By Juliana Taiwo-Obalonye
Minister of Finance, Budget and National Planning, Zainab Ahmed, at the 65th session of the State House Ministerial Briefing organised by the Presidential Communications Team at the Aso Rock Villa, Abuja, spoke on the newly inaugurated Governing Council, Board of Directors and Executive Management Team of the Ministry of Finance Incorporated (MOFI) and why government wants it repositioned.
Naira redesign is a beautiful idea. But unfortunately, there is no money in banks with long queues at Automated Teller Machines (ATMs). Is the government not worried that this beautiful idea is causing untold hardship on the lives of Nigerians especially in an election year?
On the question, is government not worried about the hardship that redesign is causing. Of course, we are worried. We are not happy that citizens have to queue and struggle at ATMs to be able to get their cash. But this is a temporary situation. Let me just give you an analogy. If you have a wound, for you to be able to heal that wound, you need to be dressed. And sometimes, when you go to the hospital, they put iodine on the wound and it is very painful. It is necessary to do that to be able to get the wound to heal. So, it’s not easy. Mr. President is not happy that citizens are suffering. But we are convinced that it is something that needs to be done at this time and also the Central Bank has been responsive in terms of providing some extension and also further explanation that come the closing date, that it is not all over. There is still opportunity for citizens as provided for in the CBN Act, Section 20 subsection 3 to actually take the old currency to the Central Bank for redemption. So, it’s not all over. But the positive side of it is that there is a lot of currency that has been mopped up by this operation. And it means it has achieved a good level of success but the only sore point is the pain that it has caused to citizens which is regrettable but which is also very transient and temporary and the bulk is continuing to address.
What’s Government reaction to Moody’s downgraded rating
I want to also say that the Moody’s report or downgrade came as a surprise to us. Because we had presented all of the works that we have been doing in stabilizing the economy.
But these are external rating agencies that don’t have the real understanding of what has happening in our domestic environment.
The reasons they gave also are very practical ones. They said even though oil production has been restored, there is still a chance, a high risk that there could be a relapse to the production levels.
Secondly, they also said that they are concerned that our debt service to revenue ratio is high. And even though their assessment is that we’ve been able to pay off our debts in the medium term, they have confirmed that we have the capacity to pay our debt but that it is eating too much of our revenue and they flagged that as a high risk.
Third major reason is that our management of foreign exchange is still quite problematic in the sense that industries operating in our country are not able to get the Forex requirement to meet their business needs.
So these are practical things. We had explained to them what we’re going to address each of these three pockets of major challenges they reported.
But at the same time, we’re also going through a rating review by S&P Global. So yesterday (Wednesday) S&P Global sent us a notice of what they will release; S&P’s assessment is not the same as the assessment of Moody’s.
They have come out with a much better assessment to argue. They are global rating agencies, they have different views and different operations. S&P’s rating will be released tomorrow (last Friday). It is a much better one than the Moody’s.
Our debt as at last October, we understand was about $716 million, what are you doing to push this down a bit before the next administration?
The question on the judgement debt. So, the judgement debt is very large. We had gone to the Federal Executive Council with the batch of judgement debt and the council had reviewed it and committed our reports to a special committee of Cabinet and the cabinet committee is still working to make sure that whatever we’re committing to pay is the right thing to do, including making sure that these judgments actually exist, that they were properly carried out. And there is an obligation on the side of government.
The National Assembly after the budget passage actually raised concern about the revenue generation and tax waivers granted some companies especially as they say they’re going to look into the books of the ministry to ensure that companies not deserving of tax waivers are pulled out. What is the ministry actually doing to ensure the right people are given the tax waivers and especially to small medium enterprises? What package do you have to ameliorate the negative impact of the economy on small medium enterprises in the country and lastly, about luxury and property tax. Are you considering this particular form of revenue generation and especially with regards to so many buildings unoccupied in FCT and major cities? What are you doing about luxury tax and property tax?
On tax waivers, waivers are an issue that we ourselves reported to the National Assembly because we report the size of the tax waivers on an annual basis and we told them what we’re also planning to do. What we said is that we’re working on reviewing the various sheet of incentives that we have for enabling business today. And the broad objective is to exit the incentives that are dated. We have some for example Pioneer status incentive that has been on since 1984, or something like that for companies that are listed as I don’t know whether the right word is startups or new companies. But these are companies that are now very old and matured and they’re still enjoying it. So we plan to exit but as you know, government policy is not something you do like make a switch. It has to be planned. You have to make sure that the incentives that are already given out there mature and that you are not changing the rules in the middle of the game. So what we are going to move to is moving these incentives to new and infant industries, largely that will be the new IT, digital companies, startups that we require for the economy to grow.
