation of an enabling environment to bring about a quantum leap in private investment. Consequently, tax policy, trade policy, monetary policy, and foreign exchange policy must be in alignment with this objective.
ECONOMIC MANAGEMENT PHILOSOPHY
The LCCI recognises the Economic Recovery Growth Plan [ERGP] as the main economic policy document of the present administration. The plan underscores the philosophy of private sector led economy. It is therefore important for government policies and actions to be in tandem with the contents and direction of ERGP. The private sector should be positioned to play the role expected of it in this important policy document. This economy is blessed with quality entrepreneurs that can transform our huge potentials into concrete outcomes and value creation if they have the right environment.
FUNDING OF GOVERNMENT OPERATIONS
Top government functionaries have repeatedly expressed concerns over the funding gap that exist in government. It is therefore important to quickly develop a fiscal sustainability strategy as the administration progresses into its second term. We need to deal urgently with the cost of governance as well as the issue of value for money in government expenditure. We recognize that there is a correlation between investment growth, GDP performance and tax revenue. This underscores the very important role that investment can play in boosting the revenue of government. As investment grows, job creation will improve, and tax revenue will be positively impacted.
The government also need to watch the growth of recurrent expenditure in order to give more room for infrastructure financing. Currently, the summation of recurrent expenditure and debt service is equal to total government revenue. This financing structure is certainly not sustainable; what this means is that capital project will naturally be funded by borrowed funds. It is important to put in place an appropriate Public Private Partnership to attract private capital in the financing of bankable public sector projects.
The LCCI is aware that there are arguments for and against Economic Integration, either at regional or continental level. However, we are of the view that the Nigerian economy has more to gain by being part of the economic integration process at the regional level (ECOWAS) and at the continental level (AFCFTA). We appreciate the concerns of the manufacturers on competitiveness issues, especially arising from possible non-adherence to the rule of origin by some of the participating countries. We therefore urge that as this administration gets into its second term, appropriate safe guard measures should be put in place to protect vulnerable sectors of the economy and to also ensure that there is effective enforcement of the rules of origin. Once this is done, we request that Nigeria signs the AFCFTA.
In order to attract more foreign investment, we propose that our visa policy regime should be more liberal. We should grant nationals of selected advanced economies visa free entry into Nigeria for a maximum of 30 days. This is the practice in many of the emerging economies and their economies have benefitted tremendously from this policy. This would impact positively on our FDI and hospitality and tourism industry.
PRESIDENTIAL ENABLING BUSINESS ENVIRONMENT COUNCIL AND EASE OF DOING BUSINESS INITIATIVES
We appreciate the series of Executive Orders focused on promoting the ease of doing business in the country. These orders are impacting positively on the business environment and promoting an inclusive economy through the scaling up of the local content in government expenditure. But compliance can be much better.
The creation of the Presidential Enabling Business Environment Council [PEBEC] played a key role in these achievements. We are of the firm believe that PEBEC is one of the best performing initiatives of the present administration from the business point of view. We request that the PEBEC secretariat should be further strengthened and the scope of its activities broadened to cover all sectors of the economy and all agencies of government that interface with the private sector. We believe that economy will be positively impacted if is this is done.
NIGERIA CUSTOMS SERVICE AND EASE OF DOING BUSINESS
One of the biggest institutional challenges facing the business community today is the Nigeria Customs Service. The institution has created a lot of uncertainty and bottlenecks in the international trade process. The Nigeria Customs Service (NCS) has also not fully subscribed to the Executive Orders focused on promoting ease of doing business in the country. We therefore advise that NCS should be compelled forthwith to subscribe to the Ease of Doing Business policy of government, without necessarily compromising its security surveillance. It should also do more to prioritise its trade facilitation role.
The need for a functional and modern rail network cannot be overemphasised. It will facilitate the movement of people and goods whilst reducing the cost of transportation, logistics and freight. We commend the progress made by the administration in the development of the Railways, especially in respect of the Abuja-Kaduna Rail line, the Itakpe-Ajaokuta-Aladja Rail Tracks, the Abuja Light Rail system, and the success recorded on the Lagos-Ibadan section of the Lagos-Kano Rail. We urge government to expedite actions on the ongoing Rail projects across the country to ensure cost effective logistics for investors across all sectors.
