For a long time, there have been calls for fiscal and monetary policies to be complementary in order to achieve consistency and economic growth. Stanley Oronsaye looks at the recent decision to grant import and tax waivers to some sectors and what it portends for the economy.
For the first time in many years, Nigerians can begin to see collaboration between the monetary and fiscal policies of government.
Unlike in the past, government is beginning to take far reaching decisions that are capable of turning around the performance of some sectors in the economy. We are also beginning to see the deliberate policy direction that aims to protect local industries from foreign competition while encouraging the local manufacturers to thrive.
This is in tandem with the call by the Central Bank of Nigeria (CBN) for coordination between monetary and fiscal policies in order to achieve a coherent and effective economic policy that would drive growth and development across the various sectors of the economy.
It is in this light that the federal government recently released new fiscal policy measures for 2012 designed to revitalise the agriculture sector and put agro-allied industry on stronger footing. Specifically, the measures are to the effect that from January 31, agricultural machinery and equipment shall attract zero per cent duty in order to support the sector. Also, equipment and machinery in the power sector shall attract a zero per cent duty, to create a robust power sector and provide an enabling environment for investment.
According to the circular dated February 20 sent to all authorised dealers, signed by Musa Batari, the CBN Director, Trade and Exchange Department, with effect from March 31, importation of cassava shall be prohibited to encourage the substitution of quality cassava flour for wheat flour in bread making while also promising a corporate tax incentive rebate of 12 per cent by bakers that attain 40 per cent cassava blend within 18 months. This is in addition to allowing all equipment for processing cassava flour for composite flour blending to be imported duty free.
In the same vein, government in order to encourage local production, also placed wheat import on 65 per cent levy and 35 per cent duty rate, wheat grain 15 per cent and 5 per cent duty rate, husked brown rice shall attract 25 per cent levy and 5 per cent duty rate while imported polished rice shall attract 40 per cent levy and 10 per cent duty rate.
“In order to expand domestic production, boost exports, generate employment and create a level playing field, concessions and waivers shall be granted only on sectoral basis,” the circular added.
The Central Bank has always acknowledged the fact that despite economic growth and increase in gross domestic product (GDP), there has been no corresponding improvement in job creation for the growing labour force. This prompted the call by the financial sector regulator for emphasis on technical and vocational education in order to produce a labour force that is compatible with the current stage of the
“To help generate new jobs, it would be essential for the federal government to move quickly with the structural reforms such as power sector reforms, implementing the agricultural sector transformation programmes and the associated value chain, and refocusing attention on the provision of technical and vocational training to bring about skills development that would match the needs of the economy,” said CBN Governor, Lamido Sanusi, at the end of the last monetary policy committee (MPC) meeting in January.
Adopting investment-friendly policies
As expected, the CBN has not lost sight of its core responsibility to maintain price, exchange and inflation rate stability. This it has done by open market operations (OMO) and other monetary policy instruments that have helped to keep these rates within acceptable limits despite government profligacy over time.
For instance, raising benchmark interest rate to 12 per cent, reducing the net open position (NOP) of banks and altering the cash reserve ratio (CRR), retaining minimum liquidity Ratio of 30per cent and retaining the mid-point of exchange rate at N155 to the dollar with a band of +/-3 per cent were all desperate responses to the fiscal behaviour of government.
According to Kingsley Moghalu, CBN Deputy Governor, Financial Systems Stability, monetary policy stance of the monetary policy committee (MPC) for the remainder of 2012 will depend largely on the fiscal authorities’ continuation of measures to improve fiscal discipline.
“Should fiscal expansion resume, the MPC will have no choice but to resume monetary tightening in order to maintain price stability. This is quite apart from the important issue of the need to maintain positive interest rates depending on how much, in fact, inflation increases in 2012,” he said.
The decision of government to adopt friendly policies that will enable local industries to thrive will no doubt have multiplier effect on the growth of local operators in the sectors, as well as boost Nigeria’s export drive.
What should be emphasised at this point is that these concessions and waivers must be sustained and not implemented half-heartedly so that more firms and investors can be attracted to the agriculture sector, which accounts for about 42 per cent of Nigeria’s GDP and make it more attractive to stake their funds. Other sectors which Nigeria has comparative advantage should also be identified and similar gesture extended to players in those sectors as a way to encourage the real sector.