So there’s a review process and as you know, on the fiscal side, we are implementing these waivers that we agreed to be provided. But we’re also the ones saying this is too high but we have colleagues also at the trade side that are saying we need this incentives for businesses to come in and to grow. So it’s not really an easy decision to take but it’s something that has to be worked through. And the work has already started.
On what we’re doing to protect MSMEs, you will see that even in providing incentives during the COVID that MSMEs were the major target, we try to protect various clusters of the initiatives under the ESP government implemented. Provided in the finance bill are special tax reductions to support MSMEs and these are zero waivers for companies with a turnover of N25 million and below and reduced tax rate from 30 to 20 percent for companies that returned over between N25 million to N100 million. So these are the MSMEs that form a largest base of our economy.
Our economy is still driven largely by the informal sector. About 60 percent of the contribution of the economy today is from the informal sector. So we need to do all we can including making it easy to register, making it easy to get permits and licenses, improving the ease of doing business so that these small enterprises are formal, so when you have financing, they can access it. When you have interventions they can access it and also so that they can grow and employ people and expand their businesses.
On luxury tax, this is also something on the table. We have in fact completed some aspects of it in the finance bill that is currently work in progress.
On property taxes, property taxes are that of states and the FCT, so it’s not within the purview of the Federal Government.
You mentioned earlier that the problem with the Naira redesign is transient. People are feeling very impoverished. There have been some suggestions that the old and new notes can co-circulate. Are you in agreement?
On whether the old and new notes should coexist, the monetary authorities will be in the best position to make that decision. So the monetary authorities will take that decision; the ministry of finance is represented on the board and in the monetary policy committee, so we’ll have to wait for their own process to come out. I’m not making any pronouncements directly.
What is the level of supervision you have over the activities of the Central Bank of Nigeria, because there’s an impression out there that to a large extent, your office and the the ministry are not very much involved, especially the formulation of this kind of monetary policies that we have seen to be that has inflicted so much hardship on Nigerians. And perhaps if your ministry was involved, there are some factors that you would have considered before allowing the CBN to take these kinds of steps that don’t seem to favour a lot of people.
The ministry of finance is represented by the Permanent Secretary of Finance on the board of the Central bank. The Central Bank was not in place between April 2022 and I think is about just one month or so ago that the board was put back in place. So the board has started working now. So the supervisory function that we have is being able to be part of the board of the Central Bank, and also part of the Monetary Policy Committee for the Central Bank. The Central Bank does provide it some level of independence but that independence is also subject to the supervision of the board of the Central Bank. Now, there is a board in place; before the board was not in place.
On Wednesday, the President inaugurated the board of Ministry of Finance Incorporated and gave a target of raising the national assets from N18 trillion to N100 trillion. Is it possible for you to give insight into which national assets we are talking about? Secondly, how are you going to manage the fallout if there are disagreements between positions that are currently managing these assets now and the both integrated?
On how we will manage MOFI assets and the fallout in disagreements, what type of assets do we have in MOFI? The Ministry of Finance Incorporated, is the owner of all Federal Government investments. Whether it is rail lines, airports or seaports, buildings, landed property investments and commercial enterprises. Investments in NNPC, is the Ministry of Finance Incorporated, that is the shareholder. MOFI used to be an active shareholder, but over time, it lost steam and became very passive. And that’s the reason for the reform but the President launched yesterday (Wednesday), we’ve done a one year work process to turn around MOFI into a world class investment company. And if you review the kind of selection of members that we have on the board, and the management of MOFI and also that the President has approved, that is removed completely from the federal service, you will know that this N100 trillion target is possible to attain.
So we did a bulk part assessment and this is not a detailed review. The current assets under management of MOFI is about N18.7 trillion, so approximately about N19 trillion. But we value these assets and bring them to current valuation; it will be much larger than this, there will be some assets that will lead to maybe disposal, some that we need to reengineer and some we need to reinvest in. Only a few of the assets that MOFI has ownership has actually been delivering returns and paying dividends to the Federal Government to fund the budget of the Federal Government. And so this is the assignment and the President was very clear in his directive yesterday at the launch of MOFI. And we are very confident that everything we need to do has been put in place; the foundational work has been done for MOFI to be able to grow its assets under management providing superior returns for the benefit of the citizens of Nigeria.
