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Private Sector set up to fail with the bulk of NDP 2021-2025 financing

Implementation of development plans in Nigeria is set to take a new twist with the private sector expected to fund the bulk of Nigeria’s newly launched National Development Plan (NDP) 2021-2025 which already looks headed for failure amidst a difficult operating, and policy environment that stifles the growth of businesses and discourages investors.

A vision to unlock potential in all sectors of the economy for sustainable, holistic, and inclusive national development with thematic areas revolving around accelerating growth, deepening the initiatives for diversified growth, and fostering sustainable development notwithstanding, the weight of execution is placed on the private sector which invariably is expected to lead execution with an estimated investment of N298.3 trillion representing 85.7 percent of the total N348.1 trillion required. An insignificant portion of the pie is then apportioned to the joint federal and sub-national states which are billed to contribute N49.7 trillion (14.3 percent of the total investment requirement) Of this latter portion, the capital expenditure by the Federal Government will be N29.6 trillion, and that by subnational (States and local government) government will be N20.1 trillion. In effect, these two tiers of government will be contributing 8.5 percent and 5.8 percent respectively to the national agenda. The share of subnational government has been divided into states government contribution of N13.4 trillion and LGA contribution of N6.8 trillion.

Historically, while research, engagements, and think-tank policy development that form the base of development planning have been singularly sponsored and monitored by Ministries, Departments, and Agencies (MDAs) of the government at the center – the Federal Government, the relinquishing of the 2021-2025 NDP Plan execution to the private sector smirks of a lack of FG accountability and confidence in its own quality of resource and capacity to deliver welfare and electoral promises to Nigerians.

The latest National Development Plan spells out the execution of key projects and expenditures across infrastructure, public administration, human capital development, and social development, which altogether is geared towards accelerated national economic growth and development.

Nevertheless, an untoward dependence on the private sector for a dominant execution of a National Development Plan is in itself not unexpected given the current dire train on the government’s revenue and the ever-increasing contribution of the non-oil sector to the Gross Domestic Product (GDP) in recent times.

Nigeria’s Minister of Finance, Budget, and National Planning, Zainab Ahmed had frequently lamented the falling revenue of the government due to declining oil production and a rising public debts.

Three quarters after the restoration to growth indices following an erstwhile difficult Covid-19 period in 2020 – in the third quarter of 2021 – the oil sector contracted yet again, its sixth straight contraction in the middle of a fourth consecutive quarter of growth that had sprung up at Q3 2021.

In this quarter, the Non-Oil sector contributed 92.51% to the nation’s Gross domestic product GDP) relative to 7.49% contributed by the Oil sector to the nation’s GDP buoyed by ICT, trade, Financial Services, and manufacturing.

“The non-oil sector grew by 5.44% in real terms during the reference quarter (Q3 2021). This rate was higher by 7.95% point compared to the rate recorded same quarter of 2020 and 1.30% point lower than the second quarter of 2021. This sector was driven in third quarter 2021 mainly by trade, Information, and Communication (Telecommunication); other drivers include Financial and Insurance (Financial Institutions); Manufacturing (Food, Beverage & Tobacco); Agriculture (Crop Production); and Transportation and Storage (Road Transport), accounting for positive GDP growth.” The National Bureau of Statistics (NBS) stated in its latest GDP report.

Managing Partner at Verraki – Niyi Yusuf believes that these private sector industries that have driven growth in an erstwhile oil-dependent economy must be supported and nurtured by the government to ensure that they contribute even more to the national Agenda.

“Businesses that operate in these resilient sectors also have great potential for non-linear sustainable growth. These sectors must be supported with policies that ease market frictions, attract private capital, and promote entrepreneurial capabilities,” Yusuf said.

Unfortunately, this narration has not been the case. The story today is one of the palpable exits of business firms from the real and manufacturing sector despite the gains of the country on the now discontinued World Bank’s Ease of Doing Business charts over the past seven years. Of the 190 countries previously surveyed in the report, Nigeria had made steady progress from being ranked 17 in 2014 to 145th in 2019. Relative to her peers, however, Nigeria was at an arduous point. In 2019, Ghana and Rwanda ranked 60 and 40 respectively on the Ease of doing business chart.

Still, not a few wondered as to how this was achieved and the credibility of the report given the visible presence of unfavorable policies that have stifled the growth of the private sector in Nigeria.

Following investigations into alleged unethical practices by internal staff in the process of preparation and release of the ease of doing business report since 2013, the World Bank discontinued the report in 2021.

“After reviewing all the information available to date on Doing Business, including the findings of past reviews, audits, and the report the Bank released today on behalf of the Board of Executive Directors, World Bank Group management has taken the decision to discontinue the Doing Business report,” World Bank Group said in a statement last year.

