TIE-down of the Nigeria Economy
If we can take a break from the issue of who is eligible to contest for the presidency next year, we could turn our attention to what becomes of Nigeria's future - its economy. What could create job opportunities for our school leavers that can be explored: The lack of Tax Reform, Reform in the Insurance industry and evaluation of the Exchange Rate Mechanism, remain as dead-weights that tie down the Nigeria's economy. Unless we reform tax, the insurance industry and the exchange rate mechanism, the development of the country may continue to be herculean and fuzzy. As innocuous as it seems, the mechanism for the exchange rate rather than the exchange rate value itself is the burden that has sunk the prospect of Nigeria moving forward. The conventional thinking in Nigeria, however, hinges on lack of reliable power as the albatross of Nigeria's economic growth; the lack of constant power supply by itself is a product of the faulty exchange rate mechanism. The three (3) interrelated economic fundamentals (tax, insurance and exchange rate) affect the way each one of us reacts individually and collectively to wealth.
Since, government expends the public treasury mainly in the local currency, which in our case is the Naira; the journey the naira takes back to the public purse could be through different routes. The most established and widely used all over the world is personal and corporate taxation. This is a collection by the public (collective) on individuals and entities within the community at a predetermined rate for common good. It is an open secret in economics that people all over the world react the same way to the erosion of their wealth. Tax payment is erosion of one's wealth, but it is mandatory within one's community. If we fund public coffers solely by tax, it will connect the citizens better toward government, and our attitude towards what is public will change. We will want to know how they spend our money. The tax route to the public treasury, therefore, connects each citizen to what belongs to the public and gives a sense of belonging.
Presently, our public treasury is funded, mainly, through a mechanism that auctions the petrodollar to the highest bidder. The other routes the naira takes to the public coffers are revenue through import duty; public borrowing from banks; selling of government bonds and the faulty tax collection. However, the most damaging to Nigeria's economy so far is the auctioning of the petrodollar to the highest bidder. Since its inception in September 1986, Nigeria's domestic products, apart from oil, are second best and are clearly in decline. Oil is in dollars and not naira and; therefore, it is an exception. That alone ought to have informed everybody that there is a relationship between the non-performance of our economy and the exchange rate mechanism. One does not require rocket science to conclude that; perhaps, for our self delusion. The Dutch Auction System by the CBN, as a mechanism, has proven to be at best unproductive, but for the awash of the public treasury with naira. That, however, has fuelled massive public corruption.
If that is the intention, it has succeeded. The value of the naira is not determined by our productivity, but rather driven by our propensity for the good things of life which presently are mostly imported. Our imported daily needs are for now of higher quality than the locally produced goods. Nigerians thus preferred the imported variance. Hence, the outbidding of the domestic production sector by importers of finished products at the Dutch Auction Market, in the CBN for the scarce foreign currency. You cannot make an omelette without breaking eggs. The implications are numerous and madding. First, importations of finished products create fewer jobs for a teaming population like ours. Secondly, there will never be a lessening to importation unless we support our local production and bias against importation. Foreign currency allocation ought to be tied to and biased toward job creation. The diversification from oil will create additional wealth to the nation, but we must give advantage to the productive sectors in the foreign exchange market. How we are going to fund the national treasury adequately without auctioning the petrodollars, is a matter of concern, especially when tax collection is still faulty.
Tax reform, therefore, remains a viable option ÔÇô it certainly will connect people to the government. It may allow the government to reduce its strangulation on the petrodollar and thus allows the naira to float reasonably. In so doing, non-oil production will then be able to compete with the best in the world and possibly vision 20-2020 could be achievable. The cost of borrowing is the other deadweight to the economy. In short, money is not cheap. In other climes, a robust insurance industry is the instrument used to control the cost of borrowing. By its legislation, government compels its citizens and other residents to take in surance on certain necessities within the country's economic activity. With increased volume of premium, the insurance industry will likely become the largest depositor in the banks. This gives the government a leeway to control interest rates accordingly. As of now, government has been helpless in controlling interest rate because individuals, rather than the insurance industry, are the largest depositors in our banks and individuals tend to determine how much they want for lodging their money.
If legislation makes the insurance industry the largest depositor in our banks, it will give the government control of the cost of borrowing (interest rate), because the insurance funds would have been the products of government legislation. Government thus has an involvement in the cost of lending. It also affords the government to tap into such monumental funds for the country's development, borrowing from it at reasonable rates. During the last global economic meltdown, the U.S. government's bailout was more to American Insurance Group (AIG) because the insurance industry could not be allowed to fail. The bulk of the U.S. public debt is from the insurance industry ÔÇô a reason why it should not fail. The insurance industry has proved to assist individuals and business, and even government to embark on futuristic projects; some of which have turned out to be deserved risks. It has, therefore, advanced the triumph of capitalism. I have used the acronym TIE as a reminder to us that unless we revisit the Tax reform, Insurance reform and Exchange rate mechanism reform, we may not succeed, in our quest, to be among the best by the year 2020. My suggestion is let's go the Chinese way ÔÇô fix the naira to the dollar for now and float later after our manufacturing has matured.
Samuel Akinyele Caulcrick,
Chief Flying Instructor, Nigerian College of Aviation Technology, Zaria,Kaduna State