Joels: We Need to be More Efficient in Public Spending, Curb Wastage
Eben Joels is the Managing Partner, of Stransact Chartered Accountants and Audit, an RSM correspondent firm in Nigeria. In this interview with Akanbi Festus and Adedayo Adejobi, he spoke on wide-ranging issues including why the federal government should be worried about the exit of multinationals from Nigeria, banks recapitalisation and the role of the CBN, how to mitigate inflation rates, and why multiplicity of taxes and other levies across the subnational makes the whole ideal and idea of ease of doing business a mirage, among others. Excerpts
The inflation rate, almost at 40 per cent, has practically affected the standard of living with the excruciating cost of goods and services. What can be done to mitigate this?
A multifaceted approach is necessary. Tighter monetary policies to curb excessive money supply have not worked. Raising interest rates and increasing reserve requirements for banks have also not worked. I believe the government should focus on stabilizing the exchange rate by boosting foreign reserves and reducing dependency on imports. This is the time to strengthen the agricultural sector through subsidies and support programs to improve local food production so that we can look forward to reduced food prices.
On the fiscal policy front, the Nigerian government should be more efficient in public spending and curb wastage. Investing in infrastructure, particularly in transportation and energy, can lower the cost of doing business and reduce the prices of goods and services. Implementing social safety nets and targeted subsidies for essential goods can help alleviate the immediate burden on low-income households. Encouraging competition in key sectors, like telecommunications and energy, can also drive down prices through market forces. Fostering an environment that supports local manufacturing will create jobs and boost incomes.
With the state of infrastructure near comatose, Nigeria is forever grappling with power outages and other intractable problems in different areas. How much does the government need to invest in infrastructure to set the country on the path of progressive growth and socioeconomic development?
The government needs to make substantial investments in infrastructure. Estimates suggest that Nigeria requires approximately $3 trillion in infrastructure investments over the next 30 years to bridge the existing gaps and support its growing population. Immediate priorities should include significant allocations towards the power sector to resolve the chronic power outages that stifle business operations and daily life. Investment in renewable energy sources, upgrading the national grid, and expanding electricity access can transform the energy landscape, fostering industrial growth and enhancing the quality of life.
In addition to power, the government must prioritize investments in transportation, healthcare, and education infrastructure. Modernising and expanding the road network, railways, and ports will improve connectivity, reduce transportation costs, and enhance trade efficiency. Similarly, upgrading healthcare facilities and educational institutions is crucial for building a healthy and skilled workforce. Public-private partnerships (PPPs) can play a vital role in mobilizing the required capital and ensuring efficient project execution. By committing to comprehensive infrastructure development, Nigeria can create a more conducive environment for economic activities, attract foreign investment, and achieve sustained socioeconomic progress.
The organised labour in Nigeria called a strike recently and they have reduced their minimum wage demand to N250,000 per month while the Federal Government has offered N60,000, what do you think the minimum wage should be?
Determining an appropriate minimum wage in Nigeria requires balancing the needs of workers with the economic realities of businesses and the government. Given the significant gap between the organized labour’s demand of N250,000 per month and the Federal Government’s offer of N60,000, a middle ground must be sought. A reasonable minimum wage should consider the current inflation rate, cost of living, and the need to sustain businesses without causing undue financial strain. A new minimum wage is useless if it is not accompanied by policies aimed at boosting economic growth and productivity, which can support higher wages in the long term. Implementing measures to reduce inflation, such as stabilizing the exchange rate and improving domestic production, can help sustain wage increases. Additionally, enhancing social services, such as healthcare and education, can reduce the overall financial burden on workers. By adopting a holistic approach that includes a fair minimum wage and supportive economic policies, Nigeria can work towards a more equitable and sustainable economic environment for its workforce.
Fresh Graduates in Nigeria continue to complain about a lack of opportunities, and that you need to know some highly placed person to get a job, what do you think we can do as a country to drive job growth for young people?
To drive job growth for young people in Nigeria, it is essential to create an enabling environment that fosters entrepreneurship and supports small and medium-sized enterprises (SMEs). We have a society where we worship big men without paying attention to their source of wealth. We define success as having a lot of cash in your bank account irrespective of whether that cash is from a criminal enterprise. Therefore the emphasis for many young people today is how to make quick money. It is not so much as to develop a skill to sell. For this reason, we produce a ton of unemployable people. People with the wrong values.
I still believe that there is always room for merit. For example, we are a top destination for the best-graduating students of most Universities around us and you do not need to know anyone to work with us. You only need to be competent and be armed with the right mindset- a continuous learning mindset, and of course, the right values.
Diageo, owner of Guinness Plc, is pulling out of Nigeria and has sold its 58% equity in the business to Singapore-based Tolaram. What is your thought on this, and what does it portend for the immediate future?
