…As Expert says Tax concessions not important in attracting foreign investments***
The Lagos Chamber of Commerce and Industry (LCCI) assured on Sunday that the Central Bank of Nigeria’s (CBN) current lending policy, will normalize the credit markets, spur economic growth and broaden the interface between entrepreneurs and the banking industry.
The Director-General of LCCI, Mr. Muda Yusuf said this in Lagos, while reacting to CBN’s July 3 letter, to all Deposit Money Banks (DMB) mandating them to maintain a 60 per cent Loan to Deposit Ratio (LDR); in effect, the banks are required to give minimum of 60 per cent of their deposits as loans, with effect from Sept. 30.
The CBN said the policy was to encourage SMEs, Retail, Mortgage and Consumer lending, adding that it would soon provide a detailed framework for classification of enterprises or businesses.
Yusuf said the new lending policy was a timely corrective measure to improve credits to the private sector, which had for years grappled with issues of credit access, cost of credit and tenure of funds.
“These challenges are more severe for Micro, Small and Medium Enterprises in the economy.
“The economy was characterised by profound crowding effect of the private sector in the financial markets owing to the diversion of credit to government through the instrumentalities of treasury bills and Federal Government bonds,” he said.
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The LCCI boss expressed optimism that the new lending policy would impact the economy through quality financial intermediation while bridging the funding gaps in many sectors.
He said it would improve economic inclusion of more SMEs and promote economic diversification in line with the Economic Recovery and Growth Plan (ERGP).
Yusuf noted that the policy had the probability of reducing interest rate as supply of credit would increase and improve lending creativity and innovation by banks.
“This will result into a broader and more diversified sectoral coverage of lending,” he said.
The economist urged the CBN and the fiscal authorities to adopt measures
toward addressing some possible risks in the lending policy.
He proposed the strengthening of the Collateral Registry to enhance the profiling of borrowers in the banking system, adding that the character of borrower had been identified as a major risk factor to lending in the economy.
Yusuf called for scaling up corporate governance practices in the banking system to prevent insider abuse and compromise of credit assessment processes.
He submitted that credit guarantee framework should be strengthened to give comfort to the banks and also promotion of the use of credit insurance.
Yusuf urged the fiscal authorities to effectively address enabling business environment issues, particularly infrastructure deficit and quality, in order to reduce credit risk.
The LCCI boss tasked the CBN to ensure alignment of the new policy with extant monetary policy actions, especially with regards to Cash Reserve Ratio and the Liquidity Ratio which are currently at 22.5 per cent and 30 per cent respectively.
In the meantime, a tax expert, Mr Kenneth Chukwu has highlighted that Nigeria could generate more revenue through taxation of Investors rather than granting tax concessions to encourage them to stay in the country.
Chukwu said this on Sunday in Abuja, noting that Nigeria’s policy of granting tax breaks and waivers to fast-track development in the country was a policy that only produces figures and not realistic growths.
“First of all, we have people in government who are coming from neo-liberal perspective, bringing in neoliberal principles which are strictly about the market and not about the people.
“So for them, it is about the Gross Domestic Product (GDP) growth and figures they can bandy around saying that the economy is doing well, it is growing, in spite that we have an increasing level of poverty.
“We have policy makers who believe that by all means we must attract Foreign Direct Investments.
“However, a World Bank study has shown that tax incentives are the least important thing to investors when they are moving into a country,” he said
Chukwu said that the key attraction of investors to a country was the market prospect and infrastructure that could support their businesses.
“Unfortunately, we don’t have those in Nigeria because government has not invested well in infrastructures.
“But we have the market. Don’t forget that we have a population of about 200 million people.
“Let us assume only 10 per cent of that population is patronising a particular product. That is about 20 million which is bigger than some nations on the continent.
“That means there is huge market here in Nigeria, so the incentives that are given is like throwing our dinner to the dogs,” he said.
Chukwu urged the government to review its policies and enforce strict sanctions on foreign companies that come in and act outside the agreed terms and conditions of their operations.
“We have situations whereby a company is entitled to a five-year tax break and where there is need for extension, it should not be extended more than two or three years.
“But you find a situation whereby companies are now perpetually on tax incentives.
“There is evidence that there are some companies that are given five year tax break, but they have been operating in our jurisdiction for over 25 years and they have not paid tax.
“There are also companies that come to Nigeria, they operate for five years, after getting tax incentives, they then claim that due to some challenges, the company is being sold.
“And the regulatory bodies don’t check the list of the board members. The company will just change its name, and claim that they have transferred ownership and then negotiate for another five year incentive,” he said.