Illusion of a Food Pack Economy

On 7th November, I was in Afiesere, Ughelli for the Service of Songs for late Pa James Okpako Edevbie, father of Olorogun David Edevbie, Chief of Staff to the Delta State Governor. At the end of the ceremony, each guest was handed a take-away food pack. Congregated outside the venue was a large crowd, a common sight at public ceremonies in our country where people mill around for crumbs. As I made my way to the vehicle, a lady accosted me and said, “Please dash me your food pack.”

I obliged her, even though the lady did not appear hungry to me. Perhaps the food pack delicacies—which may have offered something different from what she was used to eating—were the attraction. But however rich the contents of that food pack, they could only satiate her appetite for a day, at best. These were my reflections as we drove away from the venue and in the days that followed. Sadly, we live in a society where people scramble for food packs. More disturbing is that this food pack mentality is symptomatic of the way we run our country.

In the ‘2019 Nigeria Economic Update Report’ released on Monday, the World Bank projected that the number of Nigerians living in extreme poverty may increase by more than 30 million by 2030. According to the report, our country could be home to 25 per cent of the world’s destitute people within the next decade if government, at all levels, fails to revive the economy and create jobs. “With population growth (estimated at 2.6 per cent) outpacing economic growth in a context of weak job creation, per capita income is falling. Today, an estimated 100 million Nigerians live on less than $1.90 per day,” says the World Bank.

In calling for reforms, the report highlights the urgency of creating jobs for our growing (and young) population. The challenge is our lack of any grand vision to address the problem because the ethos driving our economy is still that of scrambling for food packs. For instance, at the end of every month, representatives of the three tiers of government still gather in Abuja for the Federation Accounts Allocation Committee (FAAC) meetings where oil proceeds are shared. After that, we borrow heavily to finance both recurrent expenditure and capital projects that are being managed with subsidies.

Meanwhile, the 2019 Finance Bill presented by President Muhammad Buhari along with the 2020 budget has scaled the second reading in both chambers of the National Assembly. If eventually passed into law, it will make changes to the Companies Income Tax (CIT), Capital Gains Tax and the Personal Income Tax for which a Tax Identification Number (TIN) would be required as a precondition to open or operate a bank account for business purposes in the country. There will also be changes in the Petroleum Profit Tax (PPT) and Stamp Duty. However, the most controversial aspect of the bill is the proposition to increase the Value Added Tax (VAT) from 5 to 7.5 percent.

It is not as if we do not know why. The federal government is hard pressed for cash to fund the recently announced minimum wage and the consequential adjustments. In fact, the VAT rate increase was part of the critical recommendations by a team set up to advise government on how to fund the minimum wage increase. So, it is about generating more revenue for national consumption at a period when every effort should be geared towards creating jobs and therefore based on the ‘food pack’ philosophy – satiating the immediate ‘hunger’ of government with little or no thought for tomorrow.

Last Thursday in Abuja, seven organisations and 26 individuals, including Alhaji Aliko Dangote, Mr Tony Elumelu, Mr John Momoh and Mr Sam Omatseye, FNAL, were honoured at the 2019 National Productivity Order of Merit (NPOM) award. Speaking at the ceremony, Elumelu harped on the need for job creation, poverty reduction and economic development in Nigeria. “We need jobs to be created in Nigeria to take our young ones off the street, to reduce insecurity and promote national development and cohesion,” said Elumelu who was merely re-echoing the conclusions at the 2019 Tony Elumelu Foundation (TEF) entrepreneurship forum held in July this year which was attended by several leaders from across the continent. It is noteworthy that statistics from the TEF reveal that on average, revenue generated by their entrepreneurs increased by 189% post-graduation while the number of additional jobs created by beneficiaries increased by 197%. Meanwhile, 15 percent of these entrepreneurs also employ at least 10 staff, and in terms of revenue growth, 13 percent of them generate above $50,000 annually, after the programme.

The import of TEF figures is that we have a fertile environment for entrepreneurship on the continent and especially in Nigeria, if only our government can put in place the right policies. That also means that we have capacity to take many of our people off the streets by enabling small businesses to grow. I have practical evidence of this. About three months ago, my aburo, Seyi Adekunle sent me two pairs of shoes made by his company, Vodi which is diversifying from clothing to other businesses in the fashion industry. The shoes are as good as any from Italy. With only one female assistant earning N8,000 per month at his Wuse 2 shop some few years ago, Vodi is now a thriving enterprise employing 157 tailors and features a training school. It is the same with the business of my friend’s wife, Mrs Sandra Adio. I was there the day she officially opened her ‘Metro Bread’ bakery in December 2014 with just two support staff. Now, the business has diversified into pastry and food with a staff strength of 108. During the week, one of my professional mentors, Dr Chidi Amuta, told me that after just five years in business, his wife’s health and fitness outfit has grown to employ 40 staff ranging from gym instructors to spa therapists, hair stylists and beauticians. Sadly, in addition to spending a fortune every month on diesel, Mrs Amuta has had to contend with tax men from both state and federal authorities as well as local government touts etc.

