Industrialists Are In Fear Over Excise Duty Imposition – Former LCCI DG

Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE) and, former Director General of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, in this interview with ADEMOLA MOSES, explains the challenges confronting the nation’s economy and the 2022 Federal Government’s budget proposals.

What is your view on the Nigeria’s business environment in post-COVID-19?

Business activities in Nigeria resumed after the relaxation of the COVID-19 restrictions by Federal governments and the economy witnessed gradual recovery in the entertainment, hospitality, aviation, transportation, trade and commerce, food and beverage sectors, among others. In addition, the oil price has improved the outlook for foreign reserves as well as the capacity of the Central Bank of Nigeria (CBN) to fund the foreign exchange market. As at October 2021, the foreign reserves has crossed the $41 billion threshold. Also, the impact on revenue outlook is looking positive. Definitely, these developments would impact positively on investor sentiments and the business environment in general.

The National Bureau of Statistics (NBS) GDP data shows that the Nigeria’s economy is out of recession and waxing stronger. Does this match the reality?

That will depend on who is doing the analysis, but if you ask an economist like me, we look at the data. Recession is when you have two consecutive contractions in Gross Domestic Product (GDP). That is negative growth in GDP. If this happens in two consecutive quarters, we say we are in a recession. We have a positive growth after a negative growth like what we had in December, 2020: we say that we are out of recession. That is the economist interpretation of a recession. But if you talk to a man who is hungry that is out there that we are out of recession he will not believe you.
Things are worse now than they were during the recession last year. Life is hard, there are no jobs. Profits are diminishing. Businesses are sacking their employees and all of that. That is the understanding of the man on the street when it comes to recession. The economy is not doing well.
In some sectors, there have been marginal improvement but for most things there is no improvement. For people who find it difficult to source foreign exchange to run their factories, those who have recorded significant increase in cost of production, for those who are facing very strong customer resistance due to falling purchasing power of customers leading to sharp drop in demands or even no sales as it were in some cases, low capacity utilisation, you cannot go and tell such a person that the economy is out of recession. So, my way of responding to this question is that it depends on where you stand and who is speaking. I often tell people that economy is about human beings and not just about the data. If the data does not reflect what the human beings are feeling, then we have to focus more on what is happening to the people in terms of employment or jobs, welfare, profitability, ability of businesses to create jobs. That is more important than talking about the economy creating positive growth based on what the figures are saying. The GDP recorded 0.11 per cent growth in December 2020 and 0.51 per cent in first quarter of 2021, and so what? The price of bread, rice, garri and so on has been increasing. Create jobs that is what we are saying.

 What can you say about inflation the country is experiencing?

Inflation rate has decelerated over the past couple of months now but inflationary pressure remains a major cause for concern for investors in the country’s economy. When you noticed that headline inflation as of September, 2021 was 16.63 per cent while food inflation was 19.57 per cent and core inflation was 13.74 per cent In all of these, there are worries about the implication of the inflationary situation for the Nigerian economy.
Indeed, inflation had the following impact in the period under review: It escalates production cost and operating cost for businesses, weakens purchasing power, depresses sales, turnover, profits, high food price, poverty and social tension. In the meantime, I can confidently tell you that the key drivers of inflation are exchange rate depreciation, the illiquidity in the foreign exchange market, insecurity in the farming communities and structural constraints are impacting negatively on productivity in the economy.

Can you highlight the implications to the country’s economy?

Really, we can see that the economy continues to face headwinds even as some degree of recovery is being reported. Some of these headwinds and shortcomings include: Naira exchange rate depreciation and volatility, illiquidity in the foreign exchange market, high inflationary pressure, insecurity in parts of the country has affected access to local raw materials, especially agricultural products and distribution of finished products across the country, high energy costs, especially the skyrocketing cost of diesel and gas, high dependence on crude oil or foreign exchange earnings., high and increasing fiscal burden of fuel subsidy and debt service, Smuggling of petroleum products to neighbouring countries in the light of the uptrend in crude oil price.
Also, uncertainties around the African Continental Free Trade Agreement (AfCFTA), especially in terms of readiness of state actors. So, the onboarding traction remains weak. There is intractable congestion, traffic gridlock and extortion at the nation’s ports. Meanwhile, structural constraints are also affecting productivity in the economy. You can see that industrialists are worried about the looming imposition of excise duty on a segment of the sector. Manufacturers are already burdened.
Cost of distribution of finished goods and raw materials have become prohibitive because of the sharp increases in the cost of diesel and the state of the roads. Additionally, delivery vehicles of many companies still suffer the challenges of multiple taxation across the country, especially on the roads. These taxes are imposed from one state to others.

Can you explain how the scarcity of foreign exchange has affected the manufacturing sector?

