Charting a Course for Nigeria's Economic Future

Eben Joels is the Managing Partner at Stransact Chartered Accountants and Audit, the exclusive RSM correspondent firm in Nigeria. In this interview with Ibrahim Apekhade Yusuf, the multi-disciplinarian speaks on the troubling exit of multinationals from Nigeria, the hotly debated recapitalisation agenda for banks and the role of the Central Bank of Nigeria vis-à-vis the inflation crisis, rise of non-performing loans, recovery strategy to hedge the Naira against the dollar, how multiplicity of taxes and other levies across the subnational makes the whole idea of ease of doing business a mirage, amongst other sundry issues. 

Diageo, majority shareholder of Guinness PLC, sold its 58% equity in the business to Singaporean-based Tolaram, fuelling fears in some quarters that multinationals are exiting the country. 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.

For Tolaram Group, they probably see this acquisition as an opportunity to solidify their presence in Nigeria. They already operate in Nigeria primarily through their 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 they see value in the Nigerian market and are 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.

From available information, Kimberly-Clark, an American multinational and producer of baby products, Huggies, GlaxoSmithKline Consumer Nigeria Plc, Sanofi-Aventis Nigeria Limited and Procter and Gamble are some of the multinationals that have recently shut down their operations in Nigeria, either fully or partially. There is rumour that some of the International Oil Companies (IoCs) such as Shell, ExxonMobil and ENI are actively selling their assets to exit Nigeria. Should we be worried about the exit of multinationals from Nigeria?

The departure of multinational companies from any country, especially ones as significant as those you mentioned, 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 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, 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 capitalisation 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, conducting thorough credit assessments, and implementing 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 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 on a regular basis 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 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 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 stabilize 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 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.

Access to credit remains a big deal for businesses, especially SMEs because of the high risk quotient alright. What can be done to ease the burden of businesses to enable them to get easy access to credit at rock bottom rates?

The government and financial institutions need to adopt several strategies. Firstly, the CBN can enhance its existing credit intervention programs, such as the Anchor Borrowers’ Program and the Micro, Small, and Medium Enterprises Development Fund (MSMEDF), by increasing their funding and streamlining the application processes. These programs can be expanded to cover more sectors and offer lower interest rates. Additionally, financial institutions should be encouraged to develop tailored financial products that cater to the unique needs of SMEs, including flexible repayment terms and lower collateral requirements.

Moreover, improving the credit infrastructure in Nigeria is crucial. This includes establishing and maintaining a comprehensive credit registry system to track the credit history of businesses, which can help reduce perceived risks by lenders. Strengthening credit guarantee schemes can also provide additional security to banks, encouraging them to extend more credit to SMEs. For example, I am not aware of any credit insurance company in Nigeria. On a broader scale, fostering a stable macroeconomic environment with low inflation and consistent policies will help lower the overall risk profile, making it easier for businesses to obtain credit at more affordable rates.

The inflation rate, almost at 40 percent, 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 has also not worked. I believe the government should focus on stabilising 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 wastages. 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.

Among the challenges bedeviling businesses in Nigeria, is 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 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 harmonised tax policy across federal, state, and local levels to eliminate overlapping and redundant taxes. Establishing a centralised 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.

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 prioritise 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 mobilising 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.

President Bola Tinubu’s administration is one year on the saddle. In your own assessment, what has he done right or wrong, and what are the low-hanging fruits he can easily pluck to set things right?

In his first year, President Bola Tinubu’s administration has taken some notable steps, such as prioritising economic reforms. He needs to show more bite in tackling corruption. His efforts to attract foreign investment through improved business policies have been met with cautious optimism. The administration’s focus on infrastructure projects, like road construction and the expansion of power generation, aims to address critical issues affecting economic growth. However, there have been criticisms regarding the pace of these initiatives and their immediate impact on the lives of ordinary Nigerians. The administration has also faced challenges in effectively managing the country’s security situation, with ongoing conflicts and insecurity still prevalent in several regions.

President Tinubu can focus on low-hanging fruits such as strengthening the agricultural sector through targeted subsidies and support programmes to boost food production. They can also focus on simplifying the tax system to reduce the burden on small and medium-sized enterprises (SMEs).  They can address power shortages through quick-win projects, such as deploying renewable energy solutions in underserved areas.  By concentrating on these achievable goals, President Tinubu can build public confidence and lay a stronger foundation for long-term development.

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 N62,000, 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 organised labour’s demand of N250,000 per month and the Federal Government’s offer of N62,000, 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 stabilising 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 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 to develop a skill to sell. For this reason, we actually 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 mind set- a continuous learning mindset, and of course, the right values.

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 center. 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 Service more efficient. I will eliminate all other taxes masking 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 cause taxes that I mention are largely used to offset the administrative costs of the bureaucracy they fund or 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 to exempt 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 in excess of about GBP325,000.  The system offers large reliefs to anyone who chose to donate to a charitable non-profit. This is another way to grow the charitable nonprofit 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 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.

Source: ThisDay