However, while it was still in full effect, there were ten indices utilized for the determination of the ease of doing business report: – Starting a business (Procedures, time, cost, and minimum capital to open a new business), Dealing with construction permits (Procedures, time, and cost to build a warehouse), Getting electricity (Procedures, time, and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse), Registering property (Procedures, time, and cost to register commercial real estate), Getting credit (Strength of legal rights index, depth of credit information index), Protecting investors (Indices on the extent of disclosure, the extent of director liability, and ease of shareholder suits), Paying taxes (Number of taxes paid, hours per year spent preparing tax returns, and total tax payable as a share of gross profit), Trading across borders (Number of documents, cost, and time necessary to export and import), Enforcing contracts (Procedures, time, and cost to enforce a debt contract) and Resolving insolvency (The time, cost, and recovery rate (%) under a bankruptcy proceeding)

If due considerations are accorded to the official figures that tell the unalloyed story of a falling foreign investments inflow, foreign direct investment – FDI, closure of borders, lack of Forex for imports, incessant currency depreciation, epileptic power supply, overburdening tax system, insecurity, the lack of technological innovations, falling remittances from the diaspora, and social media ban, it will be safe to say that the private sector is not poised to take up the mantra to lead Nigeria’s National Development Plan for the next five years as the government support for this sector has been abysmal.

Read also: Nigeria’s 2022 budget in 11 numbers

Quarter 3 2021 figures released by the National Bureau of Statistics (NBS) stated that Nigeria’s Foreign Direct Investment (FDI) plunged 74.01 percent year-on-year in the third quarter of 2021, the lowest level since 2013.

Nigeria only attracted $107.81 million in Q3 a downslide from $414.79 million reported in the comparable quarter of 2020.

In terms of naira devaluation, specifically, the Nigerian currency – the Naira has lost 300% of its value in the last eight years making it practically impossible for firms in the manufacturing and agricultural sectors to bring in the required implements, semi-manufactures, and equipment from foreign countries to increase the number of manufactured goods. When forex is sourced, firms face a grueling time at the ports bringing them in. The infant industries still groan under a tough competitive environment and exporters who should see the demand for Nigerian export soar do not get the required support to move them from the warehouse to the ports.

Director of Economic and Statistics Department, for Manufacturers’ Association of Nigeria, Oluwasegun Osidipe, once opined that 196 manufacturing companies shut down their operations between 2015 and 2017 due to the biting recession.

A few of the manufacturing firms that have exited the country in the past few years include Nigeria Paper Mill Limited Nigerian Newsprint Manufacturing Company Limited, e Nigerian National Paper Manufacturing Company Limited, Peugeot Automobile Nigeria Limited, Volkswagen of Nigeria Limited, Lagos, and Anambra Motor Manufacturing Limited.

The 2022 budget

On the 31st of December 2021, President Muhammadu Buhari assented to the proposed 2022 budget barring a pending amendment and/or virement request to be made to the National Assembly had noted that the Federal Government’s share of oil revenues was N970.3 billion representing a 53 percent performance of the prorated sum in the 2021 budget.

It is noteworthy that there is a N6.39 trillion deficit that is to be financed through domestic borrowing of N2.57 trillion, multilateral and bilateral loans of N1.16 trillion. Others are foreign borrowing N2.57 trillion and privatization proceeds of N90.7 billion.

This would mean that the private sector is already slated to finance 58% of the 2022 budget deficit.

According to Kunle Elebute, Senior Partner at KPMG, “With the National Development Plan requiring 85% of financial contribution from the private sector, the budget does not have a clear-cut strategy to increase foreign direct investments in the country.”

There is also a Finance act 2021 that has enacted taxes, and fiscal reforms in a bid to shore up the government revenue. However many of the amended fiscal laws and statutes are inimical to the private sector.

Speaking at the Nigerian Economic Outlook organized by the Kings Court Parish of the RCCG recently, Partner and Fiscal policy leader at PriceWaterhouseCoopers (PwC) – Taiwo Oyedele expounded on the implications of the key amendments made to fiscal laws.

According to him, the CCT on disposal of shares may “discourage investment in the capital market given the expiration of tax exemption also on corporate bonds.”

There is also likely to be a shift in focus from equity investment to government securities.

The increase in education tax payable by Nigerian companies from 2% to 2.5% of assessable profits will lead to an increase in funding for education, higher tax burdens by educational institutions, and make education less affordable due to foreseeable increase in tuition (School fees). He also mentioned the decreased impact on human development (due to this tax amendment) which is the basis of any private sector contribution to the government taking into consideration that Professional, Scientific, and Technical Services contributed 2.76% to nominal GDP Q3 2021.

On tax exemption on Exports amendment, the VAT Modification order 2021 makes non-oil export exempt rather than zero-rated thus making export from Nigerian less competitive.

The taxation of non-resident digital companies who are now required to charge and remit taxes to the FG will certainly affect the inflow of capital into the country and reduce the number of digital companies making an in-road into the economy. A good example is Twitter on whose platforms millions of Nigerian customers trade.

Following the lifting of the ban on Twitter by the President Muhammadu Buhari administration this month, the Lagos Chamber of Commerce (LCCI) and Industry has estimated that the shutdown of Twitter cost the Nigerian economy $26.1bn (N10.72trillion)

According to Chinyere Almona, the Director-General, of the LCCI, “In business terms, the cost of the seven-month shutdown of Twitter operations in Nigeria is estimated to be N10.72trillion ($26.1billion) according to Netblock’s Cost of Shutdown Tool,”

Also, the restriction on the claim of capital allowance with capital allowance now to be computed in each year of assessment and deemed utilized with any unabsorbed capital allowances brought forward will make the operating cost of small businesses skyrocket and thus they are worse off in spite of tax exemption – even though this attracts more revenue to the government.

