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6 BUSINESS A.M. FEBRUARY, MONDAY 12 - SUNDAY 18, 2018 EDITORIAL ore role, role ible. will ing ghts ness op- ; an tion f its ata hilst and ore ble, onwill the new l) as ice. eing ny’s business a.m. 87, Oduduwa Crescent, GRA Ikeja, Lagos, Nigeria. Tel.: +234 907 986 3875 Email: Website: The FIRS property evaluation and assessment At some point we think that government and business will need to find a way to work together for the good of this country. This is because for as long as anyone could remember, there has been no love lost between the Nigerian government and business. Government after government, the story has remained the same that those who are at the helm of governance either misunderstand business or deliberately choose to misunderstand business. We think that this position is borne out of the fact that politicians think and believe strongly that politics trumps every other thing because it places them in the position of power and nothing else matters. But this is far from the truth. Politics are for winning elections. Governance is the act of delivering on promises made during campaigns. And delivering on campaign promises is largely a function of political economy management, which necessarily involves creating an enabling environment for business to thrive so that they can create the jobs that politicians promise during campaigns. For indeed, the truth is that politicians do not create jobs anywhere in the world as government jobs are not the real job creating opportunities real politicians talk about when they talk about jobs. Politicians enable business to create jobs by making it possible for business to operate by not been obnoxious through their policies and actions that could stifle the space for growth and wealth creation that business is better placed to help politicians deliver. While we agree that Nigeria has suffered from a hangover on its now diminished oil wealth and government is doing everything possible to correct the mistakes of the past, we are of the view that it is not carrying business along. This attitude is historical and it is a behaviour which is not appropriate for correcting past errors. Policies must be tested on a cost-benefit basis and they must offer serious consideration if, against the backdrop of positive intention, they are found to be the wrong antidote for the infractions they are purposed. The Federal Inland Revenue Service (FIRS) is trying very hard to pack many life times of failings by Nigerian governments into a capsule of time as if it is launching a rocket into space. In this drive to raise additional revenues for the country, it appears to have entered an area that is now causing serious discomfort to business and for which we think that there is need for an urgent review. The FIRS has introduced a property valuation and assessment programme, which business, represented by the Organised Private Sector, is up in arms against. It would seem to us that the FIRS in its search for places to eke out revenues has not considered it necessary to consult with business about this new programme. The OPS says the exercise involves revaluation and reassessing of properties in which its members do business for the purpose of imposing new taxes on them. It says this poses a threat to the continued existence of many of them. They claim this represents double taxation and they even claim it is an illegal act because it is not backed by law as the part of the law the FIRS says it is relying on no longer exists; it has been deleted. The tax man is feared all over the world. He is not feared in sane environment because it does not take the law into its hands. It is feared only when you fall foul of the law. This must not be different in this country. The OPS makes a lot of sense in their argument for which the FIRS should consider. They say, for instance that: · Section 30 of the Companies Income Tax Act from where the FIRS purportedly derived its power for the exercise is no longer in force, pursuant to its deletion by section 12 of Companies Income Tax (Amendment) Act 2007. · There already exists a plethora of property valuation-based taxes in Nigeria. The Land Use Charge payable in Lagos State, which is being replicated across the country, is based on property valuation. The governor’s consent fees payable on alienation of interest in property across the country is based on property valuation. Capital Gains Tax payable on disposal of property is somehow influenced by property valuation. Rent payable on lease of real estate property is subject to withholding tax deduction. · The properties of its member companies were also subjected to valuation pursuant to the provisions of the Companies and Allied Matters Act (CAMA) Cap C20 Laws of the Federation for the purposes of companies’ annual accounts leading to payment of tax on their profits. We align with these arguments and think that there is still a whole lot of confusion around the kind of federal system that we operate, where there seems to be eagerness to over duplicate punishments in the name of chasing taxes. Path to economic transformation KINGSLEY MOGHALU Moghalu is a former deputy governor of the Central Bank of Nigeria. When we vote to select our leaders, we must remember that these three issues are the ones that really matter for our welfare. It is not, as many of us are led to believe, falsely, ethnicity, religion or other primordial considerations (“na my broda”) With economic growth of 0.55 percent in the second quarter of 2017 Nigeria seems headed out of its recession, the worst it has experienced in 25 years. Make no mistake, however. That is only recovery in a technical sense: a recession technically happens when Gross Domestic Product (GDP) growth in an economy is negative for two consecutive quarters. This growth was driven by the oil sector, not the real economy, and remains fragile. If we continue to record positive GDP growth, even from our current very low base and no matter how small this growth may be, we will have started recovering from recession — technically. No doubt, some of our leaders will flaunt such a meager performance as evidence of progress. Make no mistake also: we have suffered economic destruction on a massive scale in the past two years. From a GDP of $568.5 billion in 2014 we are down to $406 billion in 2016 — and that is if you are using the official exchange rate of about 305 Naira to the dollar. If you calculate with the parallel market rate of N366 to a US Dollar, our GDP today is well less than $300 billion. That is a massive erosion of our national wealth. Foreign investment into Nigeria was $5.16 billion in 2016, the lowest in seven years. That figure was $9.6 billion in 2015, and $20.75 billion in 2014. This means that we have had more than a 75 percent decline in foreign investment into our economy between 2014 and now. Why did all this happen? And what should we as Nigerian citizens do about it? This massive economic contraction has happened largely as a result of cumulative bad political leadership. We know, of course, the