The Central Bank of Nigeria (CBN), after its Monetary Policy Committee (MPC) meeting declared that hard time awaits Nigeria’s economy, saying the Federal Government targets N66.1bilion revenue from stamp duties. Olu Ajakaiye, a professor of Economics, past President, Nigerian Economic Society and the Chairman, African Centre for Shared Development Capacity Building, speaks on CBN’s assessment of the economy
The CBN said that hard time awaits Nigeria’s economy. Does it mean the economy is going to collapse?
The CBN is showing true assessment of our economy, as Nigeria is still import dependent. We depend on import for production and consumption goods, so the capacity to produce is adversely affected. Now manufacturers need import of capital and intermediate goods to produce. Also, traders are making consumption import dependent. Most items you buy in the markets are not produced in Nigeria, but the economy will not collapse since we still depend on informal trading and agriculture up to 60 percent.
Government targets N66.1billion from stamp duties on deposits of N1.000 and above . How do you see this method of taxation? This type of policy can affect the cost of finance services. For instance, getting loan now requires high interest rate, so with N50 stamp duties on deposits, the interest rate may increase, because banks will still pay Valued Added Tax (VAT) on what they collect. So, imposing stamp duties will increase the cost of finance services on what producers pay. The positive side is increase in revenue generation for government to reduce borrowing from external sources. But on the whole, it is an empirical question.
The forex crisis is still persisting, as CBN said Bureau de Change (BDC) operators must get forex from autonomous markets. What is the economic implication of this for small scale producers?
CBN is trying to conserve forex, in order to boost production. The thinking is that when you conserve forex and make it available for domestic production, it will help government to create jobs. But, we must not forget that the BDC have a role to play in making forex of small amount available to producers for urgent needs. For example, if a manufacturer is on the production process and a machine breaks down, he can quickly get forex of small amount from BDC to repair the machine without waiting to carry out all the processes of getting forex from the official window. Therefore, if the official window can’t meet such emergency need and BDC is completely removed, the flexibility for small amount will be a challenge.
In that case, why is CBN restricting BDC from accessing forex from its official window?
The argument now is that BDC operators have moved away from that primary role of providing small amount of forex to producers into other areas not acceptable to the apex bank. For example, BDC getting forex from the official window market and selling to people who do not use it for the intended purpose of enhancing production. Now, what the CBN can do is to make arrangement for manufacturers who need small amount urgently to access it without waiting for the processes of getting forex from official window. The apex bank must provide a window for such emergency need of producers.
If CBN cannot provide a window for emergency need and manufacturers are compelled to patronise BDC operators who will now source forex from autonomous market, it means exchange rate for manufacturing may be higher than what they obtain from official window. So, manufacturers will use that forex from BDC to set their own prices from the higher rate, instead of setting prices on the lower rate of forex from official window.