Debt Management Office (DMO) Director-General Dr. Abraham Nwankwo has painted a rosy economic future anchored on diversification and enhanced revenue from taxation. According to him, in three to five years, Nigerians will feel the impact of the present administration’s policies on manufacturing, agriculture, entertainment and mining, among others, because they will strengthen the naira and improve foreign reserves
The naira and foreign reserves are the worst hit in the wake of Nigeria’s dwindling revenue because of the crash in crude oil prices. The naira has shot up from 215 to 350 against the dollar in the last 16 months in the parallel market; the reserves have continued on their downward slide from over $36 billion to $26.5 billion within the same period.
As worrisome as these indicators may be, Debt Management Office (DMO) Director-General Dr. Abraham Nwankwo described them as temporary setbacks that will be overcome when the government’s policy on diversification of the economy begins to crystalise.
At an interactive session with reporters in Lagos last weekend, Nwankwo said the government’s efforts at revitalising other sectors of the economy, such as agriculture, solid minerals and manufacturing, among others, will impact on the economy in the next three to five years.
He said when the economy is diversified, Nigeria’s growth will not be determined by the prices of crude oil.
The DMO boss said much revenue would be derived from taxation, adding that the country’s low comparative tax revenue to the Gross Domestic Product (GDP) ratio, currently at about seven per cent against the 18 per cent average in most developing countries, will improve following efficient production.
He said through taxes, government can secure the fund to finance major developmental projects that will impact on the people’s lives.
Nwankwo is optimistic that, despite the challenges, Nigeria’s dream of becoming one of the best 20 economies in the world by year 2020 is still realistic.
“The target of getting the country to rank among the 20 leading economies in the world by 2020 is still being pursued. The crash in crude oil prices should not in any way derail that target. When you are running a race and something trips you and you fall, you have to wake up, and continue the journey. Also, even if oil is the base for economic growth and development, it was an inappropriate base for growth. But luckily for the country, there are alternatives in agriculture,” he said.
The DMO chief said the country has been unable to exploit up to 25 per cent of opportunities in agriculture.
He said: “We need to achieve internal food security and have the opportunity to export agro-based products in processed form. Imagine the variety of food stuff from savannah to the deserts, all the various legumes, roots and others that can be grown from these environments. If we effectively exploit agriculture, if and as we are making progress in agriculture, firstly, the major consumer of our forex like agro-based raw materials, rice, fish, poultry, wheat, will be taken care of and government will save billions of dollars from these imports.
“We have the capacity to produce these products and even export to other countries. Based on the pronouncements of the agriculture minister based on the vision of President Buhari, in three to four years, we will be self-sufficient in poultry, rice production. We are on the right path to be self-sufficient in food, and enormous forex will be saved from agriculture production alone. Reserves will rise, and the local currency will be stronger. That is the essence of the growing economy.
“You can see that in the manufacturing sector, some factories are operating below capacity. But with the ongoing implementation of President Muhammadu Buhari’s policy on diversification of the economy and revatilising the power infrastructure, the sector will pick up and create more jobs for the people.”
Road to diversification
President Buhari had in his democracy day broadcast on May 29, said the economic misfortune facing the country due to low crude oil prices has equally provided it with an opportunity to restructure the economy and diversify.
“We are in the process of promoting agriculture, livestock, exploiting our solid mineral resources and expanding our industrial and manufacturing base. That way, we will import less and make the social investments necessary to allow us to produce a large and skilled workforce. Central Bank of Nigeria (CBN) will offer more fiscal incentives for business that prove capable of manufacturing products that are internationally competitive. We remain committed to reforming the regulatory framework, for investors by improving the ease of doing business in Nigeria,” he told Nigerians.
Already, the first steps along the path of self-sufficiency in rice, wheat and sugar – big users of Nigeria’s scarce foreign exchange – have been taken.
