• Thursday, June 20, 2024
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Updated: FG, state governments cannot deliver development now – Sanusi

Nigeria wasteful spending on subsidies slow attainment of SDG goals – Sanusi

The federal and state governments in Nigeria are incapable of delivering meaningful development in the short and medium term because tax revenues are too poor, due to an inability to diversify exports and create value from primary commodities, Muhammadu Sanusi II, the 14th Emir of Kano and former Central Bank governor has said.

The former emir, while delivering a keynote address at the fifth edition of the Kadinvest, a platform for demonstrating that Kaduna State is open for business organized the state government, on Tuesday, used practical examples to highlight how poor economic policies by various governments, an overdependence on crude oil and a consumption mentality has led the country to the edge of economic disaster.

Sanusi noted that that Nigeria’s nominal GDP per capita was $2,400 in 2019 while tax revenue per capita was $75 and development spending was $36 per capita at the Federal Level. This compares poorly with Kenya, where GDP per capital was $2,151, roughly 90 percent of Nigeria’s per capita GDP in the same year.

Yet Kenya was able to raise $280 per capital and invest $280 per capita on development. So Kenya which has 90 percent of Nigeria’s per capita GDP was able to realize four times as much in tax per capita and spend 7 times as much per capita on development than Nigeria.

“These numbers are extremely important when we begin to hope the Federal Government can give us development,” Sanusi said.

Sanusi, an economist and Islamic scholar, noted that for the Federal Government to get to the point where Nigeria is anywhere near what Kenya has done, the government has to multiply its tax revenue per capita four times and also multiply its development spending 7 times.

“How long does the country have to wait for the government to raise its revenues and make these investments? I think we should be honest in the short and medium term and realize that the ability of government to steer the country into development is limited in terms of spending and its best option is to spend a lot of time on business environment reform and invite private sector investment into these areas,” the former emir said.

The Buhari-led government has created a hostile environment for private capital through the connivance with the Central Bank which has refused to float the naira but has kept managing the rates even when the assumptions are unsustainable thereby deterring investors unsure of how to recover proceeds of their investments.

Nigeria’s ports are problematic and the country has worsened the situation by shutting its borders for the past one year, even though its economy is highly informal ruining hundreds of small businesses who rely on cross border trade. It has also created disaffection with its neighbours, endangering the AFCTA pact it signed with the rest of Africa. With a poor manufacturing base hampered by high cost of self-generated power, inadequate infrastructure and poor access to capital, border closure has only increased poverty, analysts say.

These policies have kept away investors despite proactive laws including the Finance Act 2019, the new Companies and Allied Matters Act, 2020 and the Federal Competition and Consumer Protection Act (FCCPA) 2019 which were designed to stimulate investments.

Nigeria’s ports are problematic and the country has worsened the situation by shutting its borders for the past one year, even though its economy is highly informal

Sanusi said state governments need to work harder as only two states in Nigeria collect enough revenues to meet overheads. He said there was need to fix issues of multiple taxation, who collects what taxes between Federal and state government and constraints including legal, political and institutional otherwise states cannot be relied upon to finance development.

Why we haven’t made progress

Sanusi said that history tell us about potential solutions to current period of stagnation. Before there was oil and Chinese loans and independence, Nigeria’s economy was better diversified and was consistently in a trade surplus for over 80 years before independence except in 15 years.

He attributed to this dynamism in trading sector and diversification of the country’s export base
“We had rubber, cocoa, palm oil, Ivory, palm kennels, cotton and diversity meant that the country was less vulnerable to attempts at trade shocks driven by only one export,” Sanusi said.

This changed in the early 70s with the ascendancy of crude oil and its attendant boom and busts when Nigeria began to rely exclusively on crude and ignored other commodities.

“As we know from development theory, over the long term, trade shifts against primary exporters and companies operating on the global scale needs to move away and diversify to not just its product base but diverse from primary production to secondary and tertiary sectors,” Sanusi said.

Nigeria failed at this. Not only did not fail to diversify its expert earnings, it didn’t even add value to the crude oil as its refineries were left to rot away by various governments.

Sanusi compared Malaysian economy with Nigeria’s over a 30-year period (1985-2015). Malaysian exports have transformed from rubber, cork and wood and non-ferrous metals accounting for 60 percent of its GDP to electric machine apparatus, office machines and automatic data processing equipment, telecoms, and product manufacturing representing 60 its exports in 2015

“All those sectors contributed barely contributed 2 percent of exports and GDP per capita increased from $310 to $4,305. There was growth and diversification into higher value areas of the GDP,” Sanusi said.

Nigerian exports between 1985 and 2015 has remained stagnant at crude petroleum and oils obtained from bituminous materials which accounted for 89 percent of exports in 1985 and 77 percent of exports in 2015.

In this 30-year period, Nigeria has generated a similar increase in wealth $345 to $2655 (GDP per capita) with Malaysia but without any structural transformation in what the economy actually produced. Malasia started from a lower GDP per capita $310 to over $4,000.

“When you add inflation and devaluation and begin to look at purchasing power parity, Nigeria’s GDP per capita numbers actually look inflated,” Sanusi said.

This is the difference between Nigeria and the Malaysia, he said.

“This is because we were growing but we did not diversify and that explains the huge levels of poverty in the country. It explains the huge levels of inequalities in the country, it explains the vulnerability of the economy to shocks, in terms of trade and the relatively slow pace of growth in the Nigeria,” he said.

Sanusi deplored the rampant consumption culture that does little to promote production. Using the smartphone as an example, he said Nigeria is a consumer of technology with millions of dollars’ worth of investments in towers broadbands and internet but has made little use of it for production.

We were growing but we did not diversify and that explains the huge levels of poverty in the country. It explains the huge levels of inequalities in the country, it explains the vulnerability of the economy to shocks

“The problem is that we have all these investments in technology without investing in the human capacity to use the innovation,” Sanusi said.

“There is enough investment in towers and networks and broadbands but what can Kaduna state do to produce young people who know better than to forward gossips on WhatsApp?” Sanusi said before an audience comprising the governor, his cabinet, and several dignitaries.

He called for a paradigm shit even in the perception of electricity, saying the agitation over tariff hike was largely because most Nigerians were not using it for productive use.

“We have to move away from consumers of electricity to productive users, we invest billions in generation, transmission, distribution to watch Arsenal and Manchester and use air conditioning,” he said.

He said electricity should be used to create value like providing irrigation and supporting small businesses.

“People would pay anything for electricity if they knew how to turn it into earning capacity, when people cry about electricity tariff, it is because they are paying a lot for electricity and earning nothing from it,” Sanusi said.