‘Why Nigeria Must Attract Private, Domestic Capital To Finance Critical Infrastructure’


The Budget Seminar Series is a forum for evaluating the connection between the Nigerian capital market and the annual Federal Government budget. Its major aim is to identify how the capital market can contribute, and in turn, benefit from the budget and its implementation.
In addition to the learning of the day which will equip participants, this communiqué is drafted and forwarded as the capital market’s input to the appropriate government and private institutions’ discourses.
As a starting point, the lead paper highlighted key points from the 2019 budget and outcome. The 2019 actual revenue and expenditure stood at N4.64trn and N9.13trn, respectively, with a total fiscal deficit of N4.50trn. At the end of 2019, Oil production, oil price, and exchange rate stood at 1.7mb/d, US$53.80/b and N307.00/US$, respectively.
The 2020 budget is tagged “the budget of sustaining growth and job creation” with approved revenue and expenditure of N8.42trn and N10.59trn, respectively. The 2020 budget is predicated on specific plans/initiatives. Some initiatives include leveraging private sector funding for capital projects, increased VAT from 5% to 7.5%, strict implementation of the Treasury Single Account, setting revenue targets and cost-revenue ratios for Government Owned Entities (GOEs), among others.
As we are aware, the President and Commander-in-Chief of the Armed Forces, President Muhammadu Buhari signed the Finance Bill into Act in January 2020. The Act has the following among others as its objectives: promoting fiscal equity, reforming domestic tax laws to align with global best practices, introducing tax incentives for investments in infrastructure and capital markets, supporting micro, small and medium-sized businesses, and raising revenues for the government. Of particular interest to us are amendments in the Act that could help grow the Nigerian capital market.

The following points and recommendations were made by the panel of discussants:
• Infrastructure development is of optimal importance for the achievement of economic prosperity and sustainable growth and development. Therefore, the need to attract private and domestic capital to fund and support critical infrastructure is paramount;
• Capacity building by capital market participants and regulator(s) that would maximize and harness the huge opportunities in the market;
• Provision of the conducive business environment and credit enhancements for the Small and Medium Scale Enterprises (SMEs) to thrive, because the SME sub-sector is one of the critical pillars for economic growth and national prosperity;
• There is a need to create more hedging opportunities in the Nigerian capital market, as this has implication for market liquidity and efficiency;
• The government needs to work towards encouraging the participation of the private sector in the Nigerian business environment. The power and agricultural sectors are key sectors where in-depth reform and partnership with the private sector are important. There should be a partnership with the private sector to mobilize domestic resources, create quality jobs and lift people out of poverty;
• It is important that the Government ‘walks the talk’, encourages sanctity of contracts, transparency, and plugs illicit outflows of revenue from the country;
• We need to pay attention to how to ensure that children currently out of school return to school and also improve the quality of education, health and general wellbeing of the Nigerian youth;
• We need to leverage technology for trade and focus on adding value to the agricultural sector which is currently very low-paying. This sector needs to become more beneficial to those involved. This can be done through means such as the provision of power for crop preservation, thus eliminating post-harvest losses;
• Future budget seminar presentations should consider the aggregate budget so as to see the impact of the budget on the economy and analyse the relationship between expenditure and revenue;
• The Nigerian government has always budgeted for deficit. Though unacceptable, the government has no choice because revenue is weak;
• The 2020 budget does not relate to Growth and Job creation and the implications of the budget from the private sector perspective are not clear;
• Advocacy efforts should be made to the government to conserve the nation’s scarce resources as this is fundamental to the budget;
• Some initiatives from the third Budget Seminar were addressed however; issues such as Public-Private Partnership (PPP) would aid the government particularly in achieving infrastructure objectives. There is need for a specific framework on PPP and concessions in order to address infrastructure financing while a number of legislations are also required to support the Finance Act and these include the PIB, ISA and CAMA;
• The Finance Act has positives for the capital market and it was indicated that provision on taxation of Insurance companies might lead to improved performances and higher market valuation of these companies and in turn further uplift equities;
• The Finance Act is the most significant finance policy since 1999 and it has addressed various issues in about 100 amendments with some of the important issues such as REITs, securities lending and stamp duties;
• Another important issue is the taxation of Holding Companies, which has impacted investors from setting up in Nigeria. This has to be improved to reflect global standards;
• The capital market community should focus on getting the government to address disincentives as opposed to seeking incentives from the government;
• Effectively, shareholders in Nigeria are subjected to numerous taxes whereby the effective tax rate on investors is among the highest globally. A reduction in the effective tax rate on equity investments and further, corporate tax rates is necessary to make Nigeria more competitive in attracting capital;
• Reduction of capital losses against profits may be canvassed as part of exemptions in the Companies Income Tax Act and Personal Income Tax Act; and
• Budget variances over the years have been large. This means efforts need to be made to have more realistic budgets.

Photo caption: From left, Head Investment Management Department, Securities and Exchange Commission, Mr. Efiok Efiok, and Executive Commissioner, Legal and Enforcement, SEC; Reginald Karawusa; Acting Director-General of Securities and Exchange Commission, Nigeria Ms. Mary Uduk; former Director-General and Chairman, Securities and Exchange Commission; Dr. Suleyman Ndanusa; and Acting Executive Commissioner Operations SEC, Isyaku Tilde; at Securities and Exchange Commission (SEC) breakfast Meeting with Businesses Editors in Lagos on Thursday.