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Okonjo-Iweala: The Federal Government Will Plug Oil, Tax Leakages

The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, spoke with Kunle Aderinokun in Washington DC, US, on the outcome of the just-concluded 2013 IMF/World Bank meetings as well as the federal government’s efforts to sustain the economy despite dwindling oil revenue. She also addressed other pertinent issues. Excerpts:

2013 IMF/World Bank spring meetings have just ended, what is Nigeria taking away from this meeting?
Nigeria is taking away two sets of things. The first is policy advice. The reason the World Bank and the International Monetary Fund (IMF) assembled all the finance ministers of the world twice a year in Washington DC is because they like to present to them the economic trends globally so that they can know to manage their own economies within that context.
So we got policy advice and basically we were told the US is recovering, it’s fragile but they are recovering, the euro zone is still marred in crisis so there would not be a source of demand in the world. The emerging markets that used to make up from the falling demand from the developed world, that is, China, Brazil, India and so on, their growth is decelerating, so they may not be able to provide that bridge they used to. Countries in Africa are growing, but they are vulnerable, because if these other countries don’t improve, the demand for their products would begin to fall.
So in that context, they said we build buffers, we should build up savings and resources to be able to move and safeguard ourselves in three or four months in case the situation deteriorates.
For us in Nigeria with oil as a commodity we can already see some things happening, oil prices are on a downward trajectory and we are also losing quantities through oil theft.
With us being hit on the quantity side and on the price side, we are vulnerable. Therefore, it is a good thing we have some money in the excess crude account but we have to work fast to stem at least the quantities of leakages because this cannot continue to carry us forever. That is on the policy side.

The other thing is that we got some programmes that we want to use to help shore up our economy, we discussed it with World Bank Group in particular and we agreed to putting up a team to help us establish a development finance institution that can provide 10 to 15-year monies. We want entrepreneurs to create jobs in Nigeria but without access to longer term finance they can’t do it. You know if you borrow and within a year you have to pay back how do you grow your business? So we are telling them we want to set up such an institution and they are willing to help us. They are already working with us on setting up a mortgage refinance institution and we just discussed how to continue this work. We discussed also support for agriculture. For the energy sector- how to get more power to people in Nigeria. We discussed that and they are willing to support us in all those areas.
The World Bank is also bringing out a new strategy where they now want to work on eradicating poverty completely by 2030, extreme poverty-those people living on a $1.25 per day. They want to eradicate by 2030. Also, they want to improve the living standards of those at the bottom end of the income scale. They were talking to us, they want Nigeria to be one those places knowing that we have a lot of unemployment and the government is working very willing to do whatever it takes they want to work with us on stemming inequality. Those are some of the things we took away.
Talking about vulnerability due to uncertainty in the global economy you said there is a buffer for Nigeria to cushion the effects of any shortfall. What other strategies do we have in place in case oil prices go to 2008 levels?
In the short term, we have got a little bit of money in the excess crude account to help us even if the demand for oil drops. In the long-term, the answer is just to diversify our economy. We have to work hard and fast to accelerate the implementation of the reforms in agriculture so that we are not dependent on import. We have to also even within the same agriculture, accelerate on producing exports, so we have something else other than oil. We have to develop the other sectors of the economy so that they can create jobs and we can get tax revenues out those rather than just depending on oil revenue. So we have both a short-term approach and a longer term and we are working on both at the same time.
When do we see this short and long-term approach manifesting?
Both are on! There are targets. Agriculture is already being developed. We want to create 3.5 million jobs in agriculture by 2015, that we would reduce our imports. For instance rice, the import of rice this year have gone down considerable part of it is due to the fact that people stocked up last year knowing that tariffs were going to be increased but part is also due to the fact that people are now focusing on planting to produce at home.
I think that in terms of crop output you are going to begin to see quantities of home produced goods like rice would begin to mount within this next agricultural season.
From the speech you presented today, you talked about the loss of $250 million per year in leakages in tax. What are efforts of government in trying to prevent these leakages?
We are making a lot of efforts to do that! In the same speech, I mentioned that we have taken a thorough diagnostic with the help of McKinsey & Company. McKinsey successfully helped South Africa to double its revenue, in Angola they were able to increase by 50 per cent. When we saw they had done that, with the permission of Mr. President, we brought them. What they do first is they do a diagnostic to find out where all those leakages are coming from. Actually, the leakages were in areas like rentals, registered businesses that are not paying etc. They have done the diagnostic with Federal Inland Revenue Service (FIRS) and we’ve finished that now.
The next step is to mount an effort to actually plug those leakages and collect the taxes, that is about to start. Within the next two months, we would start implementation of some of their recommendations.
Looking forward where do you see the economy?
Our own forecast for growth within the economy for next year is about 6.5 per cent. The IMF is actually more optimistic there are forecasting about 7 per cent. We expect the economy to continue to do well but we also expect to improve our performance on creating jobs. We are looking, it’s not just about growth, it is about what has it created and we are doing so many things. Like I said, by next year we expect agriculture sector to be able to produce some of those 3.5million jobs. We expect all the support we are giving to Nollywood to enable us employ more young people within that particular sector. We expect the housing sector begin to kick in. So I’m a little bit optimistic in terms of thinking that our performance would be robust at 6.5 per cent but accompanied by more job creation than we have seen.
Many have criticised SURE-P, saying it is another conduit pipe. Can you say SURE-P has really been working?
Of course, it is working. We have to give things a chance. We have someone of eminent qualification like Dr. Christopher Kolade, who is overlooking this process and the results are there. First of all on the money, they should remember, it is not just the federal government, the states also get SURE-P money. We have published it for everyone to see, how much is coming in for SURE-P. So there is nothing hidden there. Every month in the newspapers, we say this is how much the federal government got in SURE-P money and this is what the state got. That is the first point of being accountable. The second is what is it being used for? And we have publicised many of those activities. One whole chunk of it is on safety nets, which is being used to reduce infant and maternal mortality. We have got list of beneficiaries of the programmes by state so that people can verify.

