Government is the biggest threat to Nigeria’s economy

Whether by suspending market forces, meddling in price fixing, or the quantum of debt owed by its Ministries, Departments and Agencies (MDA) to critical sectors of the economy, the Government at all levels is increasingly becoming the biggest threat to Nigeria’s economy, analysts say.

Business owners small and large, who spoke to BusinessDay say they are being bogged down by extra costs imposed by the government.

“The Federal Government has not effectively positioned itself as an enabler for economic growth. Government has ample opportunities to reposition the economy but it has not optimised that,” said John Chukwu, managing director and founder, Cowry Asset Management Limited.

“It has to address the structure of the funding plan for building infrastructure. It has to evolve industry specific policies that will act as catalyst to growth. We have to invest where we have comparative advantage,” said Chukwu.

Nigeria’s economy is forecast to contract by 1.7 percent in 2016, according to the International Monetary Fund (IMF).

The country has been unable to attract investor interest even after prices of naira assets fell sharply, following the 40 percent devaluation of the currency in June by the Central Bank of Nigeria (CBN).

Companies operating in Nigeria are facing mounting roadblocks to doing business, emanating from the Federal, State and local Governments.

Businesses already burdened by poor electricity and transportation infrastructure and low access to affordable financing are now contending with multiple taxation from regulatory agencies, as well as inefficiencies at the ports that are spiking the cost of production.

In an indication of how the Nigerian economy has deteriorated, the country slipped three places to rank 127 out of 138 economies on the latest World Economic Forum (WEF), Global Competitiveness Index (GCI) Report, 2016-2017.

Sources tell BusinessDay that the anti business rhetoric and actions of the government could end up worsening the ongoing recession and further deter foreign investments.

The conflicting signals coming from the Government and the President’s body language that appears hostile to private capital are also seen as a negative by investors.

“Government can be regarded as the biggest threat to the Nigerian economy,” the CEO of a major manufacturing concern who did not want to be named said.

“This is because the debt cycle leads straight back to the economy, so you would find that for every naira owed in domestic debt, the economy suffers,” the source added.

The Federal Government owes local contractors as much as N1 trillion for more than 200 on-going road projects, while power companies are owed about N400 billion, according to industry data obtained by BusinessDay.

The financial sector is not unscathed by the debts, given the exposure of banks to some of these sectors, like the power sector.

Frequent borrowing from the financial system is also crowding out the private sector and raising the cost of private sector credit. Average interest rates on treasury bills is now as high as 18%, making it attractive for bankers to lend to the government rather than the private sector.

Authorities have also resorted to setting artificial price bands in the currency market, power sector and downstream petroleum sector.

The naira’s official value is pegged by Nigeria’s Central Bank at N305 to US$, whereas in the parallel market, which has the closest semblance to a liberalised market, one dollar exchanges for N480.

In the downstream petroleum sector, a litre of petrol is pegged at N145 even though it is unprofitable for petrol importers, while the template at arriving at current electricity tariffs is obsolete but government has closed the door on an upward review of prices by industry stakeholders, claiming it will be too much of a blow on the poor.

Failure to pass the Petroleum Industry Bill in the last eight years is costing the country an average of US$15 billion in annual investments into upstream operations in the oil and gas sector, leading to dwindling crude oil and gas reserves. This has been compounded by militancy in the region, brought about by the government’s inflexible approach to resolving issues in the region.

Investor confidence has taken a negative turn, with the Nigerian Stock Exchange (NSE), All Share Index returning -9.86 percent this year, after falling some 16 percent last year, as foreign investors bailed out on the country.

Gross domestic product (GDP) contracted 2.2 percent in the third quarter (three months through September) from a year earlier, after shrinking 2.1 percent in the second quarter and 0.4 percent in the first quarter, according to the National Bureau of Statistics (NBS).

Of the 46 activity sector’s that make up GDP calculations, 25 (more than half) recorded negative growth rates including Manufacturing (-4.38%), Motor Vehicles and assembly (-33.31%), construction (-6.13% ), Trade (-1.38%), Real Estate (-7.37% ), Education (-0.11%) and Human Health and social services (-2.31%).

Even the highflying telecoms sector has now contracted by -0.95 percent in the third quarter of 2016 an indication of the increasingly difficult operating environment in the country.

Nigerian telecoms providers for example, tell BusinessDay that too many applications are required to roll-out communication networks and base stations.

Meanwhile, the offices of a major multinational telecommunications firm in Lagos were recently raided by immigration officers on the bogus excuse of looking for foreigners without appropriate expatriate work quota.

About 4.6 million Nigerians have been added to the unemployment roll since President Buhari was elected in the second quarter of 2015 as the unemployment rate jumped to 13.3 percent in the second quarter of 2016, from 8.2 percent in the second quarter of 2015.

The Lagos Chamber of Commerce and Industry (LCCI) reckons that the activities of regulatory agencies have the capacity to overburden companies, whose growth is critical to job creation in the economy.

“We conducted a survey on the activities of some public regulatory agencies, including National Agency for Food Drug Administration and Control (NAFDAC). It was discovered that businesses are increasingly at the receiving end, mostly in the following areas: delay in registration and certification of products, multiplicity and arbitrary charges, frequency of visits that come with costs to the companies, overlap of functions with other agencies, excess human interface in operational framework and collection of excessive quantity of products supposedly as samples,” the LCCI said in a recent report.

BusinessDay has learnt that manufacturers are losing out in four areas, higher shipping charges in form of demurrage, terminal charges, bank interest rates and the possibility of goods damaged from excess stay at the ports. Promised reforms of processes have largely remained unfulfilled, leaving many businesses in a suffocating business environment.

PATRICK ATUANYA, BALA AUGIE & LOLADE AKINMURELE