The manufacturing industry is better served where the country does not have to tax manufacturers to the hilt to pay for subsidy or look to loans from external parties that point fingers at the sector for revenue to recover their loans. It is extremely difficult to convince a finance minister not to increase taxes when he / she needs the revenue to plug an oversized revenue hole.
Much has been said about fuel subsidy, especially the impact on Government’s very lean treasury and about the consequential impact of its removal on most Nigerians. It certainly appears that more Nigerians (unlike during the Goodluck Jonathan presidency) now support the fuel subsidy removal, even though many feel aggrieved about the manner / timing of the action. It is difficult to say whether there was ever going to be a ‘good time’ for such a consequential policy decision.
Over the years, removal of fuel subsidy by the Nigerian government has been a controversial and mainly unpopular (though credible) policy that has sparked protests in the country. However, Nigerian manufacturers under the auspices of Manufacturers Association of Nigeria (“MAN”), as well as the Nigeria Employers’ Consultative Association (“NECA”) have recently expressed their support for the policy, arguing that it will benefit the economy and the industry in the long run – while also advising the President to urgently act to mitigate the negative impact of the policy on the most vulnerable Nigerians. According to the Organised Private Sector groups, the total removal of fuel subsidy will promote enterprise sustainability, growth, and competitiveness, as well as trigger huge financial revenue which can be channelled into infrastructure development, etc.
Some manufacturers also agree with the Government that the fuel subsidy regime has been a source of corruption and inefficiency, as well as a catalyst for smuggling of petroleum products to neighbouring countries. By removing the subsidy, the expectation is that Government will save billions of naira that can be invested in other sectors and infrastructure, and also curb the illegal activities of smugglers and middlemen who exploit the price differential between Nigeria and its neighbours. In the past though, manufacturers were wary of fuel subsidy removal and highlighted the potential socio-economic impact on average Nigerians, as well as the manufacturing / industrial sector of the economy due to inflation occasioned by increase in production costs, that often translates to higher prices of goods.
The speed at which most organised private sectors groups, including the Nigerian Economic Support Group (“NESG”), have endorsed the policy action this time may have come as a surprise to many who recall the opposition by some of these groups in the past. It, however, appears to me that the manufacturing community have learnt a few lessons from recent fiscal-related advocacy efforts that did not yield the desired results, including the recent advocacy efforts regarding increase or introduction of excise duties on sweetened beverages, alcoholic products, tobacco (and related)products, as well as telecoms services.
Despite manufacturers’ presentation of data to the President Buhari government and engaging on an intense campaign, the Finance Minister, Dr Zainab Ahmed, recommended and pushed through a raft of taxes with severe impact on the manufacturing industry and employers generally. That said, the former Finance Minister should not be blamed. I do not envy anyone tasked with the responsibility for generating revenue in an extremely broke country where the treasury is as bad as a worn-out basket, with holes consistently poked by big masquerades.
In my opinion, despite the expected burden that the fuel subsidy removal will inflict on the bottom-line of manufacturers, there are at least 2 notable reasons why manufacturers should take some comfort from their stand this time.
Firstly, fuel subsidy has become an existential threat to this nation. A situation where Nigeria consistently has a budget deficit and borrows to cover its recurrent expenditure, including salaries and the fuel subsidy is alarming. Presently, it is understood that almost 100% of our internally generated revenue is spent on debt servicing. It makes common sense, therefore, that Nigeria should not be carrying a burden that it cannot afford or even truly account for and manufacturers cannot do any real business in a country that is headed for collapse!
Secondly, as the nation’s consistent fiscal / revenue deficit becomes an albatross and we are forced to secure additional debt from several international monetary organisations, including the World Bank and International Monetary Organisation, our leaders also increasingly lose their influence over domestic economic policies. A situation where our government is required but often disguised as ‘advice’ to raise revenue from specific sectors by increasing taxes – notwithstanding the local and peculiar circumstances, usually robs us of our independence and sovereignty. Very often, the World Bank and IMF advise the revenue authorities in Nigeria to target certain sectors of the economy and take specific actions. Due to the need to keep the organisations happy so we can secure further financial support from the organisations and similar third parties, the manufacturing industry do not make sufficient headway in convincing Government officials of the need for review of a potentially disruptive fiscal policy.
If we continue to borrow at the alarming rate that we have seen over the past years, we will end up in a situation where men in foreign offices dictate our economic policies often without appreciable regard for the impact on our local industrial sector. After all, he who pays the piper dictates the tune. The same scenario has played itself out in neighbouring Ghana that recently had to bend over backwards to accommodate conditions for a US$ 3 billion IMF bailout. It is the hope, therefore, that the less dependent we are to the international monetary organisations, the more chances are that our leaders will be more open-minded or inclined to properly consider the arguments / presentations from the local manufacturing sector.
The manufacturing industry is better served where the country does not have to tax manufacturers to the hilt to pay for subsidy or look to loans from external parties that point fingers at the sector for revenue to recover their loans. It is extremely difficult to convince a finance minister not to increase taxes when he / she needs the revenue to plug an oversized revenue hole.
It is my renewed hope (pun intended) that the new administration will heed the advice from MAN, NECA, NESG, etc. that steps should be taken to stimulate manufacturing and industrial production to develop local economies. Continued education, orientation and consultations also need to take place consistently and at various levels in the coming months. The current Government must also show good faith in its dealings. Nigerians need to believe that it is not only the average Nigerian that is forced to bear the brunt of the fuel subsidy removal.
Godson Ogheneochuko, a public affairs consultantat Thekla Advisory, writes from Lagos. He can be reached via godson.ogheneochuko@outlook.com
