Managing Partner of Ecovis Nigeria, Mr Andrew Uviase, speaks on how the Federal Government can address some of the economic challenges facing the country, in this interview with JOSEPHINE OGUNDEJI
The Nigerian economy has faced several challenges since the COVID-19 era. Do you think the country has managed the various crises well?
The COVID-19 pandemic outbreaks occurred in Wuhan China in 2019 and rapidly spread throughout the world. Attempts to curtail the spread of the disease led to the imposition of several restrictive measures such as lockdowns, travel restrictions, and social distancing. The measure triggered supply chain disruptions, drastic changes in the consumption of energy, and a general reduction in the level of economic activities. At the end of COVID-19-induced lockdowns in 2020, the Federal Government responded with a combination of monetary and fiscal policy measures. Some of these included the Federal Government’s one-year Economic Sustainability Plan with a stimulus package of N2.3tn, the establishment of N500bn Covid-19 intervention fund, an increase in allocations to states, and several sectoral interventions to businesses. On the monetary side, we had a reduction in interest rates and a moratorium on loan repayments among other measures. There was also attempts (though feeble) to unify the exchange rates. Other than those initial efforts, there were no other deliberate attempts to stabilise the economy and stimulate growth. The economy continued to operate at its usual rent-seeking and speculative gains-pursuit system. So, we can say that the management of the post-Covid economy has been less than satisfactory.
Food inflation and headline inflation have been on the rise, what is the way out?
Before any effective solution can be deployed to tackle rising inflation, it is imperative to understand the cause of food inflation and the main drivers of price increases. Nigeria’s inflation is cost-push inflation resulting from a combination of factors such as poor infrastructure, insecurity, and shortage in forex for purchasing essential raw materials by manufacturers. The immediate step will be to boost security so that farmers can go back to farm. Once the farmers can go back to farm, there will be an increase in supply which should drive down prices. The government must also try to stabilise the economy. There have been too many shocks in the last five months which has made nonsense of the projections by manufacturers. Look at the price of diesel, the exchange rate, and even PMS. Manufacturers may be worried by the high cost of production but they are more concerned with price instability which makes it difficult for them to plan. So, inflation can be curtailed if structural impediments to production are reduced.
Foreign investors are not interested in the Nigerian market at this moment or even since the COVID-19 pandemic era, is there anything the government can do to change this?
Firstly, we must realise that there is fierce competition among nations to attract foreign investment. Naturally, Nigeria is meant to be a place of preference for foreign investors because of its large population, abundant supply of skilled manpower, and youthful population. However, the risk has remained high for foreign investors because of the incidence of insecurity, very poor infrastructure, and unstable policy measures. So, to address the lull in foreign direct investments, they must adopt short-term policy measures such as generous tax incentives to compensate for infrastructural deficits and medium to long-term measures of enhanced security and improved infrastructure. The policy measures must also be stable and successive administrations must see the country as a going concern by maintaining the good policies of their predecessors. No businessman likes uncertainty.
What advice do you have for investors in terms of choosing asset class to maximise their returns?
Generally, returns to investors are affected by several factors such as the risk, the type of venture, the gestation period for the investment, and the legal and regulatory requirements. I can only advise that investors should always sit with their professional advisers to weigh their options.
The CBN recently floated the naira, and many manufacturing firms suffered losses. Is floating the currency the right thing to do?
Floating the naira at this point appears to be a convenient and easy way out. However, it must be a managed float where the governments should intervene to ensure rate stability. My interaction with manufacturers suggests that their greatest concern is the fluctuations in the exchange rate which has made nonsense of their projections and affected their ability to plan. I will suggest that we must revert to managed float, where fluctuations can be within acceptable band and forex should be made available to the preferred sectors of the economy.
What economic projection does your firm have for this year?
This is a tricky question that I will approach from the perspective of the different economic agents. From the perspective of the business community, they should be ready for the greatest tax scrutiny in the history of Nigeria. The projected tax revenue in the budget is well over the previous year’s figures by 30 to 50 per cent, then there is the objective of raising tax revenue from 10 per cent to 18 per cent during the next four years. My advice for businesses is that they should do a tax health check on their businesses to determine if the relationship between various segments of the accounts can stand the scrutiny of the revenue authorities. This will help them to minimise surprises when the revenue authorities eventually come calling. They should expect improved demand for their products and services based on expected wage increases by the government. Inflation would be moderated as we expect prices of petroleum products to be stable because of the impact of the Dangote and Port Harcourt refineries which are expected to be fully operational in the year. We also expect the pressure on forex to ease given the reduction in demand as a result of the enhanced local refinery capacity. The government finances will remain stable due to the inflow of petrol dollars. The price of crude oil will remain high as we are not expecting the Russia-Ukraine war to end soon. Government revenues will get a boost from taxation as a result of strengthening the capacity of the revenue generation agencies. However, it could be counterproductive if struggling businesses are overtaxed. General insecurity may remain or slightly get worse because it is difficult to change people who are already used to free resources and money. We would expect the government to use security forces to counter the activities of insurgents and terrorists.
