A lot is being done to protect the MSME sector. This concession must be given upfront but enough is yet to be done. The sound of all the billions of naira being provided for them to access is as deafening as it could be misleading The Nigerian economy is, at least, 65 percent informal, and certainly not on its way to change that toga. The sector plays the role of a back-stopper and defender of the undefended, bearing the brunt of the outcomes of the procyclical nature of our mixed economic system.
Such consequences are worse in economies where public policy, driven more by whim, politics and corruption than economics, often stand reason on its head. With this in mind, we can properly situate the financial packages to where they belong: grossly inadequate.
The result of perennial bad leadership is the virtual non-existence of any form of public utility in places where close to 70 percent of the people live and work – the rural areas. Operators in the MSME sector provide virtually everything for which they are levied taxes – roads, water, security and even electricity, despite all kinds of roadmaps drawn by experts but implemented by people who know nothing about “Map Reading”.
The World Bank has just ranked Nigeria 171 out of 190 countries on global access to electricity, and 33 out of 46 Sub-Saharan African countries – after its electricity system was privatized. This has resulted in a 2020 Ease of Doing Business Index positon of 131 out of 190 countries. Evidently, our country has a lot to do.
While, hopefully, concrete steps are being taken to improve the operating environment for MSMEs, it appears we still have some challenges to resolve in the area of policy and practice cohesion, regarding the revival of the economy, especially as it affects the informal sector. There is little doubt that the Central Bank has been very active in fighting against an anticipated pandemic-induced recession. However, there is a growing concern about the alarming rate at which all kinds of charges are emerging and being thrown at hapless bank customers, who are essentially the small business operators.
In Lagos, the Commissioner of Finance was quoted on the social media as saying that “the Nigerian economy can recover through taxation”. According to the report, he said that Nigeria needs to summon the political will to embark on taxes. How sad! As if to agree with what ordinarily cannot pass for the result of any deep thinking or rigorous analysis, a national daily was reviewed on Channels Television on Monday, boldly displaying over ten tax heads, mostly new, that should help the banks “rake in more money”.
What a heartless set of leaders of a half-dead population. If these plans come true, we might just be robbing Peter to pay Paul – emptying one pocket to fill the other. I have said in various fora that it is a no brainer that what increases tax revenue is not the political will to tax or the multiplication of tax heads. Nor is it a product of heavy research to know that cutting flesh off a sick thin animal in order to enrich the owner’s breakfast is insanity.
Taxation 101 should teach all these tax experts that more taxes will come from a widened tax base (populated by new growing firms), that is administered efficiently and transparently; and not duplicated tax heads. The animal, whose flesh is being cut for “Suya” – especially the MSMEs, are sick and dying. More taxes on them will be counterproductive in the sense that as they die more people get on the unemployment benefit scheme (in saner societies) and the state loses more.
It appears, therefore, that while the CBN is busy churning out financial packages for the MSMEs, banks and tax systems, in dire need of integrity pills, are hot on the sector’s hills with multiple charges, in the name of increasing tax revenue. If we think deeply, we may discover that taxes from these MSMEs cannot help us. Leaving them totally tax-free will not significantly hurt us. We will achieve more with improved cost-containment than reckless tax drives that worsen bad economic situations. We have signally failed to curb the huge fraud going on between tax officials and top corporates, refused to cut cost, and chosen to chase shadows among MSMEs, especially the micro and small entities.
We can see the efforts of the CBN to steady the hands of small businesses impacted by the pandemic. It provided the sum of N50 billion to help “households and MSMEs affected by COVID 19” and a lot more for other sectors. There are reports that the SME COVID 19 Fund has been fully disbursed, as at the end of May, indicating improved disbursement procedure, relative to some earlier funds provided prior to the pandemic, that were hard to access.
Although we are yet to certain the spread of the beneficiaries and the extent to which the real targets were reached, the CBN can be trusted to do a better job than the Ministries that distributed cash palliatives in ways that pointed to discrimination and abuse of office. I believe the authorities owe Nigerians from all sections, the duty to ensure equitable distribution of national resources and should actually go out of its way to bring in areas where ignorance or lack of opportunities may keep potential beneficiaries out.
In furtherance of its efforts to provide a countercyclical force against the current rush down the hill, the CBN is also doing much in the area of interest rate and inflation management. The Monetary Policy Rate (MPR) has been closely monitored and managed to incentivize lending and borrowing activities, cutting the MPR 100 basis points to 12.5 percent, while holding all other policy parameters, the Cash Reserve and Liquidity ratios, constant at 27.5 percent and 30 per cent, respectively. That points to a clear intention to soften the market for banks to interact with borrowers and ultimately activate key growth parameters, like jobs and consumer spending.
However, the corrupt multiple exchange rate system currently creaming national resources into private hands must go. Luckily, there is significant pressure from those who pay the piper, to get Nigeria to harmonise its exchange rates or continue its unsustainable profligate lifestyle within its depleted revenues. The action being taken in that area in the last few days, seems headed in the right direction. Yes, the naira will depreciate and cost will rise. However, we will all face the same destiny, and not one destiny for privileged officials and their friends, and another for the rest of us.
Although this may not be the most appropriate time for such rate harmonisation, it is the time we asked for Other People’s M. We have proved incapable of looking inwards and, at least, reducing the cost of government and must therefore always borrow.
This rate harmonisation might negatively impact recovery but we must understand it as the price of consistent failure to reform. More important however, is the need to stop the banks and corrupt tax authorities from destroying the effort of the CBN to stabilise and grow the economy through its undisputed dominant segment – the MSMEs.
