• Thursday, March 28, 2024
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BusinessDay

Nigeria’s desperate revenue chase turns into extortion of businesses

Nigeria can be blessing to Africa but its Cratering Economy May Become the continent’s Biggest Threat

Nigeria may be going about its revenue hunt in a way that it returns to hurt the economy and deprive the government of the very cash it needs in the first place.

This is as consistent kickbacks to a host of government agencies have dug holes in the wallets of some companies and added to a growing list of obstacles to doing business.

Nigeria, with one of the lowest government revenue to GDP in the world at less than 6 percent, has a reason to attempt to rake in more money, but some of that activity is violating the rule of law.

“There are cases where a court order was given to a government agency over a matter concerning one of our member companies but it acted outside of the law and did what it pleased,” Timothy Olawale, director-general, Nigeria Employers’ Consultative Association (NECA), an umbrella organisation of employers in the organised private sector, told BusinessDay in an interview.

NECA has some 5,000 member companies drawn from across various sectors of the economy.

“The operating environment has not significantly improved since the recession in 2016 and it is being made worse by infractions the government agencies are making in their desperation to raise revenue,” Olawale said in his Lagos office, Friday.

Cash-strapped Nigeria, where oil receipts are dwindling and tax revenues are reflective of a sleepy economy, is aggressively pushing its key revenue agencies to earn more cash with businesses at the receiving end.
The Federal Government earned a paltry N4.6 trillion in 2019, according to Central Bank of Nigeria (CBN) data, nearly 50 percent lower than the target. That has fed into a widening budget deficit which has swelled to a decade-high.

Nigeria exited a five quarter-long recession in 2017 but businesses must still contend with decayed infrastructure and falling purchasing power.

A Nigerian starch producing firm in Ondo, south-western Nigeria, was so haunted by some government agencies that it nearly closed shop.

Last December, the head of the Federal Inland Revenue Service was fired for failing to meet up with his agency’s revenue target each year since 2015.

The hammer fell on the FIRS boss despite steering the agency to recoup higher taxes every year in that period: a period that was marred by recession and slow growth in the economy.

The FIRS made N3.7 trillion, N4.2 trillion, N4.8 trillion and N6.7 trillion in 2015, 2016, 2017 and 2018, respectively, according to official data.

“The government’s body language is that there’s no money, and so the agencies are ramping up efforts to make money but at a cost inimical to business,” one business leader said.

“The pain of investing in Nigeria is why the country is finding it difficult to attract deep-pocket Foreign Direct Investors or to even retain existing ones,” the person said on condition of anonymity. “The feeling is the government will come for you if you get big enough.”

The result of struggling to attract and retain private capital is a growing army of unemployed Nigerians who have no jobs and a poverty pit that is swallowing more people.

“To create jobs for our teeming population, the government needs to implement key reforms that will mobilise private capital because the government does not have the resources,” Olawale said.

The need to reform is hardly new counsel in Nigeria but the government has managed to trudge on largely dependent on unorthodox central bank policies.

The latest of such policies is the introduction of a long-term naira futures contract that helps foreign investors hedge foreign currency exposure for up to five years.

The action has been lauded but still, long-term success would require fiscal reforms.

It is for the lack of fiscal reforms that investors are getting increasingly impatient with the government as tax increases and regulatory uncertainty scupper investments.

Patrick Pouyanne, chief executive of the French oil giant Total, speaking to Reuters in Scotland, said he took a forceful message to President Muhammadu Buhari, who holds the oil ministry portfolio.

“My message there was…please lift the uncertainty, because today operators in Nigeria are waiting, which is not good for the Nigerian economy,” Pouyanne said. “It is not good for investments in the country, so we are waiting.”

Chevron is selling assets in Nigeria. Total’s stake in the profitable Bonga offshore field is also on the block, while ExxonMobil is looking to shed Nigerian fields as part of a global retrenchment strategy.

Fiscal uncertainty has also delayed a decision on a multi-billion expansion, known as Bonga Southwest, by Royal Dutch Shell and its partners.

 

LOLADE AKINMURELE