16 Jan 2009 |
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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. Our wiz kid economists, with due respect, seem merely paper economists. Most of whom, regretably, are professors of economics and have been straddling the corridors of power for a while with an air of I know it all. If you remember, 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 finally shifted from conventional traditional 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 that government needs to run its activities, but the process is distorted and should have been biased towards potential wealth creation. Instead, it has been to the highest bidder. Yet, we keep saying we need to create more wealth but how?
The highest bidders have remained the traders, banks and most largely the benefactors of government patronage through inflated contracts. They, in so doing, have continued to outbid the wealth creating (educational, manufacturing and agricultural) sectors at the foreign exchange market. This has resulted in the stagnation of growth of the Nigerian economy ever since. Wealth creation thus, 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 a false impression of a growing economy will be what is painted. Government coffers have swelled, consequently, and government thus has expanded. Now that there is an anticipated dwindling oil receipt, the naira yet again is under the hammer. The government will earn more worthless volume of naira alright through this process, but you can bet it is the wealth creating sectors that will bear the brunt.
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 the raw minds of pupils into needed skills to drive the economy. In agriculture, nature’s engineering prowess is employed to multiply seedings under the ground or in animal husbandry for increased yields of agricultural products within the economy. In manufacturing, skills acquired in education, is used to transform basic raw materials into needed goods that boost the GDP in the nation, hence wealth creation. Lastly, in mineral extraction, thousands of years of nature engineering that had formed (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 up to seven years to produce a medical doctor or an architect; it takes a while or season to harvest the agricultural produce; it takes some time to transform basic raw materials to goods through to the market and mineral extraction also has its delays. Comparatively, traders and banks dealing in forex survive purely on commissions and could harvest their yields within days. They are therefore in a position to outbid the wealth creators at the foreign exchange market. The merchants 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 needed to produce the same goods at the factory.
Why does the government then sell the oil receipt to the highest bidder? The answer to me is pure mediocrity – the lack of understanding of human psychology by our charlatan economists. Traditionally, government treasury ought to be funded through taxation, but in Nigeria that is yet to be reformed. What one sees is the desperation of government selling to the highest bidder to have a high budget. I hope the reader is not offended, because I have cleverly steered the argument towards a fixed exchange rate which by all purpose will level the playing field for all sectors. Unless the scarce foreign currencies are biased towards the wealth creating sectors, 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, and at the same time guarantees government treasury funding through reformed traditional taxation. Only then would wealth creating sectors have advantage 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 the forex. This is not a suggestion to return to the fraudulent import licensing era.
Samuel Akinyele Caulcrick, Chief Flying Instructor, Nigerian College of Aviation Technology, Zaria.
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