Saturday, 9 January 2016

Why The Predictions Of Devaluation In Nigeria?

The author is the Managing Director and Principal of Kuranga and Associates, a full-service investment, political and economic risk consultancy, and asset management firm that specializes in Africa. He is also the author of The Power of Interdependence with Palgrave Macmillan Press.
It seems not a day goes by in Nigeria anymore where there is not some institution, either domestic or international, or a prominent individual calls for the Government of Muhammad Buhari and the CBN to devalue the naira in the face of dwindling oil revenue. Many investors and watchers are even predicting that a devaluation will inevitably occur either in the second quarter of 2015. Their rational is that the government cannot afford to defend the naira, given that oil prices are below $40 a barrel. The tragic flaw in this thinking is that it fails to realize that while oil has been the source of the overwhelming majority of government revenue in Nigeria, it never had to be.

As the IMF Chief, Christine Lagarde, recently pointed out in Abuja what I have been saying for years is that Nigeria has one of the largest untapped tax bases on the planet! Comparatively speaking, other African countries require their citizens and residents to pay far higher VAT tax rates than what is currently required of Nigerians, 3-8 times what is required of Nigerians. In addition, with the fast growth of the telecommunications industry, tax loopholes are allowing a large amount of revenue to escape the national coffers to tax havens.
National telecom firms and tower operators operating in Africa’s largest economy, Nigeria, enjoy one of the weakest tax requirements and a very lax tax regime with massive loopholes. Further in a nation where the number of billionaires and millionaires has shot up at an alarming rate, progressive taxation redistribution policies are not only imperative at this stage, they are long overdue.
The issue is not whether or not Nigeria has an immediate alternative to oil to fund the state, defend the Naira, and sustain development and growth, the issue is whether Nigeria’s political leadership has the wherewithal and moral decency to implement the policies that they have a fiduciary obligation to implement. It is actually quite shocking that Lagarde had to issue a call to the Nigerian legislature to raise tax rates. The issue of national financing solutions should have been the most important issue on the agenda for the legislature. Senators and representatives, if they were competent and responsible, should have already tabled numerous proposals from various members to progressively raise taxes, prevent corporate evasions and close loopholes for multinationals and others. Instead their debates have been on the composition of a cabinet, how many millions they want to waste on themselves and new cars, and other seemingly mundane issues to distract the public. Constitutionally the legislature did not have to wait on the president to submit a budget proposal, if they were competent and responsible, they could have developed their own. If the legislature had already put in motion plans to implement tax increases as is needed, Lagarde would have said nothing, or at best applauded their efforts. In this by global standards, Nigeria’s new national as it stands, is a colossal failure, both institutionally and individually.
The Executive through the Federal Executive Council, presented a budget light on details as to how it intends to generate the large sum of non-oil revenue that it projects. Minister of Planning and Budgeting, Udoma, has not been clear about what the review of taxation policy will focus on or what it will look like, he only hinted that it would focus more on those who can afford to pay according to Juliana Taiwo-Obalonye of Sun News . Still to date, the FEC and Udoma have not been clear and forthcoming as to how the State will generate so much money outside of oil. Some commentators have called it Buharinomics and voodoo. Rather than shy away from the job of leading and setting forth a clear path for the country, the President and the FEC, have given a vague dimly lit blue-print that does not convince anyone that they will actually deliver on their budget “projections” that contains some serious differences from previous Nigerian budgets. Specifically, how will the Nigerian government raise so much money outside of oil?
The only firm answer from the FEC has been from the Minister of Finance, Kemi Adeosun, who has indicated decisively that her role will be to plug holes in the revenue-generating agencies of government . Her plan involves ongoing audits of the revenue-generating agencies, and establishing a single account that all must pay into including greater oversight from her office. What is not clear to anyone is how much money is the government is projecting to raise from this? In addition, the president has made fighting corruption and chasing looted funs his main anthem and primary focus. Similar to Adeosun, President Buhari, has never stated how much money the government has recovered, and has provided no realistic projections so that analysts can gauge the health of the governments finances in view of his anti-corruption drive.
As analysts continue to predict an inevitable devaluation of the naira, it is not because of a lack of solutions, but inherent failure on the part of the national legislature and federal government of Nigeria to convince anyone that they have what it takes to get the job done. The current market conditions in Nigeria and lack of investor confidence in the fiscal stability of the nation is a harsh indictment on the state of the nation’s leadership.