story of the sharp decline in oil prices starting from 2014, which is a major factor. There are two other important factors. The first was the depletion of the Excess Crude Account by the Federal Government and State Governments that insisted on drawing down from the account, from about $22 billion in 2007 to approximately $2 billion as of December 2014. This left our country with no protection for the rainy day as oil prices began to decline in late 2014. We therefore had no fiscal buffers to help us defend our economy from the implications of the oil price fall for the naira. The value of the naira depends on external reserves built on the back of crude oil price sales that bring in more than 90% of our forex earnings. The second factor is that of weak economic management by the present federal government. The government refused to make the necessary policy adjustments and has instead gone on a borrowing spree. We have increased our external borrowing by 46 percent (from $9.46 billion to $13.81 billion) in the past two years. We now spend over 60 percent of all our revenues, weak as they already are, on debt servicing. We are where we are because of wrong political decisions that have prevented us from achieving real economic development. From the very nature of Nigeria as a petrostate on fiscal life support from crude oil sales for nearly 50 years instead of creating a productive economy with diversified streams of forex income, to the venal depletion of our savings by politicians who insisted, against the advice of technocrats, that we should not save for a rainy day because “the rain is already beating us”, and on to a rigid and statist approach to economic management for political reasons that have served vested interests but not the poor masses in whose name these misnomers were proclaimed as “policy”, our political leadership choices have kept our economy down. The policy response of the present federal government only bred corruption and arbitrage in the management of forex and negatively impacted manufacturing companies, leading to declining output and further job losses. Our nominal GDP per capita, which is the best measurement of the inclusive nature or otherwise of the wealth of nations, is $2,260 as of 2016. That is just 19% of the global average. Our GDP per capita has averaged $1648.26 from 1960 to 2016 (a truly abysmal statistic). You get the picture. Malaysia’s per capita GDP is $9,360; Brazil’s is $8,727; South Africa’s is $7,504 and 54% of the global average. As citizens, we must take our destiny into our hands and take the political actions necessary to ensure that we do not remain a poor country. This means that we must understand that the political choices we make in leadership selection matter a great deal. As I have demonstrated here, the decisions taken by political leaders determine whether we are rich or poor. There are three ways in which this reality matters. First, the primary requirement of leadership is the character, ability and competence to create positive transformations, to lead a people or institution from where the leader meets them to a much better place. Second, an economy cannot make progress beyond the vision, capacity and competence of the political leadership, regardless of how many brilliant technical economists abound in a country. If the political leadership lacks vision, is venal and focused on other priorities, sound technocrats can’t achieve very much. Their full potential contribution will be suppressed by political decisions above them, usually taken in caucuses at night in places that are not offices. Third, the political and constitutional structure of Nigeria affects its economic management, in our case in a very negative manner because the potential productivity of the country’s component regions and states is suppressed by the rent-seeking politics to control absolute power at the center and dispense patronage. This is part of why constitutional restructuring for a true federalism is so essential. When we vote to select our leaders, we must remember that these three issues are the ones that really matter for our welfare. It is not, as many of us are led to believe, falsely, ethnicity, religion or other primordial considerations (“na my broda”). We need to begin to elect competent Nigerians with leadership skills, a clear economic vision, and the capability to make such visions into reality. This is the only way Nigeria can become globally competitive. Some African countries are achieving inclusive growth economies – Botswana, Ethiopia, Mauritius, Morocco, and Rwanda. They have not gotten it right because their elected leaders are angels. Rather, they have made real progress because their leaders are competent. They are competent because they understand how leadership can create a shared sense of nationhood amongst their citizens. They are competent because they understand political economy and economic development at intellectual and practical policy levels. They are competent because they have a philosophical worldview you can identify. As a university professor, one of my favorite reading assignments to students was a powerful essay in defense of industrial policy written by the late Ethiopian President Meles Zenawi. Despite industrial policy having fallen out of favor in contemporary economic orthodoxy, which favors unrestrained free markets and very little state involvement in national economies, Meles insisted, with sound intellectual argument, on his vision of an economy powered by industrial policy in which state guidance is combined with private enterprise to pursue inclusive economic growth. He has applied that vision competently to his country’s economic policy. It is working in Ethiopia. The country has had a growth rate of 8-11% for the past decade, and has one of the lowest rates of income inequality in the world. Leadership. In Rwanda, Paul Kagame has led his country to some interesting outcomes, although the political space remains restricted. Like Meles, Kagame reads wide and deep, and is intellectually curious. He has a clear vision which he has been able to communicate effectively to his citizens, and utilizes performance contracts to ensure effective governance. To paraphrase a popular saying, the problem in our country is that many in power have no ideas, and those with ideas have no power. We once were led by intellectual politicians – the likes of Nnamdi Azikiwe and Obafemi Awolowo – who most of our politicians today don’t read. They are more interested in peddling ethnicity, religion and other primordial factors as their passport to power. Naively drawn in by these sentiments, we are left with the short end of the stick at the end of the day. High poverty and unemployment rates have been our lot. We have had enough. We should have had enough. When we continue to vote these kinds of compatriots into power, we are great accomplices in our continuing poverty. As citizens, we have the power to change our destiny. It is time to understand and to use that power. The path to economic transformation begins in our political choices.

