By Ayo Fadimu
The 2018 Budget tagged “Budget of Consolidation” has important provision aimed at reinforcing and building on the recent accomplishment of exiting the economy from recession.
The policies of the government are geared towards improvement in the ease of doing business, diversification of economy from oil and improvement of the nation’s infrastructure. All these are vital to the growth and development of the manufacturing sector.
Although, the unfolding oil price scenario and the consequent exchange rate depreciation, there would be pressures on production and operating costs across sectors, manufacturing sector inclusive.
However, the President of Manufacturers Association of Nigeria (MAN) Dr Frank Jacob advised that for the budget to be effective there is need to sustain expansionary policy stance while ensuring a sufficient synthesis of monetary and fiscal policies. By implication, lending rate should moderate through development windows while taxes and levies should either drop or remain unchanged through incentives.
In the table below are the assumptions of 2018 budget:
Table 1: Key Assumptions of the Budget
Indices 2017 Budget 2018 Budget
Benchmark Oil price US$42.5/barrel US$45/barrel
Oil production 2.2mbpd 2.3mbpd
Exchange Rate N305/US$ N305/US$
Real GDP growth Rate 2.2 3.5%
Inflation Rate 15.74 12.4%
Source: Extracts from Mr. President’s Speech
On its part, the Lagos Chambers of Commerce and Industries (LCCI) opined that the fundamentals of the economy are improving with numerous opportunities and potential. Crude oil prices and output levels have recovered, foreign reserve is improving, and inflation is on a steady decline. It is expected that these impressive outcomes will be sustained into a better part of 2018.
Cost of Production:
As a result of the import dependent character of the economy, the sharp declines in exchange rate will naturally push up the operating cost of enterprises in the economy. Many firms are already feeling the heat across all sectors. According to Yusuf, dependence on Alternative power supply as well as problems of infrastructure deficit being confronted by many industries will also increase the cost of production of many companies.
Ease of Doing Business
Nigeria moved 24 places in the World Bank Ease of Doing Business ranking from 169 in 2016 to 145 in 2017. The report covers190 countries and focuses on the ease of doing business reforms effected by government to improve business activities.
Nigeria Ranking on the World Bank Ease of Doing Business
Topics DB 2017 Rank DB 2016 Change in
Ease of Doing Business 145 169 +24
Starting a Business 138 139 +1
Dealing with Construction Permits 174 175 +1
Getting Electricity 180 182 +2
Registering Property 182 181 -1
Getting Credit 44 59 +15
Protecting Minority Investors 32 20 -12
Paying Taxes 182 181 -1
*Trading Across Boarders (Ports) 181 182 +1
Enforcing Contracts 139 143 +4
Resolving Insolvency 140 143 +3
Distance to Frontier (%) 44.63 44.69 +0.06
Source: World Bank Ease of Doing Business Report – 2017
Nigeria is expected to improve in ranking in the World ranking in the ease of doing business. This is expected to attract higher Foreign Direct Investments (FDI) into the country.
Inflation is expected to be around 13%.
The way forward and manufacturers’ expectations in 2018
In consideration of all the above, it is obvious that the manufacturing sector is precariously at the epicenter of directly bearing some of the impact of the 2018 budgetary provisions. No doubt, some of the provisions of the budget would be very important in supporting economic activities in the coming year. The huge emphasis on infrastructure development, especially power and road infrastructure is an important trend. However, for the “Budget of Consolidation” to achieve the desired objectives with minimal negative impact on the manufacturing sector, it is important that Government considers the following specific and broad enablers:
- The need for the nation to be extra cautious of its rising debt profile in view of the associated service charges and the future economic burden that this will exert on the nation.
- Review the CIT downward from the current 30% to about 20% with targets for employment of Nigerians to technically reflect the prevailing operating environment and economic situation of the country.
iii. Look inward to further cut-down on Government recurrent expenditures. This will help reduce the huge fiscal deficit which will in turn reduce both domestic and external borrowings and the associated service charges.
- Deliberately shed the current borrowing size of the Government in the domestic financial market so as not to completely crowd-out the private sector.
- A) Foreign Exchange
Better exchange rate management – Forex allocation to tilt more to the industrial sector including the SMEs;
- B) Borrowable credit
Recapitalize Bank of Industry (BOI) and operationalize the Development Bank of Nigeria (DBN) as earlier contained in 2017 budget.
