The Value of the Naira and Tax Reform 1

Charlatanry in our public life has come to fore yet again and the chicken may have come home to roost. The wiz kid economists, who to me, are merely paper economists and most of whom are professors of economy, have been straddling the corridors of power for a while with an air of I know it all. On 28 July 1986, when the then almighty naira first went under the hammer at the Dutch Auctioning Table for the first time, funding government activities in Nigeria has since largely been shifted from conventional taxation to the foreign exchange market. Nigeria ’s oil receipt, has since the beginning of SAP, been exchanged by the Federal Government for the naira needed to run its activities and it is not based on potential wealth creation but to the highest bidder. Yet, we keep saying we need to create more wealth but how?

The highest bidders at the foreign exchange market (traders, banks and most largely the benefactors of government patronage through inflated contracts) have, in so doing, continued to outbid the productive (educational, manufacturing and agricultural) sectors at the foreign exchange market. This has created stagnation in the growth of the Nigerian economy ever since because wealth creation has been consigned to the back bench. We seem to have opted for the mercantile option instead of the factory floor option. It is not rocket science to know that for as long as the oil receipt continues to increase it will give a false impression of a growing economy. Government coffers have swelled and of course government thus expanded and now the naira is under the hammer yet again merely because of an anticipated dwindling oil receipt. The government will earn more worthless naira alright through this process, but you can bet it is the wealth creating sectors that will bear the brunt yet again.

For the avoidance of doubt, the wealth creating sectors are education, agriculture, manufacturing and mineral extraction. Each of these wealth creating sectors, ironically, is a form of engineering. In the educational institutions, knowledge, which is wealth, is engineered by forging raw minds of pupils into needed skills to drive the economy. In agriculture, nature’s engineering prowess is employed to multiply seedlings under the ground or animal husbandry for increased yields of agricultural products in the economy. In manufacturing, skills acquired in education, is used to transform raw materials into needed goods that boost the GDP in the nation, hence wealth. Lastly, in mineral extraction, thousands of years of nature engineering (oil, gold, tin, coal etc.) are extracted through exploration to create wealth. Because of our stage in development, these wealth creating sectors ought to have priority access to foreign money to acquire the tools to create the much anticipated wealth.

Unfortunately, the yield time of the productive sectors has a delayed time when compared to the dynamism of the mercantile sectors. For instance, it takes like seven years to produce a medical doctor or an architect; it takes a while to harvest the agricultural produce; it takes some time to transform a raw material to goods through to the market and mineral extraction also has its delays. Comparatively, traders and banks dealing in forex (who survive purely on commissions) could harvest their yields within days and are therefore in a position to outbid the wealth creators at the foreign exchange market. They have nothing to lose and hardly create wealth. Ironically, they are also the least employer of labour. For instance, the number of hands (labour) needed to man a trader’s warehouse containing goods worth a billion naira is a fraction of the number of labour to produce the same goods at the factory.

Why does the government then sell the oil receipt to the highest bidder? The answer is simple. It is pure mediocrity – the unintelligent understanding of economics by our charlatan economists. Traditionally, government treasury ought to be funded through taxation, which has yet to be reformed and not the desperation of selling to the highest bidder. I hope the reader is not offended, because I have cleverly steered the argument towards a fixed exchange rate which I think will create a levelling field to all sectors. Unless the wealth creating sectors are giving priority based on wealth to be created in the economy, the Nigerian economy will never grow as expected. There should be a mechanism that gives access of the scarce foreign exchange, first, to the wealth creators, as outlined above, over and above the traders and the benefactors of government patronage who, because of cheap money gotten through inflated contracts, are outbidding in order to capital fly. What then is the solution because the first thing that will come to mind is to wonder if I am suggesting a return to the import licensing era

Stop Press: Just before going for publication of this piece, the CBN has suspended the Dutch Auction of the naira.

Samuel Akinyele Caulcrick,

Lagos 

Robot  # 1 | 15.01.2009 03:37

The Value of the Naira and Tax Reform 1 Charlatanry in our public life has come to fore yet again and the chicken may have come home to roost. The wiz kid economists, who to me, are merely paper economists and most of whom are professors of economy, have been straddling the corridors of power for a while with an air of I know it all. On 28 July 1986, when the then almighty naira first went under the hammer at the Dutch Auctioning Table for the first time, funding government activities in Nigeria has since largely been shifted from conventional taxation to the foreign exchange market. Nigeria ’s oil receipt, has since the beginning of SAP, been exchanged by the Federal Government for the naira needed to run its activities and it is not based on potential wealth creation but to the highest bidder. Yet, we keep saying we need to create more wealth but how? ...Read the full article.