BUSINESS A.M. FEBRUARY, MONDAY 12 - SUNDAY 18, 2018 COMMENT 7 Why good infrastructure governance is key to unlocking Africa’s potential CHRIS HEATHCOTE Heathcote is the CEO of Global Infrastructure Hub (GI Hub), a G20 initiative Infrastructure is crucial to Africa’s growth prospects. It’s also hard to get right. Until now, policy makers have focused on improving access to finance. But a consensus is developing globally that a major factor hindering infrastructure implementation is a lack of good governance and well-planned projects. There’s certainly no denying the need for infrastructure development on the continent, as has been emphasised during the course of Germany’s G20 Compact with Africa initiative. In Sub-Saharan Africa, only 35 percent of the population has access to electricity. Access to modern transport has declined in the region over the past 20 years, and 23 percent of the population still lacks access to safe water. Against this background, it’s understandable that the investment focus over the past 10 years has been on utilities and trying to improve access to electricity and water. For some countries this is a significant challenge. Ethiopia, for example, needs to spend 20 percent of its GDP to meet its electricity Sustainable Development Goals (SDGs) and another nearly seven percent to meet its water SDGs. So, how do African countries attract and retain the kind of investment in infrastructure projects needed to help stimulate that growth? The InfraCompass tool created by GI Hub recently studied infrastructure markets across 49 countries to pinpoint the best conditions for infrastructure delivery and found the strongest driver of investment was the rule of law. There’s a growing realisation globally and in Africa that if you get the governance aspects right, the finance will follow. Get it wrong and the investment will dry up. Getting the governance right also allows for efficient and disciplined planning, which is crucial if a proposed infrastructure project is to be sustainable and contribute to growth and lift people out of poverty. A 2014 study by the International Monetary Fund (IMF) found that increased public infrastructure investment raises output in the short term by boosting demand and in the long term by raising the economy’s productive capacity. The boost to GDP a country gets from increasing public infrastructure investment offsets the rise in debt, so that the public debt-to-GDP ratio does not rise. In other words, investment in public infrastructure can pay for itself and more, but only if it’s done correctly. That’s a big if. We’re all familiar with projects that have turned into white elephants, beset with fraud, waste, and inefficiencies.t Infrastructure is a very powerful engine of economic growth, but only if it’s an economically crucial piece of infrastructure created as part of carefully thought out development plan. If not, a country risks falling into the trap of building infrastructure that does not create growth and which it can’t afford to maintain, which then falls into disrepair. This is known as the ‘build, neglect, rebuild cycle’. It’s why when canny investors, whether they be multi-lateral institutions or private sector players, look at markets they want to understand why a particular piece of infrastructure is necessary, what revenue it will it drive and whether it is affordable. They know it can only be affordable if it’s driving growth by one means or another. This is also why corruption is such a hindrance to economic growth. Consider those IMF multiplier figures again. If you assume that corruption adds a 40 percent ‘inefficiency premium’ to a project, then any multiplier effect evaporates. Instead, the project becomes a drag on the economy. We at GI Hub have found that public-private partnerships (PPPs) can play a valuable role in combatting corruption by encouraging transparency regarding bidding and payments. Where we see countries improving in terms of their corruption indexes, we quite often see PPPs being used to overcome that corruption and to improve levels of transparency. So, how do African countries attract and retain the kind of investment in infrastructure projects needed to help stimulate that growth? EDITORIAL EXECUTIVE EDITOR Phillip Isakpa Tel.: 0809 400 0025 MANAGING EDITOR Steve Omanufeme Tel.: 0802 501 3059 REPORTERS Andy Nssien Ajose Sehindemi Bukola Odufade ONLINE Goddey Odin GRAPHICS Christopher Ikosa _____________________________ Businessnewscorp Limited Phillip Isakpa Steve Omanufeme Amadi Iheukwumere Adedotun Akande Bobby Igwe Tiamiyu Adio Isaac Jayeola 87, Oduduwa Crescent, GRA Ikeja, Lagos, Nigeria. Tel.: +234 907 986 3875 Email: Website:

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