Waivers: Okonjo-Iweala still playing the ostrich

 BY PUNCH EDITORIAL BOARD

Coordinating Minister of the Economy and Minister of Finance, Mrs. Ngozi Okonjo-Iweala
| credits: File copy

WITH the duty waiver scandal refusing to thaw, Ngozi Okonjo-Iweala, Finance Minister and the Jonathan Administration’s Coordinating Minister for the Economy, published yet another advertorial on Monday, December 2 to denounce our earlier editorials on the subject.  It was another desperate move by a minister playing the ostrich. Born of panic, the response offered very little by way of explanation. What the minister described as “information on sectoral waivers granted in 2012-2013” failed the minimum test of the World Bank’s much admired code – transparency, best practices and full disclosure. But ostriches everywhere have had to pull their heads from the sand. It is time for the minister to pull hers, too.

First, Nigerians should be thankful that the Ministry of Finance is now “pleased to take up the challenge posed by The PUNCH to publish the list of the beneficiaries of the sectoral waiver policy.” It is symptomatic of the contempt that those who hold public office in Nigeria have for the citizenry that it took newspaper editorials to provoke a ministry headed by a former  World Bank executive to finally release some details of such a controversial policy as our corruption-drenched waiver regime. But even then, the publication exposed the lack of any answers to the questions of abuse, misuse and misapplication of waivers as revealed by various publications, parliamentary enquiries, private sector groups and the Nigerian Customs Service. It failed to address specific allegations that undeserving firms got waivers; that waivers were given to import rice and vegetable oil; that waivers were given to third parties; that they were used to import cars, and as revealed inOduahgate, that waivers meant for a specific purpose ended up being used for something else.

Not many people take figures seriously, but we do. In February last year, the government admitted that it lost N276.9 billion to waivers between 2000 and 2008. The advertorial has not justified why in nine months, N603 billion was lost to waivers as revealed by the NCS, more than double the loss for the eight years to 2008! We wonder what exactly Okonjo-Iweala meant by “hostile and poorly considered” editorial when all that we pointed out was the huge discrepancy between the N276.9 billion lost in eight years and a N603 billion loss in just nine months.

What does it take a World Bank expert to get a simple fact straight? If she has any issue with the figures, it is the NCS she should engage, not us. According to the representative of Abdullahi Dikko, Comptroller-General of the NCS, at the Senate committee hearing, “If not for government policies on waivers, import duty exemptions, some imported goods and free trade zones that are being abused by traders, NCS would have collected about N600 billion more than the revenue it remitted as of the end of September last year.” Does the new policy that the minister says, shifted granting of waivers from “an individual” to “the entire sector,” stop dubious people and companies from using them for completely different and bogus items?  That will be too naïve if she thinks so.

Okonjo-Iweala had last year defended the retention of the President’s discretion to grant waivers, assuring the National Assembly that the President and the minister would “ensure that the economic agenda of the country is properly carried out.” But like we quoted copiously, the Coalition of Oil Palm Value Chain Associations, Lagos Chamber of Commerce and Industry and other stakeholders assert that the abuse of waivers, among other factors, is inhibiting the growth of many industries; is injurious to the economy and is a mockery of the government’s (move for) agricultural revolution. These objections are cut and dried. How does, for instance, the granting of waivers for the import of furniture, as captured in the 2012-2013 list, enhance local production or create jobs?

Okonjo-Iweala’s claim that her “new” policy is addressing precisely the issues that “The PUNCH derisively referred to as serial misapplication of waivers” should be taken with a pinch of salt because there is no reliable measure to track what waivers are ultimately used for and what impact the incentives have on job creation. As a 2007 report by the Organisation for Economic Co-operation and Development declares, general economic and framework conditions, including market size and real income levels, skill levels in the host economy, the availability of infrastructure and other resources that facilitate efficient specialisation of production, trade policies, and political and macroeconomic stability of the host country,  rather than incentives, are far more important in determining the size and quality of investment flows. Many incentives, OECD argues, are also readily exploited by investors, as well as by those administering them. It details forgone revenues, resource allocation (neutrality) costs, enforcement and compliance costs and lack of transparency as associated costs of tax incentives.

In the two recent editorials that we have published on waivers that have drawn the ire of the minister, we acknowledged, and continue to acknowledge, the efficacy of waivers in the hands of focused, patriotic governments around the world. We cited the examples of Malaysia and Indonesia. We highlighted their value in addressing critical national needs such as health.  But we took exemption to a waiver system steeped in a cesspool of public corruption. Like most Nigerians, we do not see the rationale for the loss of N603 billion in nine months through dubious waivers at a time the government is battling reduced revenues; has been forced to hold up or delay some capital projects and has drawn down on the Excess Crude Account to plug the revenue hole. The advertorial’s claim that “there is clear evidence that it (waiver policy) is working to boost key sectors of the economy” is visible only to those in the corridors of power.

It is not The PUNCH editorial that exposed the serial misapplication of waivers, it is the operators, and an insight into just how destructive such abuse can be on the economy was provided by Okonjo-Iweala, in her book, Reforming the unreformable. She described how as Finance Minister under former President Olusegun Obasanjo, she was confronted with the pervasive corruption in the system and how some politicians saw waivers as sources of raising money for elections. Perhaps the minister’s mind is focused more on her relevance than on the long-term health of the economy, as she claims on page 88 of her book that during her first outing, Obasanjo’s support for the anti-graft war wavered as “new presidential elections approached and politicians gained more influence over the president.” Again, has anything changed?

