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Nigeria, others must adopt belt-tightening measures – Okonjo-Iweala

By BusinessNews Staff on November 15, 2014

The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, on Thursday stressed the need for Nigeria and other countries on the continent to adopt belt-tightening measures in order to cushion the effects of the dwindling prices of crude oil on their economies.

The minister said this in a keynote address titled: ‘Positioning Africa in the Context of an Uncertain Global Environment,’ which she delivered at the third annual International Institute for Finance (IIF), African Financial Summit 2014, hosted by Access Bank Plc in Lagos.

She emphasised the need to plug leakages, increase the drive for revenue as well as develop the non-oil sectors in the continent.

The minister also urged policy makers in the continent to strive to ensure that economies in the continent continue to prosper, saying with the right policies, Nigeria and other nations in the continent would be able to sustain their growth path despite the economic headwinds.

Okonjo-Iweala however pointed out that “the central focus of these thoughts is that Africa must truly diversify its economic base to create jobs for young people and become more self-reliant and better integrated to position itself better in an uncertain global environment.

“First, I believe that whatever it is that Africa was doing right to get to this point, we must continue to do. And in this spirit, I believe we must continue with sound macroeconomic management.”

She revealed that Africa’s debt-to- Gross Domestic Product (GDP) ratio of about 30 per cent, fiscal deficit of about 3.3 per cent and inflation projected at 7.3 percent for the year 2014 are at reasonably low levels, saying that as a result of these, many countries in the region have been able to access the international credit markets at low interest rates.

However, she noted that external pressures mount, in the face of falling commodity prices, “the pressure to “go a-borrowing” to maintain fiscal expansion will also increase.”

She added: “But we cannot afford to do this. We need to make necessary adjustments with tighter fiscal and monetary policy, and we need to build up economic buffers beyond the mere 5.4 months of imports the region is estimated to have.

“However, these adjustments need not stifle growth. For instance, fiscal consolidation must be done in such a way that government expenditure will be refocused on quality items that will unlock growth and job creation in the continent. Such quality investment should focus largely on infrastructure and human capital development- the two strongest binding constraints on the continents progress.

“Still on improving macroeconomic performance, countries in the region must aggressively look for alternative sources of revenues and stem leakages. It is now imperative to drive up domestic resource mobilisation especially taxes.

Continuing, Okonjo-Iweala said: “In several African countries including Nigeria, tax revenue to GDP is below 15 per cent – the conventional International Monetary Fund threshold for satisfactory tax performance.

“There are many leakages and gaps to be plugged, and more effective tax administration could contribute to improving revenues. For instance the Washington-based think-tank Global Financial Integrity, finds that at least 60 per cent of the nearly $1 trillion in illicit flows from the continent is due to trade mispricing and international tax invasion.

“So one can only imagine the boost to revenues if this practice can be curbed. This is why we have asked GFI to carry out a study on Nigeria. This, together with the work being done by McKinsey to strengthen tax collection will go a long way to support our efforts to drive revenues up.”
In his presentation earlier, the Group Managing Director/Chief Executive Officer of Access Bank Plc, Mr. Herbert Wigwe, noted that Africa is currently a hub of international economic evolution, a place of tremendous innovation in financial services, telecoms and natural resources; and, increasingly, as well, an important driver of global growth.

According to Wigwe, more wealth has been created in Africa in the last decade than at any other time in history.

“Across the continent we have seen a steady drumbeat of democratisation and political reform as governments are, with some exceptions, starting to provide the environment for businesses to thrive.

“They are creating greater feedback from and accountability to their citizens; ensuring that people’s needs are known and addressed. From Rwanda to Nigeria, we have seen a steady increase in security of title and the rule of law; investment in regulatory and physical infrastructure to ease the doing of business; and a low-debt, low-inflation, macro environment.

“All of these factors together help to build the first pillar of the African investment story – no longer is this the continent of coups and generals; instead it is a place of democraty as well as economic growth,” he added.

[ThisDay]

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