Uviase: We Expect Pressure on FX to Ease in 2024

Managing Partner at Ecovis International in Nigeria, Andrew Uviase, is a Chartered Accountant and Economist. In this interview, he speaks on how Nigeria can achieve inclusive economic growth, why government should intervene in FX market to ensure rate stability and predicted that pressure on FX will ease in 2024 given the reduction in demand as a result of enhanced local refinery capacity. Excerpts

Can we meet you and also tell us what you do at Ecovis?

My name is Andrew Uviase, a Chartered Accountant and Economist. Am by the grace of God the Managing Partner of Ecovis International in Nigeria.

ECOVIS Nigeria is a professional firm of accountants providing, audit and assurance, taxation, accounting and financial consulting services. Ecovis globally is a member of the Forum of Firms, which is a grouping of top rate accounting firms that have recongised procedures for executing audits. The firm’s clients cut across various sectors of the economy including manufacturing, marine, financial services, oil and gas, construction, merchandising, public sector, and many more.

The Nigerian economy has faced several challenges since COVID-19. Do you think the country has managed the crisis well?

The covid -19 pandemic outbreak occurred in Wuhan China in 2019 and rapidly spread throughout the world. Attempts to curtail the spread of the disease lead to imposition of several restrictive measures such as lockdown, travel restrictions and social distancing. The measure triggered supply chain disruptions, drastic full in the consumption of energy and general reduction in the level of economic activities.

At the end of Covid 19 induced lockdowns in 2020, the federal Government responded with a combination of monetary and fiscal policy measures. Some of these included the Federal Government one year Economic Sustainability Plan with a stimulus package of N2.3 trillion, establishment of N500 billion Covid 19 intervention fund, increase in allocations to states and several sectorial intervention to businesses. On the monetary side we had reduction in interest rates and moratorium on loan repayments amongst other measures as well as attempts (though feeble) to unify the exchange rates.

Other than those initial efforts, there were no other deliberate attempts to stabilise the economy and stimulate growth. The economy continued to operate at its usual rent seeking and speculative gains pursuit system. So, we can say that the management of the post Covid economy has been less than satisfactory.

Food inflation and headline inflation have been on the rise, what is the way out?

Before any effective solution can be proffered to the rising inflation, it is imperative to understand the cause of the food inflation and the main drivers of price increase. The Nigeria inflation is basically cost push inflation resulting from a combination of factors such as poor infrastructure, insecurity, shortage in foreign exchange for purchasing essential raw materials by manufacturers.

The immediate step will be to boost security so that farmers can go back to farm. Once the farmers can go back to farm, there will be increase in supply, which should drive down prices. The government must also try to stabilise the economy. There have been too many shocks in the last five months, which has made nonsense of the projections by Manufacturers. Look at the price of diesel, the exchange rate and even PMS. Manufacturers may be worried by the high cost of production but they are more concerned with price instability, which makes it difficult for them to plan. So, inflation can be curtailed if structural impediments to production are reduced.

Foreign investors are basically not interested in Nigeria at this moment or even since the COVID-19, is there anything the government can do to change this?

Firstly, we must realise that there is fierce competition among nations to attract foreign investment. Naturally, Nigeria is meant to be a place of preference for foreign investors because of its large population, abundant supply of skilled manpower and youthful population. However, the risk has remained high to foreign investors because of the incidence of insecurity, very poor infrastructure and unstable policy measures. So, to address the lull in foreign direct investments, government must adopt short-term policy measures such as generous tax incentives to compensate for infrastructural deficit and medium to long term measures of enhanced security and improved infrastructure. The policy measures must also be stable and successive administration must see the country as a going concern by maintaining the good policies of their predecessors. No businessman likes uncertainty.

What advice do you have for investors in terms of choosing asset class to maximise their returns?

Generally, returns to investors are affected by several factors such as the risk, the type of venture, the gestation period for the investment, and the legal and regulatory requirements. I can only advise that investors should always sit with their professional advisers to weigh the options.

The CBN recently floated the naira, and many manufacturing firms have suffered losses. Is floating the currency the right thing to do?

Floating the naira at this point appears to be a convenient and easy way out. However, it must be a managed float where the government should intervene to ensure rate stability. My interaction with manufacturers suggests that their greatest concern is the fluctuations in the exchange rate which has made nonsense of their projections and affected their ability to plan. I will suggest that we must revert to managed float, where fluctuations can be within acceptable band and forex should be made available to the preferred sectors of the economy.

Give us your projection for 2024.

This is a tricky question, which I will approach from the perspective of the different economic agents. From the perspective of the business community, they should be ready for the greatest tax scrutiny in the history of Nigeria. The projected tax revenue in the budget well over the previous year’s figures by 30 to 50%. Then there is the objective of raising tax Revenue from 10% to 18% during the next four years. My advice for businesses is that they should do a tax health check on their businesses in order to determine if the relationship between various segments of the accounts can stand the scrutiny of the Revenue Authorities. This will help them to minimise surprises when the Revenue Authorities eventually come calling. They should expect improved demand for their products and services based on expected wage increases by the government. Inflation would be moderated as we expect prices of petroleum products to be stable because of the impact of the Dangote and Port Harcourt Refineries, which are expected to be fully operational in the year. We also expect the pressure on forex to ease given the reduction in demand as a result of the enhanced local refinery capacity.