Taiwo, Partner at PwC also believes that rather than a decrease from 0.5% to 0.25% in the applicable minimum tax as amended in the Finance Act of 2021, the ‘minimum tax should be abolished due to the impact on business continuity.”

Whether the private sector is ready to shoulder this huge responsibility, one thing is clear – it is also important that macroeconomic policy drawbacks and obstacles in regulatory pronouncements be removed to enable the Pension Funds, Insurance companies, Sovereign wealth funds, Bilateral private sector investors, Endowments, and Equity Funds contribute maximally to the Nigerian Investment and Growth – NIG Fund and enhance the Public-Private Partnership (PPP) model that is touted as the pipeline for the funding of newly established Infrastructure Company – Infra-Co. These projects are explicitly stated as key in the National Development Plan 2021-2025.

Sectoral Contribution from the Private Sector

According to the NDP Strategy document, “The successful implementation of this Plan will be heavily dependent on a strong partnership between the private and public sector and both sectors playing their expected roles effectively.”

Below are the top productive sectors where the private sector can partner with the government to enhance the achievement of the National Development Plan 2021-2025.

ICT Sector

According to the NBS, “The Information and Communication sector is composed of the four activities of Telecommunications and Information Services; Publishing; Motion Picture, Sound Recording, and Music Production; and Broadcasting.” The Information and Communications sector contributed 9.22% to total Nominal GDP in the 2021 third quarter.

Touted to lead growth in 2022, the real growth of this sector has averaged 5.1percent.

Already N924bn has been allocated as investment by the public sector. The private sector can collaborate with the public sector to take advantage of the following critical projects and partnership engagements: pooled blended (public-private-development sector), innovation trust fund, TET Fund, Petroleum Trust Fund, and Ecological Fund.

Trade

Trade’s contribution to Nominal GDP in the third quarter of 2021 was 12.75%, lower than the contribution in the same quarter of the previous year of 12.81%, and lower than the preceding quarter recorded at 14.38%.

The private sector can collaborate with the public sector to take advantage of the following critical projects and partnership engagements as stated in the budget – Export Expansion Grant and Special Economic Zones. The Africa Continental Free Trade Agreement also provides a viable opportunity for development.

Real Estate and Construction

The NBS states that “The contribution to nominal GDP in Q3 2021 stood at 5.27% as against 5.60% recorded in the third quarter of 2020 and higher than the 5.05% accounted in the second quarter of 2021.

Real quarterly growth in 2021 has averaged 7.7 percent, following increased activities in the residential, construction, and industrial segments of the real estate market as the pandemic restrictions ease.”

Construction contributed 9.26% to nominal GDP in the third quarter of 2021, higher than the 7.23% it contributed a year earlier and higher than the 8.74% contributed in the second quarter of 2021.”

According to the Managing Director of Verraki – Niyi Yusuf, Nigeria’s real sector is valued at N8.5 trillion.

The private sector can collaborate with the public sector to take advantage of the following critical projects and partnership engagements as stated in the budget: Infrastructure & services for Housing Programmes Nationwide, Social Housing Scheme (Family Homes Fund), Prototype Housing scheme in Niger & Lagos states, FGN National Housing Programme Nationwide

Agricultural sector

Agriculture contributed 26.57% to nominal GDP in the third quarter of 2021and grew by 7.9 percent YoY in nominal terms in Q3 2021 (compared to 13.5 percent recorded in Q3 2020).

The FG foresees a Bank credit allocation to agricultural sector with a baseline of 5.1 percent of total private sector credit.

The estimated public investment in this sector is N1.46trn for the period of the NDP 2021-2025

Manufacturing Sector

According to the NBS report, “The contribution of Manufacturing to Nominal GDP in third quarter 2021 was 15.59%, higher than the figure recorded in the corresponding period of 2020 at 13.56% and higher than the second quarter of 2021 at 14.18%.”

The private sector can collaborate with the public sector to take advantage of the following critical projects and partnership engagements as stated in the budget – N2.2 billion Conditional Grant Scheme, Presidential Enabling Business Environment Council, Industrial Development Centre, and the National Business Skills.

In all, an exponential increase in government support for the private sector across policy thrusts, stable and favourable operating atmosphere and fiscal policy enablement assure effective implementation of the National Development Plan 2021-2025.

Speaking at the virtual session of Nigerian Economic Outlook session recently, Special Adviser to the President on Finance and Economy Dr Sarah Alade thinks there is a long way to go to achieve substantial progress on the plan. “The difficulty foreseeable is can we get the plan implemented irrespective of the administration in power? Can we get people who make the law to change the law to make sure that the legislative gaps are filled? Can we get those who are in charge of the reforms whether they are on the monitoring side, fiscal side, or trade side to do the reforms that are necessary so that we get the private sector to come.?” She asked rhetorically.

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