John Kachikwu is the Chairman, Lagos Chamber of Commerce and Industry (LCCI) Small and Medium Scale Enterprise Group (SMEG). He is also the Chief Executive Officer, Jon Tudy Interbiz Nigeria Limited/Jon Tudy Interbiz Corporation, U.S.A. In this interview with Taiwo Hassan, he recounts the challenges facing SMEs
What is your assessment of the 2018 budget presented by President Muhammadu Buhari to the National Assembly recently?
I am glad that President Muhammadu Buhari presented his budget for 2018 early enough despite the economic headwinds in the country. However, for the fact that he has presented the 2018 budget earlier than last year, if it is quickly approved by the National Assembly, it will impact positively on the economy.
But my fear about the 2018 budget is that of the 30 per cent capital expenditure. It is on the low side considering the economic situation at hand; because when you are talking about capital expenditure, we are talking about infrastructure like electricity, road network, security and others.
These are key factors when you are talking about the economic development of any country. So if you don’t budget enough money for capital development, obviously it will affect the economy in all ramifications. So we (organised private sector) were looking at 50 per cent instead of 30 per cent approved for capital expenditure in 2018 budget.
But to be very honest with you, yes, the Federal Government, under President Muhammadu Buhari, has done well to have been able to present the 2018 budget early enough this year. But if the National Assembly is unable to approve it early enough, we will still come back to the status-quo, because of the delay in the budget implementation.
In the proposed 2018 budget, the president claimed that the economy was fully diversified with non-oil sector accounting for over 90 per cent of total nominal GDP. Is this true considering the economic realities?
Well, to a large extent, that is what it is supposed to be because the non-oil sector needs to be encouraged for it to participate immensely towards Nigeria’s economic development. But then, government is doing something better now in that area.
I can say it is much better now than what it used to be in that sector. Before now, when you repatriate your forex, for you to access it, it was always a difficult situation. And if at all, you are able to penetrate the bank, the bank will buy it at N315.
But now, when you repatriate your export proceeds you can now sell at N360. So it is very encouraging now for exporters even though we don’t have access to the dollar, but at least, the exchange rate used is quiet encouraging. Probably, this is why government is projecting 90 per cent for non-oil sector.
But the truth is that they are being over ambitious by projecting up to 90 per cent for non-oil sector contribution to the GDP. As OPS, we can say the non-oil sector is currently contributing between 65 per cent or 70 per cent to the GDP. Anyway, it’s a budget so it is expected since they want to aim high. But the variable available to us shows between 65 per cent or 70 per cent for the non-oil sector of the Nigerian economy.
Are exporters still repatriating their export proceeds through the commercial banks? If so, what are the challenges?
Of course, through the commercial bank but the commercial banks will now return it to the CBN. So it’s still ongoing at the moment. But now, it’s more stable in the forex market compared to how it used to be in the past when scarcity of dollar hit the forex market. We are happy with what is happening in the forex market and kudos to the CBN for continuously interfering in the forex market.
Controversy is trailing the FG’s tax holiday waivers given to investing firms, including pioneer status incentive (PSI). Do you think the waivers are necessary at this period?
The tax waiver is similar to what the former US President, Barack Obama, did some few years back when he stimulated the US economy by encouraging manufacturing firms and also giving them money to run their factories. Let me tell you, Nigerian government is not giving out money to manufacturers here but the tax waiver is a way of encouraging these blue chip firms like Dangote, Flourmills, Unilever, for their contributions to the country’s economic development for decades.
There is definitely need for government to encourage private sector and what they are doing is good for our economy because I don’t see anything wrong in that tax waiver at all. The waiver is good and is just to encourage tax holidays given to investors that are coming to invest in Nigeria. So I think the government’s tax holiday policy is in the right direction and needs to be encouraged because that policy is good since it was meant to encourage the private sector.
