By Omoh Gabriel
Lagos Chamber of Commerce and Industry, a body of the organized private sector and the oldest in the country yesterday took a swipe at the 2012 budget saying it was not what the private sector expected and that the budget’s proposition on the tariff reviews poses risks for the economy and the welfare of the citizens. The risk it said include worsening the poverty conditions of Nigerians as the price of the two major staple foods, rice and bread, will increase considerably; Smuggling of the products, especially rice will increase; Nigeria ports and maritime sector players would lose business to the ports of neigbouring countries; new incentives for corruption in the customs will be created and loss of revenue to government while there would be serious social consequences arising from the discontent by the poor.
A statement signed by the Director General of the Chamber Mr. MUDA YUSUF said “The expectation of a major restructuring of the budget turned out to be misplaced because it did not happen. The numbers did not show a significant paradigm shift. What was presented was only a marginal reduction in recurrent budget, which was reduced from 74.4 per cent to 72 per cent of the total budget compared to 2011 budget, a mere 2.4 per cent reduction. This is not a significant reduction”.
The Chamber said “In an economy that is in dire need of infrastructure investment, committing 72 per cent of the budget to recurrent spending would not promote the cause of economic transformation. And going by the record of budget implementation, performance of recurrent budget will be much more than that of capital. Therefore, the portion of the budget that would go to capital spending may even be less than the proposed 28 per cent.
The allocation of N161.4 billion to power sector, which is a paltry 3.4 per cent of the total expenditure, is inadequate. This allocation contrasts with that of security which is N921.9 billion or 19.4 per cent of the total expenditure. It is evident that the government is no longer inclined to invest in hard infrastructure in the power sector. This is a major shortcoming of the budget. The appalling state of the power sector is the biggest challenge facing the economy today. It is true that the power sector reform has heightened expectations of increased private investment in the sector, this should not mean a complete abdication of responsibility in the provision of power supply to the citizens.
“There cannot be any transformation without a dramatic improvement in the power supply situation in the country. While it may be impossible for the government to do this alone; it would also be impractical for the private sector to do it alone. Public investment has to complement private investment in the provision of this critical infrastructure. There is a risk in leaving the fortunes of the power sector entirely to the optimism of private sector investment. We need to be cautious in our optimism. It would be a major error of judgment to think that the experience of the telecommunications sector would be readily replicated in the power sector. The risks, challenges and complexities of investment in these two sectors are considerably different”.
According to Lagos Chamber “The rising cost of debt service is of grave concern. In the 2012 budget, N560 billion was earmarked for debt service. This is high when viewed against the backdrop of the other national priorities. The opportunity cost of committing such huge sums to service debt is substantial. We agree with President Jonathan that there is a need to check the soaring debt profile of the country, especially the domestic debt. But practical steps should be taken to stem the tide. Rising debt profile also results in crowding out of the private sector in the credit market. Current experience is that the banks would rather invest funds in treasury bills and bonds than lend to entrepreneurs, especially the SMEs. This has been a major constraint to credit access by entrepreneurs. Clearly the current debt profile is not sustainable”.
“The budget” the body of business men said “proposes a tariff review on wheat flour to 100 per cent from 1st July 2012; while wheat grain will move up to 20 per cent. Similarly, the duty on polished rice will move to 50 per cent, and by December 2012 it moves up to 100 per cent. The proposition is that with this policy the citizens will patronise locally produced food products. But there is a need for caution! Protectionist policies work better if there is critical mass of investment in local capacity to fill the supply side gaps that would be created by such policies; and where there is institutional capacity to enforce compliance. Otherwise, the policy proposition on the tariff reviews poses the following risks for the economy and the welfare of the citizens: Worsening the poverty conditions of Nigerians as the price of the two major staple foods, rice and bread, will increase considerably; Smuggling of the products, especially rice will increase; Nigeria ports and maritime sector players would lose business to the ports of neigbouring countries; New incentives for corruption in the customs will be created; Loss of revenue to government; There would be serious social consequences arising from the discontent by the poor.
It said that “Increasing tariff on staple foods is a very delicate and risky thing to do especially in a country with ravaging poverty and major crisis of unemployment. This is also coming at a time when the government has taken a decision to completely deregulate the downstream sector of the oil industry. Focus of policy for now should be on building competitiveness of the agricultural sector through robust incentives to investors in the sector. Lessons should be drawn from the outcome of similar policies in the textile sector. In order to expand the space of discussion on the budget, we suggest that there should be a public hearing on budget. This would provide an opportunity for stakeholders in the economy to ventilate their views on this important issue and make the budgeting process more democratic and inclusive”.