We acknowledge government commitment to the reconstruction of major federal roads in the country like the Lagos-Ibadan expressway, East-West road, Abuja-Kaduna-Zaria to Kano road. However, the issue of poor road maintenance needs to be addressed in a sustainable manner. We call for the passage of National Roads Fund Bill. Enactment of the law will give the legal backing to the proposed National Road Fund, a repository for revenues accruing from road user charging systems and any other sources for the purpose of financing the maintenance and upkeep of our road infrastructure. Government should also introduce tolling on interstate roads that have been completed to ensure sustainable financing for maintenance of roads.
To complement quality maintenance of our roads, it is imperative to introduce proper axle control and enforcement of use of weigh bridges on major roads across the country.
ACCESS AND COST OF CREDIT FOR MSMEs
Access and cost of credit is still a major concern to the SMEs sector. The SMEs which contributes about 90% of business activities in Nigeria do not have sufficient access to capital. The enactment of the Secured Transaction in Movable Assets Act, 2017 (popularly called Collateral Registry Act 2017) has provided the legal framework for MSMEs to borrow fund with assets like motor vehicles, equipment & machinery, stock, inventory, accounts receivables and farm products. Nevertheless, a lot still needed to be done to ensure greater access particularly for rural MSMEs.
We need to encourage commercial banks to increase lending to SMEs, but this can only be achieved if there is an effective credit guarantees to de-risk lending to the sector. Credit guarantee scheme for MSMEs will promote lending and provide guarantee of loan repayments.
QUARTERLY MEETING WITH THE PRIVATE SECTOR
We appreciate the quarterly parley between Economic Team [led by the Vice President, Prof Yemi Osinbajo, GCON] and the Private sector. Since its inauguration, the meeting has been regular and consistent. It has improved communication between the government and the private sector. It is good for feedback and the economic policy formulation process. We request that this interaction be sustained.
We submit that for a more effective and coordinated management of the economy, the Economic Team, under the leadership of the Vice President should be given more powers to deal with economic management issues across sectors and with oversight over economic ministries and agencies of government that interface with the private sector.
ABANDONED FEDERAL GOVERNMENT PROPERTIES IN LAGOS
We would like to draw attention to the numerous abandoned federal government properties in Lagos. We are worried about the economic and security implications. Some of these properties include CBN properties; the old federal secretariat, old National Assembly complex at the Tafawa Balewa Square, Independence Building that used to house the defence Ministry and former Federal Ministry of Commerce at Tinubu Square.
Beyond the economic waste that this situation represents, some of them serve as hideouts for hoodlums, criminals, and miscreants. The buildings thus pose security risks to Lagos residents. We urge the federal government to either return the property to the Lagos State government which is the original owner of the land; or give them out on lease to the private sector. There is an urgent need for the government to expedite the process of procurement of relevant title documents in order to facilitate their transfers for effective uses.
NIPC OFFICE FOR LAGOS
we are worried that the Nigerian Investment Promotion Commission [NIPC] has no office in Lagos which is the commercial nerve centre of Nigeria. The implication of this is that private sector players have been shuttling between Lagos and Abuja for various approvals from the NIPC. The interface of the NIPC is frequent and critical to achieving the objective of promoting investment and creating jobs. We urge the government to intervene in correcting this unusual situation. We need a Lagos NIPC office that will have the powers to substantially attend to all needs of investors.
APAPA TRAFFIC GRIDLOCK
The gridlock in the Apapa axis of Lagos State has imposed and continued to impose unbearable cost on businesses. The dis-functional state of the port and associated logistics for cargo clearing have become a nightmare. The cost to business is horrendous and this includes high interest cost (borrowed fund) used for import transaction, high demurrage charges, high insurance premium of vessels coming to Nigeria, high shipping cost, low capacity utilization due to problem of access to raw materials from the port as well as traffic congestion which has extended to the metropolis from the port. Paralysis of economic activities in Apapa axis and many more, what we are witnessing today is a reflection of the several years of neglect of our port and other infrastructure.