Government finances will remain stable due to the inflow of petrol dollars. The price of crude oil will remain high as we are not expecting the Russia Ukraine War to end soon.  Government revenues will get a boost from taxation as a result of strengthening the capacity of the revenue generation agencies. However, it could be counter productive if struggling business are overtaxed.  General insecurity may remain or slightly get worse because it is difficult to change people who are already used to free resources and money. We would expect government equip the security forces in order to counter the activities of insurgents and terrorists.

You spoke about the faulty template for reporting output growth. What methodology would be most realistic in your view?

I actually touched on two issues. Firstly, is the presentation of the information. What we see in the GDP report is percentage growth from one period to the other.

I believe that the absolute figure should be compared with each other and percentage growth or decline reported alongside the figures. This is important because who ever is looking at the report will be able to know which figures are given rise to the growth. Most users do not go to the appendix to pick the absolute figures.

Secondly, am concerned about the methodology of conversion from the nominal GDP to the real GDP. I believe the conversion factor should also be disclosed so that any person with elementary knowledge of arithmetic can test it and confirm that the figures are accurate.

There has been so much noise about growing an inclusive economy. Does the growth pattern in the last few years suggest any progress?

Inclusive growth is dependent on two factors. Economic growth which is measured by the GDP and the distribution of the growth among the citizens which is measured by the Gini coefficient. In the past few years, the economy has literarily stagnated because economic growth is hardly keeping pace with population growth. Then when it comes to distribution of the production output, it is awful and the poverty levels have remained alarming. Even well thought out programmes like cash transfer and school feeding is hardly effective because the process is not transparent and not open to public scrutiny. Any cash transfer arrangement must be transparent and open to public scrutiny. It should be possible for interested parties to verify the beneficiaries. In fact, we need an independent project monitoring body to verify the beneficiaries and method of transfer. 

There is a dilemma about the funding of infrastructure, which is critical for accelerated growth. If we go the PPP route, user charges become another burden but the government is obviously too broke to fund such projects and deliver seemingly. What should we do?

Generally, the average human being is a free rider who wants to enjoy public goods without making payment. However, it is important to categorise the type of infrastructure and to determine the extend to which PPP can be applied. Other than roads, every other type of infrastructure can be done by a PPP arrangement. Even when it comes to roads, there are various ways by which an investor whether private or public can recoup their investment. Funding infrastructure should actually start from the conceptualisation stage to the final stage. If we can cut down on wastages and padding, we would be amazed at what we can achieve with the little resources that we have.

A recent PMI says new orders are falling as people are not able to pay new prices of goods and services, which means inflation is still at a crisis point. Have we reached the peak of the long inflation run or do you think it will continue the upward trend?

It is stating the obvious to say that orders are falling. When the prices of essential family items have doubled and wages have remained essentially the same, it would be magical for the impact to be different.

 I believe that next year will be better if the two critical refineries are working as projected. Then through NNPC the government should allocate Crude to the refineries at concessionary prices. This way, the government will be subsiding production, which will trickle down faster than any other social welfare programme.

What are the opportunities and challenges you can foresee This is a tricky question which I will approach from the perspective of the different economic agents.

From the perspective of the business community, they should be ready for the greatest tax scrutiny in the history of Nigeria. The projected tax revenue in the budget well over the previous year’s figures by 30 to 50 per cent. Then there is the objective of raising tax Revenue from 10 per cent to 18 per cent during the next four years. My advice for businesses is that they should do a tax health check on their businesses in order to determine if the relationship between various segments of the accounts can stand the scrutiny of the revenue authorities. This will help them to minimise surprises when the revenue authorities eventually come calling.

They should expect improved demand for their products and services based on expected wage increases by the Government.

Inflation would be moderated as we expect prices of petroleum products to be stable because of the impact of the Dangote and Port Harcourt refineries, which are expected to be fully operational in the year.

Government revenues will get a boost from taxation as a result of strengthening the capacity of the revenue generation agencies. However, it could be counter productive if struggling business are overtaxed.

General insecurity may remain or slightly get worse because it is difficult to change people who are already used to free resources and money. We would expect government equip the security forces in order to counter the activities of insurgents and terrorists.

How do you think the federal government can generate the proposed revenue in the 2024 budget, especially through tax?

The current budget is modest, and the Revenue targets appear achievable. We expect FIRS to widen the tax net by leveraging on technology to plug revenue leakages. We also expect greater audit and investigative scrutiny on Companies. Therefore, all companies should contact their professional advisers for a tax health check on their companies in order to minimize surprises.

How can the FG plug revenue leakages in MDAs and across the system?

Revenue leakages occur in various forms ranging from rendering of billable services that are not billed to actual misappropriation of Revenue that should be collected by the Federal Government or sub national governments. Revenue leakages can be minimised by putting the right system in place, deploying automation technology and employing analytical techniques to detect unusual relationship between the Revenue and level of activities.

As a country, do you think there is a need for reforms in our accounting system?

Accounting knowledge like every other human knowledge is dynamic and must be continually evaluated with a view to reforming it.

I believe that at the private sector level, there should be greater emphasis on incorporating the effect of inflation on the financial statements of Companies. Solely relying on the historical costs tend to diminish the use of such statements for comparative purposes and trend analysis.

 From the public sector perspective, the adoptions of IPSAS have added a lot of value to the usefulness of the financial statements. However, we must consider the effectiveness and efficiency of public sector expenditure. It is still surprising how public sector projects manage to cost as much as 4 times of what it costs in the private sector despite various safeguards such a BPP and internal audit process. This is why we need to develop and use efficiency criteria in Public sector accounting.