Rhe biggest challenge reported by investors across all sectors in the past couple of months was around foreign exchange. Practically, all investors expressed serious concerns over this predicament. The concerns are tilted around the sharp depreciation in the exchange rate, uncertainty, volatility and unpredictability of the rate and liquidity problem at the official window of the foreign exchange market.
So, I can tell you that it has not been easy for MSMEs and local manufacturers in terms of sourcing for forex in Nigeria and the repercussions are the after effects on weakening purchasing power of people.

What are your proposals toward achieving a realistic exchange rate in Nigeria?

There are so many schools of thoughts about this matter but the predominant school for many economists is that we should allow the market forces to determine the exchange rate. We are having so much problems and disruptions because the market is not allowed to determine the rate. If the market is allowed to function, this economy has the capacity to attract more foreign exchange outside of oil. Because it is a big economy, a lot of activities are taking place; people can still find a lot more opportunities that some of us could not see. But if there is too much of regulations around forex, the private capital that we need will not come in. If it does not come in and we continue to ration the little that we get from oil and the other few sources; we will continue to have this crisis on our hands. This is because foreign exchange is about international capital, that is, external money coming into your system. If you don’t gain the confidence of the international investors to come in, then you will continue to struggle with the little that you have. The more you ration it, the more crises you will create. It is about creating the environment for more inflows to come- Diaspora inflow, Foreign Direct Investment, foreign portfolio investments and all of that. If you see what is happening at our ports now, you would feel sorry for our economy and country. You say you don’t have forex and exporting goods through our ports to other countries to earn the scarce foreign exchange has become a nightmare as a result of the cumbersome processes at the ports for export of goods. It is a policy problem that we have in this country that is driving back forex from the country as we see at our ports and other sectors of the economy. Exporters should be given the free hands to shop around for the best bargain for their forex when they earn them just like what is happening to diaspora remittance that is fetching additional income due to the policy of the CBN. The exporters, when they earn their forex should be able to shop for the best buyers and sell to them rather than constrain them to the official window. Another thing we must do is to manage our money supply. The monetary aspect is also very important because it can affect exchange rate, stability and even inflation is not well managed.

What is your comment on the 2022 budget proposals of the Federal Government?

Generally, I think the assumptions are realistic and they are not too ambitious. The only element of the assumption which I think is not realistic is in the exchange rate target. When you say that your FX assumption is N410/$ and we all know what the exchange rate is now, I think that for me is something they need to take another look at because invariably, whatever comes in terms of foreign exchange earnings will be monetised at this rate. So, If the market price is N500/$ and government is exchanging at N 410/$, they are shortchanging government. Besides the issue of forex is inflation. Again, that depends on what happens over time. Inflation is year on year so considering the base effect, the gap between what happened last year may not be much compared to what is going to happen this year because the figure is already high. One thing we must also explain to the people is that it does not mean that prices of commodities will drop because inflation figure has dropped. You will hear people say things like “why will they say inflation has dropped while the price of commodities are still going up?´ Inflation is the rate of increase in price. If price increase by 10 per cent last month or last year, and increased by 5 per cent this year, price has increased still but the rate of increase has dropped. It is the rate of increase that has dropped, for instance, from 10 per cent to 5 per cent and not prices of items necessarily dropping. In absolute terms the price has continued to increase but the rate of increase is what has dropped. That is why we say inflation has dropped and not price.

What is your assessment of the port and the cargo clearing challenges the importers are facing?

The challenges of cargo clearing persisted in the month of October and importers continued to face some obstacles which did not help trade facilitation in anyway. There have been long and clumsy documentation processes at the ports. Too many agencies of government involved in cargo clearing processes are not helping seamless trade facilitation at our ports. There are also too many units of customs involved in the process. This one, we have been informing government to do something about it. Intractable traffic gridlock has even forced some importers to resort to the use of badges to move cargo outside the Lagos ports. Also, there are concerns about the interception of containers that have been duly cleared by the Nigerian Customs Service at the ports. These interceptions are undertaken by another arm of the customs service. Following this, many investors have been expressing serious frustrations as a result of the repeated and overlapping process of cargo clearing and release processes. However, I will say this underscores the imperative of proper harmonisation within the customs service to minimise the frustrations and pains of investors.
Also, investors are concerned about the absence of credible and independent dispute resolution system between the private sector and the Nigerian Customs Service. You know, there are frequent disputes around classification and valuation with profound implications for variation in costs of imports. Private sector operators in the economy are extremely worried about the difficulty in registering companies (including manufacturers and multinational companies) for fast-track cargo clearing arrangement. The procedure has become extremely bureaucratic making it difficult for companies who ordinarily should enjoy fast-track to be denied the opportunity.
In conclusion, I will implore the government to take a critical look at the concerns that have been expressed by business operators and address these concerns in the interest of the investment environment and the advancement of the Nigerian economy.