We appreciate some of the steps being taken by the government, we like to however reiterate that this measure needs to be decisive, consistent and sustainable. We need to restore orders and sanity to the Lagos port and access to the port. It is regrettable that Lagos port which account for 70 percent of Nigeria Custom’s revenue have to suffer the kind of deterioration and challenges that is currently exposed to.
We also plead that urgent measures be taken to restore the use of rail for the evacuation of cargo from the Lagos ports. It is worthy of note that containers are now being evacuated by the Nigerian Railway Corporation, but the process has been reduced to two or three trips per day, with a maximum of 80 containers. This process is being constrained by the bureaucracy at the ports. We believe that the NRC can do much more if the ports processes are streamlined.
Pipelines should also be used to transport petroleum products from the ports to the depots around the country.
OIL AND GAS SECTOR REFORM
There is an urgent need to improve the regulatory environment in oil and gas industry. This will unlock huge foreign direct investment in the sector, especially in gas and deep-water exploration. This is one of the major objectives of the Petroleum Industry Bill [PIB]. The journey for this legislation started over 15 years ago and not much progress has been made. We request that a more expeditious consideration be given to the bill through appropriate collaborative actions with the national assembly.
Crude oil export is our biggest foreign exchange earner; ironically, the biggest foreign exchange expenditure is also on the importation of petroleum products. Increases in crude oil price benefits the Nigerian economy with regards to foreign exchange earnings but penalises the economy in terms of the huge foreign exchange commitment to importation of refined petroleum products and high energy cost. We need to prioritise local refining of petroleum products to ease pressure on our reserves.
Additionally, we request the intervention of the presidency to reduce the burden of excessive taxation on oil and gas investors in the country. There is currently a proposal by the NPA to impose $1 levy on every barrel of oil export. There are also new levies being proposed under the National Oil Spill Detection and Response Agency [NOSDRA] amendment bill and the Maritime University amendment bill. We also seek protection for the manufacturers of gas cylinders to promote industrialisation, self-reliance and conservation of foreign exchange. We already have huge capacity to meet local cylinder demands.
We acknowledge the efforts by government to improve liquidity in the power supply chain, the drastic reduction in the debt owed to gas suppliers and the Generating companies, improvement in power generation, and the enhancement of carrying capacity of the transmission grid. We are also aware that the Minister of power is promoting alternative models to fix the problem at the distribution end.
But a chain can only be as strong as its weakest link. The distribution end is still grappling with numerous challenges which limits the capacity to deliver power to end users. The power situation continues to pose challenges to business operators. There are complaints across all sectors about high energy costs especially high expenditure on diesel. The situation has worsened with the increase in global crude oil price. Many businesses spend as much as 20-30% of their total operating cost on generating power. We propose that policies and incentives be put in place to encourage decentralisation and more off grid solutions.
The government should encourage and facilitate more off grid power generation for improved access to power. The Aba and Sura market power initiatives should be widely replicated across the country.
DIGITAL APPILCATIONS TO GOVERNMENT OPERATIONS
Digital applications bring tremendous value to processes and enhances efficiency in any system. This is no less true for government operations, including the bureaucracy. Therefore, we urge that the scope of digital applications and the use of technology be increased to promote efficiency across the MDAs. This will reduce human interface, increase the speed of transactions, and improve efficiency. We acknowledge that some of this have started as part of the Ease of Doing Business programme of government. The Corporate Affairs Commission processes is an example.
This agenda is articulated in the context of business activities at this time. As you might be aware, business and economic issues are dynamic. Emerging issues would be raised in our continuous advocacy activities and engagement with the government and its agencies. We will ensure that private sector sustains its commitment to collaboration with the government in the national interest and to enhance the global competitiveness of the Nigeria economy.
MR. BABATUNDE PAUL RUWASE, FCA
LAGOS CHAMBER OF COMMERCE AND INDUSTRY
TUESDAY 6TH MARCH 2019