Recently, the Federal Government released some funds for the settlement of claims on Export Expansion Grant (EEG) for exporters. Do you think this intervention has brought succour to the non-oil export market?
Yes to a large extent, because before now, most of us in the export of goods if you get to our factories today, you will see the level of expansion and this is attributed to the EEG. Although we have not benefitted for now, we have already submitted our application forms to the government and from information reaching us, it’s quiet encouraging if the Federal Government under the Nigerian Export Promotion Council (NEPC) can implement this new policy in time.
So it is quite encouraging for exporters because by giving us that grant, definitely MSMEs will now grow faster than before that we had to source money from the bank at 30 per cent or 35 per cent interest rate. This is quite encouraging; we are just waiting for the implementation. You know that putting this policy in place is not the issue but the implementation process is what matters most.
What is your assessment of the current EEG with regards to the non-oil export market?
The new policy on EEG is quite encouraging for the Nigerian economy because it is going to increase the export earnings of the Federal Government and also encourage exporters to do more. So many of us are now going to expand our businesses.
For instance, in the past, we used to export one container every month but now, we are exporting like three or four containers since about three or four months back. We have been exporting these containers amid the new EEG policy. However, we have not benefitted directly but with the encouraging words coming out from NEPC, based on the various circular released and other important things that they have been sending to us, it is quite encouraging and we are hoping that if the policy is well implemented then more people will go into export and you know what that means to the country and our economy.
Ideally, the tax credit system being planned is not going to be favourable to the SMEs operators in the country. But obviously, for the big players like Olam, Dangote and co who would benefit immensely from it. For instance, Olam is just a single firm. But when you are tal
Do you support the initiative to restructure the EEG as a tax credit system? If so, how much do you think Nigeria can generate through this initiative?
king about SMEs that are into export, you are looking at thousands.
So it is better to encourage the thousands of SMEs than encouraging only one single entity. So that tax credit will not be favourable for the SMEs and I am speaking authoritatively as the chairman of SMEs Group of the LCCI, so anything that will benefit the SMEs when we are talking about export is what I will definitely support any day any time. So the proposed tax credit system conversion of the EEG is not going to be favourable and work for SMEs. It is not a good policy since it won’t encourage SMEs that are into export.
If so, have you made a case to the Federal Ministry of Industry, Trade and Investment to halt the proposed tax credit?
Yes, of course, there was a communiqué after our last meeting, which we have already presented on the matter, so we are hoping that government will look into it for the sake of the SMEs sector.
Do you believe CBN’s 60 per cent concessionary forex allocation to the manufacturing sector for raw materials and machinery importation is strictly and judiciously being implemented to the satisfaction of the OPS?
Yes, I must be very honest with you based on what is on ground right now and from the economic perspectives, this CBN’s 60 per cent forex allocation for raw materials and machinery importation has tremendously reduced the hardship manufacturing sector went through since the past three or four years now.
Right now, many of these manufacturing firms are having access to forex compared to what it used to be in the past. We are very happy that this has eased the hardships that manufacturers in the sector have been going through for years.
So we hope that government will sustain this policy because it’s quite encouraging. You can see that many of the companies are now operating at 65 per cent or 70 per cent installed capacity, which is quiet encouraging.
Has the forex policy restored some ailing manufacturing firms in the country?
Yes. For those that left they are coming back gradually into the country, while for those that are here and about to close down, they are now coming back fully and the effect of this policy would not be seen until the first quarter of 2018. That is when it will be very clear that the Nigerian economy has bounced back. Then Nigerians will equally see that we are out of recession.
What’s your view on the Senate Committee on Customs, Excise and Tariff and Marine Transport’s plans to publish the names of 60 firms found culpable in the alleged N30 trillion revenue?
I must say that I am encouraged by this Senate Committee on Customs, Excise and Tariff and Marine Transport investigation on the activities of some private sector operators because we have lost so much money in this particular sector.