You spoke about the faulty template for reporting output growth. What methodology would be most realistic in your view?
I touched on two issues. Firstly, is the presentation of the information. What we see in the GDP report is percentage growth from one period to the other. I believe that the absolute figures should be compared with each other’s percentage growth or decline reported alongside the figures. This is important because whoever is looking at the report will be able to know which figures have given rise to the growth. Most users do not go to the appendix to pick the absolute figures. Secondly, I am concerned about the methodology of conversion from the nominal GDP to the real GDP. I believe the conversion factor should also be disclosed so that any person with elementary knowledge of arithmetic can test it and confirm that the figures are accurate.
There has been so much noise about growing an inclusive economy. Does the growth pattern in the last few years suggest any progress?
Inclusive growth is dependent on two factors, economic growth which is measured by the gross domestic product, and the distribution of growth among the citizens which is measured by the Gini coefficient. In the past few years, the economy has stagnated because economic growth is hardly keeping pace with population growth. Then when it comes to the distribution of the production output, it is awful and the poverty levels have remained alarming. Even well-thought-out programmes like cash transfers and school feeding are hardly effective because the process is not transparent and not open to public scrutiny. Any cash transfer arrangement must be transparent and open to public scrutiny. It should be possible for interested parties to verify the beneficiaries. We need an independent project monitoring body to verify the beneficiaries and method of transfer.
There is a dilemma about the funding of infrastructure, which is critical for accelerated growth. If we go the PPP route, user charges become another burden but the government is too broke to fund such projects and deliver seemingly. What should we do?
Generally, the average human being is a free rider who wants to enjoy public goods without making payments. However, it is important to categorise the type of infrastructure and to determine the extent to which PPP can be applied. Other than roads, every other type of infrastructure can be done by a PPP arrangement. Even when it comes to roads, there are various ways by which an investor whether private or public can recoup their investment. Funding infrastructure should start from the conceptualisation stage to the final stage. If we can cut down on wastage and padding, we will be amazed at what we can achieve with the little resources we have.
A recent PMI report says new orders are falling as people are not able to pay new prices for goods and services, which means inflation is still at a crisis point. Have we reached the peak of the long inflation run or do you think it will continue the upward trend?
It is stating the obvious to say that orders are falling. When the prices of essential family items have doubled and wages have remained essentially the same, it would be magical for the impact to be different. I believe that next year will be better if the two critical refineries are working as projected. Then through Nigerian National Petroleum Corporation, the governments should allocate crude to the refineries at concessionary prices. This way, the government will be subsiding production which will trickle down faster than any other social welfare programme.
How do you think the Federal Government can generate the proposed revenue in the 2024 budget, especially through tax?
The current budget is modest, and the revenue targets appear achievable. We expect the Federal Inland Revenue Service to widen the tax net by leveraging technology to plug revenue leakages. We also expect greater audit and investigative scrutiny of companies. Therefore, all companies should contact their professional advisers for a tax health check on their companies to minimise surprises.
How can the FG plug revenue leakages in ministries, departments, and agencies and across the system?
Revenue leakages occur in various forms ranging from rendering of billable services that are not billed to actual misappropriation of revenue that should be collected by the Federal Government or sub-national governments. Revenue leakages can be minimised by putting the right system in place, deploying automation technology, and employing analytical techniques to detect the unusual relationship between the Revenue and the level of activities.
As a country, do you think there is a need for reforms in our accounting system?
Accounting knowledge like every other human knowledge is dynamic and must be continually evaluated to reform it. I believe that at the private sector level, there should be greater emphasis on incorporating the effect of inflation on the financial statements of companies. Solely relying on historical costs tends to diminish the use of such statements for comparative purposes and trend analysis. From the public sector perspective, the adoption of the International Public Sector Accounting Standards has added a lot of value to the usefulness of financial statements. However, we must consider the effectiveness and efficiency of public sector expenditure. It is still surprising how public sector projects manage to cost as much as four times what they cost in the private sector despite various safeguards such as a BPP and internal audit process. This is why we need to develop and use efficiency criteria in Public sector accounting.
