President Bola Tinubu is very passionate about job creation and knows that industrialisation is one major way to get going. That must be why he has been on the road or in the air but definitely not in a presidential yacht (apologies to the Navy) to solicit foreign investments, even from countries that are not highly industrialised. He is in the forefront of the team soliciting assistance to make potential investors know the importance of foreign investments to Nigeria’s economic growth at this crucial time in the history of economic crisis of the country. He is acting as the Commander-in-Chief of the industrial forces, if that exists.
However, it is sometimes important to be looking back when moving forward except in a relay race. We do hear of and probably see de-industrialisation in the local economy due to some stringent policies, wrong policy implementation and harsh production environment. Many small and medium scale businesses and even the big ones deserve some forms of subsidy to be able to keep their prices at affordable level for consumers whose real income values are falling almost daily, resulting in adjustment and readjustment of what they purchase and what they consume.
One of such subsidies was the suspension of VAT on diesel with the hope of keeping production prices low. There is the need to monitor whether the policy is achieving its objective. Some state governments feel they have to shore up their revenue by imposing more taxes on local businesses. When those businesses know that all they are working for is to pay taxes, they will cut output and, by extension, cut jobs. The lower outputs result in higher cost per unit and something has to go, which is labour. It is not only foreign businesses that are qualified for tax holidays. Subsidy is not all about giving money; it can also take the form of granting production relief to keep business going.
When businesses are taxed, they try to pass the burden onto the consumers in the form of higher prices. How much of the tax that can be passed on depends on the product’s elasticity, nature, and how important the product is to consumers. If the product is a necessity or has no close substitute, the producer can transfer a large proportion of the tax; otherwise, it bears the brunt of the tax. This is the case with most businesses and this can lead to their collapse because citizens can do without their products or can get alternatives from imports.
Under the kind of stress Nigerian businesses are going through today, the government must assist them to stay afloat so that they can keep their present employment level and be able to provide the desired revenue in the future. One way of keeping businesses afloat in bad times is to deliberately reduce or remove taxes or other levies. The states may copy the Federal Government’s decision to remove VAT on diesel by providing their own subsidy in like manner or in another form. That could prevent the businesses from moving to another state or japa and move business to a more business-friendly country.
Some of the factors that promote investment choices in Nigeria are the past performance of business stock, dividend policy and expected corporate earnings. These factors actually relate more to the big businesses that are listed on the stock market. The micro- small- and medium-scale businesses as well as a large number of large businesses are not listed on the stock exchange. Whether they are listed or not, all businesses are affected by the operating environment which is expected to be provided by the government.
One of the environmental factors is the government’s behaviour in supporting industries or business through subsidy, which is not about giving them physical funds but debt relief, tax relief and penalty relief. Such forms of relief not only encourage the businesses to increase their outputs and incomes as well as create employment but also promote the establishment of new industries, leading to unleashing the growth potential of the economy. The government should therefore execute policies that will encourage growth rather than focus attention on revenues from taxes.
Factors affecting foreign direct investment include tax rates, exchange rates, labour skills, wage rates, transport and other infrastructure and potential for growth in the economy. Before foreign investors finally settle to establish businesses in any country, they carry out some investigations into such country’s policies. From the investigations, they will be interested in what the tax rates, exchange rates and wage rates are directly while available international statistics will provide information on such items as labour skills and infrastructural development. It might be important for some states that have the potential to attract foreign investments but are unable to get such investments to check their tax policies, wage rates and level of road infrastructure.
The Federal Government’s efforts at mobilising foreign direct investments can become successful if it takes care of domestic investors or the survival of domestic investments. The domestic investors, while we can see them as possible antagonists to the coming of foreign investors whom they could see as competitors, are often the first sources of information on local production environments to the foreign investors. So, when they complain about multiple taxation, infrastructural deficiencies and others, the foreign investors are discouraged. It is expensive to set up businesses, so all information is assessed before final decision is made.
Given the factors enlisted above for foreign investment, the governments (federal and states) would see the need to enhance income of the people to create effective demand which is desirable for the attraction of new investors. Sustainability of the prosperity of domestic businesses is one sure way of keeping peoples’ incomes and their demand capability intact.
Of course, the financial sector also has major roles to play in terms of credit availability to local businesses. The monetary policy of the Central Bank of Nigeria should be expansionary but with the credits channeled directly to producers at relatively cheap rates. However, the bank should not act as a retail bank as it did under Godwin Emefiele but route the credits through the banks, including the Bank of Industry, Bank of Agriculture and Bank of Commerce and Industry. The CBN then provides the appropriate supervisory role.
There is also the need for important reforms in the financial system now to promote financial inclusion that actually covers cooperative societies and microfinance businesses. The desirable consolidation exercise carried out in 2004 by the CBN under Professor Charles Soludo as the governor erroneously removed the consideration of the cooperative societies for fund. There is the need to revisit the policy for further consolidation of capitalisation of the banks but with some caveats for some medium-sized banks that will take care of MSMEs. The present microfinance banks are run like commercial or deposit money banks. So, a banking reform that promotes financial inclusion, particularly for the benefits of the MSMEs, is imperative currently.
Actually, in attracting foreign investors or foreign businesses, the government should not ignore the foreign businesses of small and medium enterprises, just as the government should not be oblivious of the fact that Nigeria does not need too many capital-intensive industries as employment generation is also important.
