The economy of Africa’s most populous nation is dysfunctional, and it cannot deliver for its more than 220 million people, with more of them falling into the poverty trap daily. The evidence of this dysfunctionality is so staggering, but unfortunately the leaders are less aware of this malaise or are unwilling to do something about it. Nigerians, whether in business or in careers, are hurting in unimaginable ways. Four in every five business start-ups in Nigeria die in their first three years. For newspapers in Nigeria, global data suggest they face seven times more survival hurdles than their peers in Europe, for instance. Small businesses are facing endless struggles, some mounted on their way by governments, which should be making life easier for them. A small business owner set up a notice or banner in front of her shop for a cost of N185,000; days later, agents of the Lagos State government came around asking for various taxes more than N450,000. Nigerian exporters say they need more than 20 approvals before they can send any cargo abroad. More than 70 percent of these approvals are not applicable in any other country on earth, and it could take up to a month of waiting for exporters.
Nigerian leaders say they are working to attract investment into the country but pay only lip service to addressing the structural imbalances in the economy that keep investors away or force some of those in the country to the exit door. While a major part of the reasons for the dysfunctionality of the economy is attributed to the unbearable exchange rate fall and choking level of volatility, there are also other serious challenges the Nigerian economy faces.
“Nigerian exporters say they need more than 20 approvals before they can send any cargo abroad. More than 70 percent of these approvals are not applicable in any other country on earth, and it could take up to a month of waiting for exporters.”
Read also: Nigeria’s $1trn economy achievable on banks, fintechs collaboration – NDIC
More than a decade ago, a young Nigerian professional who went on a year’s international posting to Kenya found that for each Kenya shilling, he could get N2. Today, the exchange rate is one Kenyan shilling to N13. This measure of value erosion is driving the exit of multinationals from Nigeria. According to Taiwo Oyedele, Chairman, Presidential Fiscal Policy and Tax Reforms Committee, the Maths does not add up. In the last year, Nigeria has received billions of dollars in net foreign exchange inflows, yet in the same period, the local currency has fallen the most in recent history. Oyedele says a major problem is the massive illicit demand for the dollar. Media reports in the past suggested that many of the governors of Nigeria’s states wait for FAAC allocation monthly and thereafter head to their BDCs to convert the allocation to dollars. This illicit demand for FX is bound to continue regardless of what the monetary authorities do. In reality, it is like chasing after a shadow.
The relations between Nigerians and their government are ruled by huge mistrust, which means that those who can pay tax simply avoid it or make certain that they connive with tax officials to pay far below the true tax rate. The result is that collections from personal income tax in Nigeria are a fraction of what is collected under the same tax head in Kenya and South Africa. This is so despite Nigeria having a lower tax band rate. In Kenya, you have to earn up to N282,000 monthly before you are included in the tax bracket, while in South Africa, the monthly salary that takes you into the tax net is N660,000. In Nigeria, once you earn N30,000 a month, you are eligible to pay tax. According to Oyedele, this cannot work. For him, no nation can become rich by taxing poverty.
“Recently, it was discovered that federal government assets in Nigeria worth about N1 trillion were registered under a private name at the CAC. It is the extent to which public officers have taken corruption in Nigeria.”
The leakages are baffling in other areas. For instance, while the value of Nigeria’s total annual imports is several multiples of that of Kenya, duty collections by Customs in Kenya are N8.9 trillion, or three times that of Nigeria.
Nigerians have been led into believing that their country is a rich one, but there is hardly any data to back this belief. While South Africa collects the equivalent of N50.5 trillion from income tax annually, Nigeria collects less than 5 percent of that, while personal income tax collection in Kenya is several multiples of what Nigeria can pull in yearly.
Another form of the dysfunctionality of the Nigerian economy can be seen in how the country manages its resources.
Read also: Nigeria foot-drags to unlock N180trn assets as debt piles
Last week, BusinessDay reported Nigeria has accumulated a large stock of dead assets estimated at N180 trillion, yet its leaders are foot-dragging to unlock them even as public debt piles up. Dead assets are state assets that generate income and do not increase productivity or wealth in a nation. In his book ‘The Mystery of Capital,’ Hernando de Soto, the Spanish explorer, explains that dead capital holds the potential for significant economic growth for nations like Nigeria with economic challenges.
Bringing this closer home, Oyedele believes that in a more transparent system that runs efficiently, the state oil company NNPC and its subsidiaries should be contributing between $18bn and $20bn in taxes into the national coffers yearly. Contrast this with the reality today, where NNPC says it is being owed significant sums by the federation.
Recently, it was discovered that federal government assets in Nigeria worth about N1 trillion were registered under a private name at the CAC. It is the extent to which public officers have taken corruption in Nigeria.
There are 774 local governments in Nigeria, but none of them have their annual budget online, so people can see what they do with the huge FAAC allocations they get monthly. Worse still, Nigerians are not asking questions or seeking to change this behaviour. Whereas in South Africa they have an online portal called Municipal Money where transparency is brought to bear on subregional governments and their spending patterns. Nigeria and Nigerians have a lot more to do to reduce the dysfunctionality of the economy so it can work for the people.
Titi Omobude is an analyst.
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