The minister of health and minister of state health are both running this and if you want to know whether in your state this programme is working and there are beneficiaries, you would get a list of the actual people, who are receiving the conditional cash transfers whose children are being immunised. Collect the list and go and check yourself. Ask them if the government gave them cash transfers, did their children get immunised? What about roads? Have you gone to the Abuja-Abaji road to see what is happening there? Go to the Lagos, Shagamu and Ore road and see what is happening. Lagos-Kano railway that we promised to complete, is it not working? All these are on the federal government’s side. People just see down and talk without checking the facts. The projects are there for people to verify and see if they are working.
The World Bank’s chief economist for Africa, Shanta Devarajan, was advocating that oil subsidy should be replaced with cash transfer, what is your opinion on that?
There are all sorts of cash transfer programmes that are working all over the world. This is a whole topic of itself. We are trying what they call conditional cash transfer related to health, the health of women because Nigeria has one the highest maternal mortality rate in the world. If we want to reduce, we must address other issues.
The women don’t have attendants with midwives, they don’t get the necessary medication and so on, the children don’t get immunised, we also have one of the highest infant mortality rate. So the cash transfer says if you have a midwife visit you, so that they can properly take care of you and get your child immunized, we would give a cash transfer to reward and compensate you for your time.
In Nigeria, just like anywhere in the world, women who would never have seen a nurse midwife are coming and we are achieving results. That is one type of cash transfer, so the money we got from subsidy we are using it to give service to these people. The other one could be in education, in many countries, in Latin America poor families get a cash transfer for sending their girls to school because girls have dropped out of school. We have also started that in Kano state. As we speak, we are practising that and as a result, the rate of dropout of children has decreased because we are doing this in Kano. And we continue to roll it out in different states to encourage parents that if your girls are in school or you send your child to school, this is the cash transfer.
Those programmes are being used all over the world, they are working and we are now using them in Nigeria. If they work well in some of the states were we are experimenting them, then we can expand and we can use the monies to support that.

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