- C) Development of local raw-materials
Accelerate action on the resource-based industrialization programme adopted by the Federal Government through deliberate funding and creation of enabling environment.
Fast-track the development of key selected mineral resources through backward integration especially those with high inter-industry linkages.
- D) Development of infrastructure
Resuscitate domestic refining of crude oil in the country.
Support the efficiency of the Generation, Transmission and Distribution companies.
Ensure the operability of Independent Power Producers (IPP) for On/Off grid power generation and the Micro Grid Initiative.
Encourage energy mix in the country; solar, wind and bio-gas energies should be explored.
Re-classify the Manufacturing sector into strategic gas users from the current commercial gas users classification.
Rehabilitate existing key road network across the country.
Accelerate further commitment to the development of the rail way system.
Engage in Public Private Partnership (PPP) programme through the establishment of Concession Agreements under Built-Operate-Transfer (BOT) in road construction and maintenance, rail construction and maintenance with credible organizations.
- E) Export Incentives
Properly implement the new Export Expansion Grant (EEG) including defraying the outstanding debts;
- F) Tax Issues
Commence the implementation of the harmonized taxes and levies project for which we had suggested should be monitored strictly by the Joint Tax Board (JTB) with a view to enforcing compliance by states and local governments.
Expand the tax net to increase Government IGR and not to increase tax burden on the already tax compliant businesses.
- G) Address trade malprac-tices such as smuggling and fake/counterfeit products by
Thoroughly enforce extant laws on smuggling, importation of counterfeited and adulterated products by the Nigerian Customs Service (NCS).
Engage/train more Customs personnel to tackle the challenge.
- H) Patronage of ‘Made-In-Nigeria’ Products
Effectively enforce the Executive Order 003 by the Federal Government on patronage of made in Nigerian goods by Ministries, Departments and Agencies (MDAs) of the Government.
Create a sustainable platform through which Nigerians will be conscientized on the need to jettison the current penchant for foreign goods and patronize locally manufactured products.
- I) Research and Development
Further support the various research institutes in the country and ensure the commercialization of their research results. A more focused research effort and a broader approach to the commercialization of research results would payoff.
- J) Petrochemical Development
Strong support for the development of petrochemical industries in the country. The industry is a critical rawmaterials source for manufacturing, agriculture and other sectors.
Businesses-driven by government patronage are likely to experience boost in 2018 given the current government revenue outlook. Capital projects of governments will increase drastically and this would improve some segments of the private sector. Many capital projects are expected to be funded in 2018 . Generally, government contractors would experience a higher patronage in 2018.
Transportation Infrastructure: The 2018 Budget capital allocation to Transportation is N263.10 billion. This proposed budget is encouraging especially if properly and religiously utilized. Evidence has shown that industrialization goes with well-developed rail system, priority attention should therefore be given to the development of rail infrastructure in the coming year. There is also the need for the development of inland waterways and the various ports across the country. Dredging of the various ports outside Wharf and Tincan in Lagos State would diffuse the over-floating activities in these Lagos ports and lower the cost of moving goods from ports to the factories especially the manufacturers
Solid minerals sector
The development of the road map for the solid minerals and metals sector is to take full advantage of the rising international and local commodity prices and the global resurgence of exploitation and exploitation activities with attendant huge investment in the sector.
In 2018, there is need for a roadmap that will chart the way for the country to attain its economic, social and environmental objectives through sustainable exploration and exploitation of the nation’s vast mineral endowment.
The exploration and exploitation of Nigeria’s available solid minerals resources is an important component of a diversified economy, a desired outcome of Nigeria’s economic transformation, strategy and one of the policy priorities of the Federal government.
The Ministry of Mines and Steel Development has been a major stimulus to the Nigerian mining industry. Several factors are currently in place to stimulate the sector which includes:-
Improved geological Information on the diverse metallic and nonmetallic mineral potential.
The national solid minerals policy offers a competitive environment for solid minerals development. The availability (on the International technology market) of low cost mineral production processes which if properly sourced and assembled..
The roadmap focuses on the exploration, development, exploitation (mining and processing) and marketing of the mineral resources/minerals commodities of the country.
Proper implementation of Nigeria’s minerals and metals sector would among many other things:
- Contribute at least 10% to the nation’s GDP by 2020,
- Create about 3 million direct and indirect jobs in 2018.
- Create wealth for our citizens.
- Produce needed raw material for the manufacturing sector/ the construction Industry.
- Earn foreign exchange for the nation through export of mineral commodities and metals.