Nigeria is in a terrible state. The country has been run by dreadful governments for so long. But whereas previous governments were chaotic in their awfulness, this one has turned out to be ghastly. Lack of transparency is undermining our democracy. Transparency International’s Corruption Perception Index 2013 again ranked Nigeria 144th, out of 177 nations in the world, scoring 25 points out of a possible 100 points; worse than last year’s when it scored 27 points. This is a shame! It reinforces the despair of Nigerians at the depth of corruption today.

There is a strong link between corruption and public finance management. But the minister appears oblivious of this. Therefore, tackling the scourge effectively will require more than what Okonjo-Iweala is doing at present with waivers. The doctor should change her prescription. Or, maybe another physician is sorely needed. The credibility of the Jonathan government has taken a hammering by an endless string of scandals. Regaining it will not be easy. We need to remind the minister that “development,” as a former World Bank President, James Wolfensohn, once wrote, “requires good governance, meaning open, transparent, accountable public institutions.” But the Jonathan government is clearly deficit in all of this.

Few public officials have enjoyed public goodwill as Okonjo-Iweala has savoured. Our advice is that she should not squander it.

Creating a better business environment 

 BY EDITORIAL BOARD

Okonjo-Iweala, Finance Minister
| credits: File copy

ON the surface, Nigeria’s business environment is showing promising signs of improvement. Foreign Direct Investment (N3.2 trillion in the last three years) is flowing in as the country has become one of the most open countries to foreign equity ownership. Yet, look closer; the business climate is as flabby and feeble as ever. This at least, is the verdict of the World Bank report entitled, Doing Business 2014. It ranks Nigeria’s operating terrain at 147 out of the 189 countries ranked, a decline from the 138th position of 2013.  What is wrong?

Long before the World Bank once more confirmed Nigeria’s lowly ranking late last month as an unpleasant place to do business, it has been glaring to investors that the country has a very difficult operating environment. In a country where electricity, access to finance and transport still constitute main obstacles to running a business, unemployment rate of 23 per cent, which rises to 50 per cent among youths, is an inescapable return.

Start with electricity. Nigeria ranks 185th out of 189 countries in “Getting Electricity.” The atrocious power situation is a fact of life in Nigeria, with total generating capacity fluctuating between 4,000 megawatts and 4,300MW, with the shortfall adding significantly to the cost of products and services. This is unacceptable in a country that boasts a population of 170 million and requires a minimum 15,000MW. Although the Federal Government has just taken the right decision by finally partly privatising the power sector, poor electricity supply remains the main hindrance to doing business in Nigeria.

As a result, the Nigerian Association of Chambers of Commerce, Industries, Mines and Agriculture said “at least 800 companies closed shop between 2009 and 2011, due to the harsh operating business environment.” Expressing frustration with the situation, NACCIMA rightly added, “The manufacturing industry as a whole operates on more than 70 per cent of energy it generates, using generators; and operating these generators greatly increases the cost of manufacturing goods.” This explains why FDI into Nigeria has been so poor in the productive sectors.

The United Nations Conference on Trade and Development said Nigeria achieved its highest FDI inflow of $9.92 billion in 2005, but this dropped to $6.1 billion in 2010. Although Finance Minister, Ngozi Okonjo-Iweala, stated that Nigeria attracted an FDI of $20 billion (or maximum of $7 billion per year) in the last three years, it is a trifle when compared with the annual global FDI figure of $1.24 trillion in 2010. Moreover, oil and gas, which typically employs less than other productive sectors, accounted for a large chunk.

In spite of the fact that it is now easier to register a business outfit with the Corporate Affairs Commission, the World Bank study puts Nigeria in the 122nd position for 2014 for “Starting a Business.” With land speculators hanging around everywhere and state and local government officials routinely demanding bribes to process files, it is easy to see why the country ranked so poorly. Other factors responsible for the unpleasant business milieu are difficulty in getting construction permits (151 out of 189); multiple taxation (170); registering property (185); and enforcing contracts (136). With kidnapping and armed robbery rife in the South, and the Boko Haram terror campaign in the North, insecurity is also a major drawback to doing business in the country. Things have got to change!

There are enormous challenges confronting us today as a nation, so says the Institute of Directors Nigeria. This should be of grave concern to Jonathan and his cabinet. Nigeria, mislabelled the “giant of Africa,” should do everything to attain the position of smaller African nations like Rwanda (32); South Africa (41); Tunisia (51); and Ghana (67) by reversing the negative indices with the right policies. The frustrating penchant for policy reversals, which is a disincentive to FDI, must stop. An example is the delay Manitoba, a Canadian firm, experienced in taking over the Transmission Company of Nigeria in spite of the fact that a management agreement had been signed between the firm and the Federal Government, as well as the recent sudden increase in import tariffs on cars.

The World Bank advises that for the economy to grow and create the much-needed jobs, FDI is critical, especially in railways, power, oil and gas, mining and road infrastructure. President Goodluck Jonathan’s main task is to reform the key areas of the economy such as agriculture, and make sure that the ongoing power sector reform process is followed through transparently and properly regulated like when the Nigerian Communications Commission superintended the liberalisation of the telecommunication sector in 2001. Nigeria should ease the pains of doing business by emulating countries like China, India, Brazil and Indonesia, who have converted their huge populations into an advantage that has helped launch them as major players in the global economy.

The government clearly still has plenty to do. Without playing politics with the report, Jonathan’s economic team has to dispassionately examine the critical issues raised in the report and proffer a way out of the mess. The major culprits responsible for the country’s harsh business climate are well known. As the economy’s minders are aware, it is private capital, both local and foreign, that can drive the economy. The real challenge will be how to tame the corruption dragon that has short-changed effective infrastructure development and shut out clean investors from the country’s crooked business milieu.

This is the way to reverse our poor rating in the area of doing business: having a liberalised, private-sector driven economy, while also cutting waste in government, firmly addressing endemic corruption and investing massively in infrastructure.