LCCI condemns CBN’s forex,  interest rates policies

• Says current interest regime poisonous to economic diversification

• Imbalanced tax burden on investors stunting economy

By Samson Echenim

The Lagos Chamber of Commerce and Industry (LCCI) has taken a swipe on the Central Bank of Nigeria over high lending rates which the chamber said was inimical to economic diversification.

In a paper titled, “Agenda for Economic Diversification,” Muda Yusuf, Director General of LCCI, indicated that the CBN is hosting a foreign exchange regime that “perpetuates a rent economy.”

He insisted that a good policy mix was required to achieve effective diversification of the country’s economy.

“The monetary policy, for instance, should be designed to drive domestic investment through a moderation of the monetary tightening stance of the CBN.  This is needed to moderate interest rate in the economy.  It is difficult to drive domestic investment at current levels of interest rate which is well over 25 per cent for most economic players,” Yusuf said.

According to him, the economy needs investment, especially domestic direct investment to drive diversification, adding that the foreign exchange policy was a very important policy component which impacts on economic diversification.

“A forex regime that perpetuates a rent economy would not serve the cause of diversification.  It creates opportunities for arbitrage, corruption, resource misallocation, impedes the inflow of investment, and create transparency issues in the allocation of forex.  The current multiplicity of rates is inimical to sustainable economic diversification,” Yusuf stressed.

Tax burden on investor

The head of the LCCI described the country’s tax burden as being on investors, noting that the renewed aggressive tax drives by the federal and state governments were focused more on them than on consumers.

“The burden of taxation is more on the investors in the economy than the consumers. The Federal Inland Revenue Service (FIRS) has scant regard for due process in its drive for revenue.   It is therefore inherently a disincentive to investment and economic diversification.

“The three tiers of government target investors more than consumers.  This is not in consonance with best practice principles in taxation.  In an economy which is almost 50 per cent informal, this structure of taxation is not investment friendly.  The formal sector of the economy bears the largest burden of the tax system.  The tax policy needs to be better attuned to economic diversification through a reversal of the tax burden from investors to consumers.

On trade policy, Yusuf stressed that inappropriate trade policies could aggravate the cost of production of economic players.

“This happens when critical inputs are restricted from imports and local substitutes are grossly inadequate.  A thorough sensitivity analysis of trade policy impact on the economy is essential before major trade policy moves are made. The same logic should apply to the forex exclusion policy of the CBN.  Trade policies should be guided by sectoral competitive and comparative advantage to ensure sustainability,” Yusuf noted.

According to him, a key focus of diversification should be on resource based industries – agro allied, oil and gas, manufacturing with high local content.

” These sectors would strengthen the capacity of the economy to create jobs, drive inclusive growth, promote income redistribution, and generally impact positively on the economy, ” he said.