The foregoing speaks to the potentials (huge markets for quality products and services) and challenges (unconducive operating environment) that impact on doing business in Nigeria. Increasing VAT cannot be the way to help those that we need to create jobs. In other countries, they offer such entrepreneurs incentives for their businesses to grow, not tax them to death. We must make begin to make the business environment more friendly for them and policy goalposts more realistic and predictable, in our collective interest.

Let me state clearly at this point that governments all over the world collect VAT as a ready source of revenue. In fact, several European countries operate VAT rates of 20% and above, and a majority of African countries are in the 15% – 18% bracket. Therefore, even with the current proposition, Nigeria’s VAT would still be the lowest in Africa. However, while a 2.5% increase may appear a rather small number, in the context of our current VAT structure, it represents a 50% increase. That is huge. Besides, since VAT is regressive tax usually paid in the value chain, any increase, no matter how small it may seem, is a further squeeze on consumer disposable income in Nigeria. Of significance will be the impact on the Micro, Small and Medium Enterprises (MSMEs). Yet, if we are ever to develop our country, these are the businesses we need to support to grow.

This brings me back to TEF. Established in 2010, the idea of Elumelu is that the private sector, and most importantly entrepreneurs, remain the catalyst for the social and economic development of the continent. With an initial commitment of $100million to empower 10,000 entrepreneurs across 54 African countries over a 10-year period, no fewer than 7,531 have already benefitted from the scheme with interesting stories to tell. The creation of young African entrepreneurs, Elumelu believes, will not only ginger hope for a burgeoning youth demographic, it will also drastically reduce the economic underpinnings of Africa’s migration crisis.

However, to support these types of businesses that can take many of our young men and women off the streets, taxation should not be the priority. We need to go back to the regime of giving new SMEs tax holidays. As it is now, the Federal Inland Revenue Service (FIRS) doesn’t do that. So once you start a business you are expected to pay tax the following year. This makes it difficult for them to thrive. Meanwhile, the basic infrastructure needed for successful business operations are not on ground to cushion the effects of the VAT increase. Take for example power. Majority of SMEs run on generators. So, a further increase in VAT means that they may be forced to reduce salaries and other emoluments or sack staff which will further increase the level of poverty among Nigerians, since majority of our people don’t buy the idea of being made to pay additional cost to their purchase prices.

The other side of course is that at a period when we should be increasing the tax net, a 50 percent increase in VAT will actually create an army of tax evaders instead of loyal tax payers, because majority of SMEs will now be forced to do what is common in Nigeria: Forge tax clearance documents!

While I am an advocate of running our country on the basis of tax in order to instill sanity in the system and encourage responsible citizenship, the challenge is that those in leadership positions do not inspire confidence that the money generated will be used to advance the public good. Besides, the more you tax incomes and profits, the less savings and investment. With that, poverty increases and is passed from generation to generation. To develop as a society, we must move away from the idea of scrambling for food packs by initiating policy measures that encourage wealth creation and put our people to work.

Another Laurel for LJC

Last Thursday, a team from the United States visited Loyola Jesuit College (LJC), Abuja to congratulate one of their final year students, Miss Shashe Ojuba who achieved what is described as ‘Perfect Score’ (100 percent in all subjects) at the American College Testing (ACT), which is used for admission into their Colleges (Universities), alongside Scholastic Aptitude Test (SAT). With Shashe being the first student in Africa to achieve such a feat in ACT, it is another laurel for LJC that continues to set high standards and break records.

By creating a competitive environment through their grading system from JS1 to SS2 where students are given positions based on total numbers in their entire set; by preparing their students to be globally competitive through an awareness of opportunities that exist beyond the shores of the country; by allowing their students to freely access their teachers on a one-on-one basis to go over difficult subjects; by encouraging their students to participate in local and foreign competitions and by enforcing a strict regime of discipline, Loyola Jesuit College is, without doubt, one of the best high schools in the country today with their graduates easily admitted into Ivy League Universities in Europe and the United States.

While there is much those who manage the education sector in Nigeria can learn from LJC, let me extend my congratulations to Shashe.

On Medical Tourism

Yesterday in Ilorin, Kwara State, I was a guest speaker at the 36th Annual General Meeting and Scientific Conference of the Association of Resident Doctors, University of Ilorin Teaching Hospital. I spoke on ‘Medical Tourism and the Challenge of Healthcare Delivery in Nigeria’. With medical tourism costing the nation huge sums of money, estimated to be over $1.3 billion, according to a 2016 Price Waterhouse Coopers report, it has become a huge burden to our economy. Besides, medical tourism also comes with several huge risks which I highlighted in my presentation. Interested readers can check this link: https://wp.me/pacBbN-1xah

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