Diageo’s decision to withdraw from Nigeria and sell its stake in Guinness Plc to Tolaram indicates that it sees better opportunities elsewhere or perceives challenges in the Nigerian market that outweigh the potential benefits. This move might reflect a strategic shift in Diageo’s global portfolio or a reassessment of its investment priorities. Very clearly, Diageo has fashioned a more profitable way to derive income from Nigeria without having to deal with the harsh operating environment for businesses.
Tolaram Group probably sees this acquisition as an opportunity to solidify its presence in Nigeria. It already operates in Nigeria primarily through its subsidiaries in various industries, such as Dufil Prima Foods Plc, which produces the popular Indomie instant noodles, and the Lekki Deep Sea Port project.
The acquisition of Diageo’s stake in Guinness PLC indicates that it sees value in the Nigerian market and is willing to invest in it. Tolaram may bring a different perspective and strategy to the table, potentially leading to changes in how Guinness PLC operates in Nigeria. It could also signal increased competition or consolidation within the Nigerian beverage industry. While Diageo’s exit raises questions about the attractiveness of the Nigerian market for multinational companies, Tolaram’s investment suggests continued interest and opportunities for growth in the region.
Should we be worried about the exit of multinationals from Nigeria?
The departure of multinational companies from any country should ordinarily raise concerns. Such exits can impact employment, economic growth, and overall stability. These multinationals are some of the few places where you can find best practices in the recruitment, training, and compensation of personnel. They are some of the few companies where graft is not enshrined. Many Nigerian-owned businesses are not committed to best practices. However, it’s essential to understand the reasons behind these exits. They are driven by various factors such as economic challenges, regulatory issues, and security concerns, leading to strategic business decisions by the companies to exit the market.
Addressing these underlying issues could potentially attract and retain multinational investments. The government should focus its efforts on improving the business environment, enhancing security, providing regulatory clarity, and promoting economic diversification, which can mitigate the negative effects of multinational exits and encourage future investments.
The new recapitalisation for banks has been hotly debated because of some of the clauses. Do you think the Central Bank of Nigeria means well for the banking sector?
Overall, whether the CBN means well for the banking sector depends on the balance it strikes between strengthening financial stability, promoting competitiveness, and ensuring that the needs of the economy, businesses, and consumers are adequately addressed. Open dialogue and collaboration between the CBN, banks, regulators, and other stakeholders are crucial in navigating these challenges and achieving positive outcomes for the banking sector and the broader economy. Overall, I will be hopeful. The last round of capitalization spurred the capital market and boosted the economy. I hope this will be the same result.
Most banks still have a high percentage of Non-Performing Loans in their books despite measures taken by the CBN to reduce this. What can be done to make the banks solvent, so that they will not have to carry too much debt burden?
To address the persistent challenge of high non-performing loans (NPLs) in Nigerian banks, a multi-faceted approach is necessary. Firstly, banks should prioritise proactive risk management practices, conduct thorough credit assessments, and implement stringent monitoring mechanisms to identify potential defaults early on. This involves restructuring loans for struggling borrowers and adopting robust recovery strategies to mitigate losses effectively.
Simultaneously, regulatory bodies like the Central Bank of Nigeria (CBN) should enhance supervision and enforcement of prudential regulations, ensuring that banks maintain adequate capital levels to absorb potential losses and remain resilient in the face of economic volatility. Additionally, improving credit information systems and promoting economic diversification away from volatile sectors can reduce systemic risks and enhance banks’ stability, ultimately mitigating their debt burden and fostering a healthier banking sector. The CBN should above all mandate regular stress testing. Mandatory reporting of impairment indicators regularly should be considered.
Do you think Heritage Bank’s licence revocation is well-timed? Some think it might trigger a run on other banks, and drive panic
The timing of Heritage Bank’s license revocation by the Central Bank of Nigeria (CBN) is a critical decision with potential ripple effects. While the CBN likely has specific reasons for taking such action, including concerns about the bank’s financial stability or regulatory compliance, the timing must consider its broader impact on the banking sector’s stability.
Revoking a bank’s license can indeed trigger concerns among depositors and investors, potentially leading to a run on other banks and inducing panic in the financial system. Therefore, the CBN must carefully manage communication and ensure transparency to mitigate any spillover effects and restore confidence in the banking sector. Additionally, the CBN should continue to provide reassurance about its commitment to maintaining financial stability and supporting affected depositors to prevent widespread panic and systemic disruptions.
The Central Bank of Nigeria (CBN) has dissolved the Board and Management of Union Bank, Keystone Bank, and Polaris Bank. What is the difference between the case of these banks and the case of Heritage Bank?
The CBN appointed new management teams to stabilise these banks and safeguard the interests of stakeholders. In contrast, Heritage Bank has not faced a similar intervention from the CBN rather, its license was revoked. I suspect this is because the degree of financial health and governance in Heritage Bank may be such that it cannot be salvaged.
The Naira has faced the toughest battle since it became a legal tender in Nigeria some four decades ago. The value has been completely eroded with its unprecedented crash in the foreign exchange market. Do you think the CBN is doing enough to hedge the Naira against the dollar so far, with the recovery strategy? And, can these efforts be sustained?