And also if there are fallouts, you’ll notice that it wasn’t just a board that was constituted. There was also a governing council that has the President as the chair, with the Minister of Finance Budget and National Planning and other ministers whose agencies contribution to the current portfolio are large, so it might also be expanding.
And the reason is for the council to have a high level of oversight over the pool of a murky process, looking into what the board is doing; the board reporting to the council, ensuring that the priorities of government are always also in the front burner of the organization. So whenever there’s conflict, there’s a council that can resolve any such conflict if the board is not able to handle it.
On the National Development Plan 2021 to 2025. Like you know, this national development plan is a different plan from the previous ones that we have had. And what makes it different is the process that it has gone through in this development. It’s been an inclusive plan, participatory, with serious involvement from the sub-national government, the private sector, the civil society organizations, and in fact, no one was clearly left behind in the process of developing the national development plan.
This plan envisages that the private sector drives the economy. And that is why there’s been a lot of attention and for the first time, we’ve developed a volume three of the plan to look at the legislative imperatives. What laws do we have militating against the private sector from performing? Are there policies that we have that militate against their performance? So we have reviewed our laws and found that 18 of those laws and 10 policies are bottlenecks for the implementation of the plan.
So, a committee has already been set up to look at how to review those laws and repeal the laws and work on the policies to ensure the ease of doing business, in the highly organized private sector.
Government is really very serious about this. And one of the things that this plan has also done is having the volume two which are priority projects that are being costed. It’s about N350 trillion. It requires to be done especially to feel infrastructure gap which we currently have. The infrastructure must apply to legislate that we have a gap of about $2.3 trillion to fill in the next 23 years. And so, it is very important. The private sector drives and that’s why we have had that volume two down which show the private sector the project that the government is committed to doing; so the BPE and ICRC will run the business cases for this project, with a view to letting the private sector know what is bankable that they can put their funds into.
So the government will take on projects that are less bankable for which there are no financial returns or their social returns.
What do you tell analysts who are puzzled at government’s track record in commercial enterprise or enterprises. They say is poor and they give the example of MOFI which was coincidentally the new board and executive management team that were inaugurating on Wednesday and the NNPC. They say for instance, we still have a downstream that is not fully deregulated. And we keep kicking the can down the road. Why is the Nigerian government afraid to take aggressive privatization steps with regards to driving up revenue?
Again, that’s why MOFI is being reformed because we acknowledge that government has not performed well in terms of its investments. And for NNPC, in addition to the fact the MOFI now currently holds 50 percent shares of NNPC, the NNPC itself has translated to NNPC Limited which is now guided by the rules of CAMA and also of recent, part of the requirements of the PIA it will become listed in the Nigerian Stock Exchange and there’s a lot of rigour that a company needs to go through to meet the requirements of being listed in the Nigerian Stock Exchange. So we are looking forward to a better and superior performance from NNPC limited itself.
So do you agree that governments don’t have business doing business and the model that works in developed economies is that the private sector takes the leading role. And of course the government provides enabling environment as against what the analysts say we have here?
That’s exactly what we’re doing by reforming MOFI. Government is set to step back and take a policy and supervisory role. In terms of raising the investments in MOFI, these investments have to be done largely by the private sector. The national development plan that we’re currently implementing has costed the plan at N350 trillion and 85 percent of that is projected to be funded by the private sector. So that signals that government is pulling back and has to pull back because we don’t have the resources to continue to engage in commercial activities.
In the 2022 finance bill, FG intends to tax crypto-currencies and other digital assets. How much is the government expecting to generate from this space?
Question on the crypto-currency. The taxation of crypto-currencies, is provided for in the law that we’re trying to finalize. The exact volumes we don’t have yet. There’s still an assessment process that is going on supported by the World Bank, so we’ll know how much yield in terms of taxes will be and Nigeria consistently ranks among the top global players in crypto-currency transactions, and we’re missing out completely from taxing that space. And the principle of taxation is whether or not the revenues are legal or not, tax them so government gets his share. So that’s what we want to do. And the finance will enable us to do that.