If you are a small Nigerian Company that is steadily expanding, would you want to continue growing bigger and adding jobs if it will most certainly get to a point where an automatic target is placed on your back by the government for being successful?
From the apparent $10 billion shakedown of one of Nigeria’s most successful companies MTN Nigeria by the Attorney General of the Federation (AGF), to requests for $20 billion in back taxes from oil companies, the government of the day apparently revels in its outright hostility to private enterprise.
The Federal Inland Revenue Service (FIRS), not to be left out of the party, recently directed banks to place a lien on bank accounts of up to 3,000 companies for alleged non-payment of taxes.
The exercise had resulted in hardships for many businesses, including some tax compliant businesses, within the period.
This attracted comments from many tax experts particularly those at Andersen Tax, KPMG Nigeria, and PwC Nigeria.
“There are key questions regarding the powers of the FIRS to place a lien on a taxpayer’s bank account and the lack of due process in doing so in many cases. We are of the view that the substitution power granted the FIRS under the relevant laws does not support the freezing of bank accounts in the way and manner the power is being exercised by the FIRS,” said PwC Nigeria.
That hostility to private enterprise comes with a huge cost though.
One is that Nigerian companies are rarely growing big or specialising enough to be dominant in Africa.
A list of the largest (billion dollar revenue) companies in Africa shows the Southern and Northern African firms dominating both in terms of size and numbers on the list.
Lack of large firms operating in a country often makes it harder for an economy to invest in Research and Development and gain skills that large firms bring.
The lack of formalisation of companies also makes it less likely for them to be taxed and reduces available government revenues in the long run.
Finally such attacks on corporations and small companies often deter investments.
One country which has managed to systematically destroy most of its private sector is Venezuela, a cautionary tale for Nigeria on how not to treat private capital.
Venezuelan leaders often like their Nigerian counterparts have treated oil money as all that is needed to cure ills plaguing their country, and as such derided or ignored private capital.
The then Hugo Chavez administration in 2008 began forcing foreign oil companies to accept higher taxes and smaller, non-controlling stakes in oil projects amid what it described as an oil nationalization.
The following year, Chavez nationalized CANTV, Venezuela’s biggest phone company, and the utility Electricidad de Caracas.
Venezuela wound up nationalizing more than 1,000 companies during Chavez’s 14 years in office, including Banco Santander’s local unit. The moves eventually backfired by crippling domestic production and leaving the country more reliant on imports.
The government pegged the local currency to the dollar and set price controls for basic goods in an attempt to contain capital flight and inflation that ensued.
The result was a booming black market for dollars and shortages of the basic goods being sold at a loss under price controls.
If it sounds familiar, it is because it is eerily similar to Nigeria’s forex crises of 2015 – 2017, which analysts say helped to quicken the recession the country found itself in and elongated it.
Tyler Cowan, a professor of economics at George Mason University in a recent write up notes the dangers that those that propagate socialist or anti-capitalist ideas pose for an economy, even if these ideologies are followed incompletely or imperfectly.
According to Cowan, Chavez’s praise for anti-capitalist, anti-American regimes such as Belarus and Iran, might have been written off as political posturing, but it has continued under his successor, Nicolas Maduro.
“Maduro has also failed to use his post to educate Venezuelans about the benefits of capitalism and globalization — in stark contrast to many East Asian leaders. Instead, the promotion of socialist ideas has helped to make Venezuelan society less economically robust and more vulnerable to collapse,” Cowan said.
In the same vein in Nigeria, a lot of people in government who should know better are demonizing sound ideas like privatisation, free markets (Africa Continental Free Trade Area), capitalism and the private sector.
The major impact this would have is to make already difficult reforms (like unbundling the NNPC, attracting more private capital for railways, toll roads and bridges, market driven FX rate, selling moribund FG assets and so on) almost impossible to contemplate or tough to build a consensus for enacting such reforms.
In the end Nigeria may just be slow walking itself on to the road to Caracas, with eyes wide shut.
Patrick Atuanya