You can imagine quite to N30 trillion, so it’s not a joke! The truth is that under their oversight function, if they are able to scrutinise most of these alleged companies found culpable in this N30 trillion scam by recovering this money from them, obviously that would go a long way in sanitising the economy and also increase our foreign reserves.
Most of these things occurred in the forex market and some of them are in the oil and gas sector where they were given waivers to operate. So we should just pray that they can do it, that is the most important thing. Do they have the capacity to deliver? Do they have the will power to cleanse the system? If they do, obviously, it would go a long way in helping the economy.
What can you say about the high level of corruption in the private sector?
That is the reason why I asked the question whether they have the capacity (will power) to do it. Because when you are talking about corruption in the country if you don’t have the will power, corruption comes to stay.
The fear in the minds of millions of Nigerians on this Senate Committee is that nothing would come out positively at the end of the day after they would have compromised. So we just praying that the Senate Committee on Transport and Marine would not compromise along the line because Nigerians are watching this drama with keen interest.
Recently, Nigeria refused to sign the ECOWAS single currency including the Common External Tariff (CET). What are the economic implications since we are key signatory to regional market integration in West Africa?
I will like to refer you to the European Union (EU) on the recent step taken on Britain’s Brexit. If you remember the EU countries when they were about to have Euro, Britain pulled out and many of the EU countries were against Britain but for the fact that the kind of economy British has, they were unperturbed.
So coming back to our own ECOWAS treaty, we are aware that Nigeria signed the treaty quite alright, but you know the implication of Nigeria signing this treaty for this common currency, it would definitely affect us, because the WA countries would now flood Nigeria with different consumable goods.
For the kind of economy we have right now, that is not feasible because it would definitely have negative impact on our unemployment rate. So the Federal Government has done well for not signing that treaty- common currency for now until the economy stabilises.
By the time it stabilizes, we can now think about signing the treaty. But for now, it is not going to be favourable for us economically. So it was a good one that they did not sign it. So I give kudos to President Muhammadu Buhari for rejecting it.
Are you in support of Federal Government streamlining multiple levies charged by agencies?
Yes I think it is a good policy. Again if they (government) can streamline these agencies, It will be good to see a one-stop shop agency for the SMEs and manufacturing sector in Nigeria; because right now, this multiple taxation is obviously affecting most of our members.
It is affecting the SMEs because these people are trying to find their rhythm at the moment amid recession. You know they have to take care of so many bills such as security, lights and other things and ironically, when one agency comes with a levy and even before you finish that, another one comes to you.
So it’s quite discouraging because this multiple taxation is killing the SMEs and I just pray that government should implement this policy that is tailored at reducing them. If they are able to implement it, it would go a long way to alleviate the suffering of the SMEs because they are not finding it very easy at all, especially with these levies and interest rates.
I am very particular about the interest rate because at 31 per cent what can you achieve and we are talking about bank defaults among us since many of us are not able to pay back our loans collected from the banks. What can you do with 30 per cent or 35 per cent right now, because the CBN gives to the banks at 14 per cent?
They were giving money to the commercial banks at 12 per cent and they increased it last year to 14 per cent and considering the logistics and overhead cost from the commercial banks, you don’t blame them because they need to mark up. So that is the issue with this interest rate.
It is not favourable to the SMEs. But it is favourable to the foreign investors because when a Chinese or Indian businessman comes here he gets that money at one or two per cent from his country, brings it here, go to the bank, fix part of the money at 16 per cent or 18 per cent and then use the balance to invest. You can see that already he has made over 100 per cent. But for the SMEs, have they made any money? No. They have to struggle to borrow at 32 per cent, which is not encouraging.
In every economy right now in the world, it is only in Nigeria and Ghana that I have seen interest rate above single digit. We have been talking about this. In Nigeria, the only bank that is giving interest rate at single digit is Bank of Industry. But, is it easy to access BoI’s money? Is not easy for the SMEs, because many of us are undocumented?
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