How accelerated reforms could unlock Nigeria’s growth – stakeholders

Embarking on accelerated reforms and other visionary measures could enable Nigeria recover from the current economic slowdown, say stakeholders at the ongoing 21st Nigeria Economic Summit in Abuja, yesterday.

The suggest other measures including the privatisation and concession of railways, major highways, airports, refineries, pipelines and depots, adoption of alternative financing options in the areas of infrastructure investment, both directly and in partnership with the private sector.

Kunle Elebute, Partner/Head, Advisory Services, KPMG Professional Services, presented a scenario analysis that models the key economic levers that will generate the maximum impact. Elebute shows that combining inputs such as petroleum subsidy reform, proper infrastructure financing and fiscal multipliers like capital expenditure could lead to higher growth or output.

“If the optimistic reform model scenario is embarked upon that leads to improved tax collection and an expanded tax base, reform of the petroleum subsidy scheme, infrastructure funding through deficit financing and use of PPPs, Nigeria’s GDP could easily surpass $700 billion by 2020,” he said.

Other reforms that could boost growth include finding alternative financing for NNPCs Joint Venture (JV) cash call funding, improving capital expenditure to 40 – 60 percent of the budget and raising the tax to GDP ratio to between 6.72 – 13.93 percent.

Increasing government revenues could be achieved by raising the value added tax (VAT) rate to 10 percent, (from 5 percent) diversifying its base and closing loopholes, said Temitope Oshikoya, chairman, NESG Faculty of Economics, in another presentation at the summit.

“VAT revenue could increase from $5.1 bn to $18 bn or 1 percent of GDP to 3.5 percent,” Oshikoya said.

Accelerating reforms under an optimistic scenario would also mean increasing budgetary allocation to education to 20 percent, raising the quality and standards of universities to redress the outflow of students to foreign countries and increased investment in vocational education through establishment of technical colleges.

Growth in Africa’s largest economy has been slowing as oil prices were cut in half between 2014 and 2015.

Nigeria’s economy where growth had averaged 8 percent per annum between 1999 and 2013 recorded GDP growth of 3.96 percent in the first quarter (Q1) of 2015 and 2.35 percent in the second quarter (Q2) of 2015.

Research firm, Financial Derivatives Company (FDC) forecasts growth of 2 percent and 1.8 percent in the third and fourth quarter of 2015 respectively.

Nigeria’s population growth rate of 3 percent combined with sub-par economic growth at the 2 percent – 3 percent range implies negative per-capita income growth, which acts as a drag on the consumer sector, according to Renaissance Capital economist Yvonne Mhango.

The Central Bank of Nigeria (CBN) which is battling to maintain macro stability has little room to support the economy, as a rate cut from a record high of 13 percent would fuel inflation and temper appetite for naira assets.

The privatisation and concession of railways, major highways, airports, refineries, pipelines and depots, adoption of alternative financing options in the areas of infrastructure investment, both directly and in partnership with the private sector and privatisation of the power transmission network to achieve 20,000 MW would also lead to a quantum leap in growth, says Elebute.

PATRICK ATUANYA