The Central Bank of Nigeria (CBN) has implemented several measures to hedge the Naira against the dollar, including interventions in the foreign exchange market, adjusting the monetary policy rate, and introducing various forex management policies. Despite these efforts, the Naira has continued to depreciate significantly, indicating that the current strategies might not be sufficient to combat the underlying issues affecting the currency’s value. Structural economic challenges, such as dependence on oil exports, limited foreign reserves, and a high import bill, especially the continued importation of petroleum products continue to exert pressure on the Naira.
Stabilising the Naira will require a multifaceted approach that goes beyond short-term interventions. The CBN must focus on diversifying the economy, enhancing domestic production, and improving the overall business environment to reduce reliance on foreign exchange. Additionally, policy consistency and transparent communication are essential to restore confidence among investors and market participants.
Among the challenges bedevilling businesses in Nigeria, is the multiplicity of taxes and other levies across the subnational making the whole ideal and idea of ease of doing business a mirage. What concrete measures can be put in place to ease the affairs of businesses to boost productivity and efficiency within the business ecosystem in the country?
To address the challenge of the multiplicity of taxes and levies that hinder businesses in Nigeria, a comprehensive tax reform is necessary. The government should streamline the tax system by consolidating various taxes and levies into a single, simplified tax regime. This can be achieved by implementing a harmonized tax policy across federal, state, and local levels to eliminate overlapping and redundant taxes. Establishing a centralized tax collection system would reduce administrative burdens on businesses, making compliance easier and more efficient. Additionally, providing clear guidelines and ensuring transparency in tax policies can help businesses better understand their tax obligations and plan accordingly.
Furthermore, the government can enhance the ease of doing business by improving regulatory frameworks and reducing bureaucratic red tape. By creating a more business-friendly environment, Nigeria can stimulate productivity, attract investment, and ultimately drive economic growth.
There is much talk about Tax Reform in Nigeria. If the current President will stay in office for eight years, what do you think he should focus his tax reforms on?
If President Bola Tinubu remains in office for eight years, his tax reform efforts in Nigeria should focus on broadening the tax base and improving tax collection efficiency while crashing the tax rate. Broadening the tax base should mean having a tax system that requires every Nigerian to file a tax return with the centre. I will propose a Federal Income tax for individuals at a nominal rate and cause the states to share data with the Federal Inland Revenue Service. This will make the State Internal Revenue Services more efficient. I will eliminate all other taxes masked as levies for specific causes such as Education tax, Police Trust Fund, NITDA levy, etc. All these levies have taken our corporate tax rate to be one of the highest in the World. For example, Russia just increased its corporate tax rate to 25%. That is a country operating a war economy. Yet ours is about 34%. These special causes taxes that I mention are largely used to offset the administrative costs of the bureaucracy they fund or are mostly stolen. I’d rather we have a lower tax rate with a wider tax base.
There are other radical tax ideas. For example, since Nigeria is a republic, I struggle with the justification for exempting the President and Governors from paying taxes. This is absurd when even in a Monarchy such as the UK where the King and the Prince of Wales are exempt from tax, they chose to voluntarily pay taxes to the state. If in the largest economy in the world, the United States, the President is not Tax exempt, I see no reason why a relatively poor country such as ours, should exempt certain offices from taxes.
Finally, I hope the President will be bold enough to implement an Inheritance tax system for Nigeria. In most advanced countries, there is a big tax – sometimes exceeding 40% on estates when these are passed on. This tax is one of the ways these countries, as capitalist as they are, ensure that there is a redistribution of wealth in some way. The tax is only for the very rich. In the UK the threshold is estates over about GBP325,000. The system offers large reliefs to anyone who chooses to donate to a charitable non-profit. This is another way to grow the charitable non-profit sector. Imagine if we say anyone inheriting assets worth N5b and above will pay 40% of that to the state or 20% if they donate a certain threshold to a charity. There are many benefits. But I hope such a system will reduce the incentive to steal humongous amounts and leave them for your heirs.
Nigeria’s economy, which was said to be the largest in Africa in 2022, is set to slip to the fourth largest in 2024. What is the cause of this, and how can this be reversed?”
The slip can be attributed to several factors. Persistent issues such as political instability, insecurity, and corruption have significantly hindered economic growth. High inflation rates, depreciating currency, and inadequate infrastructure have also contributed to a challenging business environment. These factors, combined with the slow implementation of economic reforms, have undermined investor confidence and stymied growth across various sectors.
To reverse this trend, Nigeria must diversify its economy beyond oil dependency by investing in other key sectors like agriculture, technology, and manufacturing. Implementing policies that promote economic stability, reduce corruption, and improve governance is crucial. Strengthening the business environment through infrastructure development, particularly in power and transportation, will attract domestic and foreign investments. Enhancing education and vocational training can build a more skilled workforce, fostering innovation and productivity. By focusing on these areas, Nigeria can create a more resilient economy, capable of sustaining growth and reclaiming its position as Africa’s largest economy.
