The Chief Executive Officer of Financial Derivatives, Bismarck Rewane, has said that although Nigeria is moving in the right direction in the form of economic reforms, the progress that is being made in the economy is too slow for any celebration to be ongoing at the moment that the economy is improving,
Rewane said this in an interview with ARISE NEWS on Friday, where he also spoke about the Windfall Tax, saying that while it is beneficial, there is a lack of trust in the government to implement this tax as the people have not seen the results of previous taxes that were implemented, as they were, according to him, either squandered, leaked, or stranded.
Addressing Nigeria’s economic issues, Rewane said, “I think that there’s a misunderstanding of certain issues that we need to address. One, what’s the state of the economy? Two, how do we fix it. So, let’s first of all start by looking at the economy, the couple of things that we need to know. Inflation has dropped marginally to 33.4%, but it is still way higher than what we call the natural rate of inflation. The GDP has grown by 3.19%, but if you drill down, you find out that actually, of the 46 activities that are monitored, only 10 expanded, that means 24% of the activities expanded, while 75% actually contracted or slowed. So, don’t bring out the champagne glasses yet. Yes, we are moving in the right direction, but too slow for it to be material, but it’s good that we are moving in that direction.”
Rewane then spoke on the windfall tax, saying, “The revenue and the windfall tax is not peculiar to Nigeria, it has been used in many places- as high as 90% in Germany and as low as 33% in the United Kingdom, that is true. Our tax to GDP ratio is very low compared to 25% in South Africa, but it used to be 4 or 5%. The question is that- what have you done with the revenue? Because there are two things in macro-economics, one which is called the multiplier. So, you have the government multiplier, and you have the private sector multiplier. There’s evidence to show that the government multiplier is much much lower than that of an investment multiplier by the private sector.”
However, he explained the misgivings that people may find with the implementation, saying, “The truth is that the total forex gains came to about N1.4 trillion, while the forex losses is about N1.7 trillion. So, net-net on the forex activity, there’s a net loss of N300 billion to the economy, that’s one. Two, psychologically, people do not, they’re not encouraged, there’s no incentive to pay taxes if you cannot account for how the taxes of yesterday were used. So, there’s a trust deficit, and there’s also a management problem, capacity problem that when the taxes come in, they’re either squandered, leakages, or just stranded. So those three things give you what they call a negative multiplier.”
Rewane then said, “What are the broad macro-economic goals of this country? We said way back that we wanted to be among the top 20 economies in the world- at that time we were number 26, today we are 32, so we’ve actually worked our way down the ladder of success. Two, we said we want the economy to be a $1 trillion economy, in fact, we had $384 billion, so we need to kind of double it, actually, 200% growth in the next 4-5 years, that’s not going to happen. We say we want to insulate the economy from exogenous shocks, you now know that actually, as we integrate with the rest of the global economy, we are facing those shocks.
“Now we have a debt problem, we have a poverty problem, and also more than anything else, we have a management problem. That’s the position. But the longest journey in the world starts with the first step. The steps of reforms and policy changes does not on its own transform an economy. It has to be backed with the institutional reform, and you have to have a clear goal.
“The goal of revenue and the goal of growth and investment, they are reinforcing, but they are not binary. The obsession with revenue, which is where the tax- you cannot run an economy just on revenue, but you cannot run an economy without revenue. The investment led strategy- that is the focus of this economic management. Investment is a function of confidence. Confidence is a function of not what you say, but what you do. As long as what you’re doing and what you’re saying are in contradiction, then you’ll have a problem.”
Ozioma Samuel-Ugwuezi
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