For instance, the Labour Intensive Farming Enterprise will boost the economy and ensure inclusive growth in long neglected communities. Special intervention funds through the Bank of Agriculture will provide targeted support.
Also, the Solid Minerals Minister the minister has produced a roadmap where we will work closely with the World Bank and major international investors to ensure through best practices and due diligence that we choose the right partners. Illegal mining remains a problem and we have set up a special security team to protect our assets. Special measures will be in place to protect miners in their work environment.
The National Economic Team under the Presidency chaired and managed by the Vice President Prof Yemi Osinbajo which also has the Finance Minster, Mrs. Kemi Adeosun as member. The DMO’s Director-General, Dr. Abraham Nwankwo, is also a member of the team. Other members are Ministers of Budget; Trade and Investment; and Information. The team is expected to guide the government to achieve the desired result.
Eurobond sale coming
Beyond the need to diversify the economy, Dr. Nwankwo also said Nigeria may still access the Eurobond or sovereign sukuk market for more cash. He said Nigeria is working out details for issuing a debut sovereign sukuk this year and may also sell a Eurobond.
He hinted that Nigeria had yet to determine the size of a potential sukuk deal and was working with the Securities and Exchange Commission (SEC), the Central Bank of Nigeria and the stock exchange to build capacity.
Besides, Nigeria’s low debt to Gross Domestic Product (GDP) ratio means the country can borrow more to fund budget, infrastructure and other essential projects that will stimulate the economy and create jobs for the citizenry.
Nigeria, reeling from the plunge in vital oil revenues, has set up a government committee to advice on the amount to be raised from the Islamic bond sale, the timing and jurisdiction of issue, either domestic or foreign.
“We are definitely going to issue a sukuk this year. We may also likely issue a Eurobond this year. We are working hard to put together the entire necessary framework,” Nwankwo told Reuters on the sideline of a media briefing.
Budget and infrastructure funding
The DMO boss said the N1.84 trillion deficits in the N6.06 trillion budget for 2016, will be used sorely for capital projects funding. He said this is the only time that such huge amount is allocated and specified for capital projects. “This is the first time that the budget specified that all borrowed funds will be for capital expenditure. The sharing of internal and international borrowing is almost 50/50. We have been borrowing locally, but we have to take advantage of the relatively low cost of funds externally. We do not want to borrow too much from the domestic economy, so that we do not crowd-out the domestic environment,” he said.
He said that given the challenges the economy is going through, much depends on what the media reports. “The media is critical, because what the media tells the international community will determine investment flows into the country. It is our responsibility to continue working hard to ensure the resilience our economy is exhibiting is sustained, until we achieve the turnaround that will come with diversification,” Nwankwo said.
He said achieving self-sufficiency in power will enable government generate more income; companies will be able to pay more taxes, thereby helping government diversify its revenue bases.
“It is possible that in the next five to seven years, the whole picture of Nigeria will be a complete turnaround because of government’s economy diversification plan. The difference between Nigerian and other countries facing similar economic challenges is that those countries do not have the same opportunities we have in Nigeria. Nigeria is near 100 per cent idle capacity, meaning the flexibility to grow the economy is high,” he said.
He urged Nigerians not to be depressed because of drop in crude oil prices. “We have no reason to be depressed just because crude oil price is down. We have to see the varieties of opportunities available for the country to grow the economy based on a well-diversified and sustainable manner. We as responsible stakeholders in the economy, should emphasise these opportunities,” he said.
“Indeed in other countries, the major source of revenue is taxation. Taxation should also be explored. Government should be able to sustain itself with taxation revenues. Now with the better tax compliance, and effective sanctions for defaulters, we have a room to boost public revenue from taxation,” Dr. Nwankwo stated.
Finance Correspondents Association Chairman, Babajide Komolafe, praised the efforts being made by the DMO to support government’s diversification effort. He said the role of DMO in economic development cannot be over emphasised. He said that FICAN will continue to support the DMO to achieve its goals within the economy.