Space Summary
The Twitter Space X Townhall – Windfall Tax in Nigeria, A Catalyst for Economic Growth? hosted by Nairametrics. The X Townhall discussion delved deep into the implications of implementing Windfall Tax in Nigeria, focusing on its potential as a catalyst for economic growth. Experts highlighted the importance of transparency, stakeholder engagement, and education in successfully introducing and managing such a fiscal policy. The conversation emphasized the need for a balanced approach to ensure that Windfall Tax contributes to wealth redistribution, infrastructure development, and sustainable economic advancement while avoiding detrimental effects on businesses. By examining global best practices and engaging in public discourse, Nigeria can learn valuable lessons to tailor effective Windfall Tax policies for its unique economic landscape.
For more spaces, visit the Infrastructure page.
Questions
Q: How can Windfall Tax contribute to economic stability in Nigeria?
A: By redistributing wealth and funding development projects.
Q: What challenges may arise in implementing Windfall Tax policies?
A: Ensuring fairness, avoiding negative impacts on businesses, and maintaining transparency.
Q: Why is stakeholder engagement important in Windfall Tax discussions?
A: To gather diverse perspectives, ensure buy-in, and enhance the legitimacy of the policy.
Q: How can Windfall Tax promote responsible corporate behavior?
A: By discouraging excessive profits and encouraging social responsibility.
Q: What role does education play in garnering public support for Windfall Tax?
A: Educating citizens about the benefits and purpose of the tax to increase understanding and acceptance.
Q: What lessons can Nigeria learn from other countries' Windfall Tax experiences?
A: Adopting global best practices to inform effective policy design and implementation.
Highlights
Time: 00:12:45
Exploring the Concept of Windfall Tax Understanding the definition and potential benefits of implementing Windfall Tax in Nigeria.
Time: 00:25:18
Case Studies on Windfall Tax Success Stories Examining how other countries have effectively utilized Windfall Tax to drive economic growth.
Time: 00:39:02
Challenges and Considerations in Windfall Tax Implementation Discussing the obstacles and key factors to address when implementing Windfall Tax policies.
Time: 00:50:37
Public Perception of Windfall Tax Analyzing the public's views and attitudes towards the imposition of Windfall Tax in Nigeria.
Time: 01:05:12
Government Strategies for Windfall Tax Communication Exploring communication strategies to explain Windfall Tax to the public and ensure transparency.
Time: 01:20:44
Future Outlook for Windfall Tax in Nigeria Speculating on the potential outcomes and long-term impact of Windfall Tax on Nigeria's economy.
Key Takeaways
- Windfall Tax could serve as a tool for wealth redistribution and economic stability.
- Revenue from Windfall Tax could be channeled towards infrastructure development and social programs.
- The implementation of Windfall Tax requires careful calibration to avoid negative effects on businesses.
- Transparency and clear guidelines are crucial in the effective application of a Windfall Tax policy.
- Windfall Tax can incentivize responsible corporate behavior and discourage excessive profit-taking.
- Balancing the imposition of Windfall Tax with fostering a conducive business environment is essential for sustainable economic growth.
- Public dialogue and stakeholder consultations are vital before enacting Windfall Tax legislation.
- Monitoring and evaluation mechanisms are necessary to assess the impact and effectiveness of Windfall Tax initiatives.
- Educating the public on the purpose and implications of Windfall Tax is key to garnering support and understanding.
- Collaboration between government, businesses, and citizens is essential for successfully implementing and administering Windfall Tax.
- Global best practices in Windfall Tax implementation can offer valuable insights for Nigeria's economic policy formulation.
Behind the Mic
Introduction
Good evening, everyone. It's great to be here again. Welcome to the narrametrics Xpacies, today's town hall session. My name is Wadi Ahime. I will be your host today, and faith will be joining me as co host. As we go on, I just need to explain what we're going to do and how we're going to go about the town hall today so that nobody thinks or feels that they are left out of the discussion. Last week, we spoke at great lengths about the windfall tax in Nigeria. Is it a catalyst for economic growth or are we just seeing another situation whereby another set of taxes are going to be imposed one of the sectors of the economy? Some of the things that we heard last week were the fact that, yes, it is a tax that people believe that should go. It's not new to the global economic world. It's happened in the UK, it happened in the nineties. It's happened in Italy, it's happened india, it's happened in some parts of Asia.
Discussion on Windfall Tax
So what the general modus operandi or the general feeling is, yes, the tax might be necessary, but the major questions that came out of it, where are we sure that is going to be used in the right direction? What areas are we going to look at it? What areas are we going to, are these taxes going to be spent on? And so that's what we'll be talking about more today. Today we'll let a number of listeners speak to that. But please, there are some ground rules. We'll start off with speaking with one of the speakers and taking, like, a summary of what we spoke about last week and just sharing their perspective again quickly so that people get an idea. But for those in the town hall, when we pass the microphone around, you have a maximum of two minutes to express what you want to say. But please, let's restrict ourselves to the fact that what we want to find out is which areas are we looking at that this windfall tax should actually go into?
Ground Rules and Structure
Not about whether the government is going to collect it or not, but if it was, if the government. The government. There's a bill that's already in effect, there's an act already in effect to that. So it's just the timing. And what areas are we going to look at it, that we're going to be spending this money? And what does the town, what is the message in town so that the government is listening and listening to Nigerians so that they have a better idea of saying? And what kind of specifics are we going to be looking at. So in the next two minutes, we'll come back. Thank you for joining us, doctor. Doctor D. We will have a brief conversation based on the highlights from last week as we wait to. As we await two other speakers. So you will kick off. And then once we get that on, then we'll open the mics to the town hall for the first three sets of people who would speak to what we had discussed last week and which areas and what are their own perceptions about how that tax should be used.
Setting Expectations
So we'll be back in the next two minutes and so that we give some other people an opportunity to join in the session. Thank you very much and welcome once again to the Nairometrics XPC town hall. Windfall tax in Nigeria, a catalyst for economic growth. Welcome back, everyone. I can still see some people are joining, so maybe we just give them another three minutes so that we start at exactly ten minutes past six. The session should last about an hour, maximum an hour, 20 minutes, and by 730 we should be done. Thank you very much again. Okay. Good evening once again and welcome back to nanometrics windfall tax in Nigeria, the Catholics for economic growth the town hall.
Introduction of Speakers
So the ground rules for the town hall is I would speak with our speaker for the next two to three minutes and then we would open up the mic. So if you want to speak and contribute to it, please kindly just make a request. And then I would, at every segment, I would call on two or three people so who will give us a feedback on what they think and how they think the taxes should be used and their own expectations in terms of that. Please, let's be civil and create an atmosphere where people are going to be able to speak to the authorities towards better understanding that these are the things that we expect the windfall tax to be used for. Good evening, doctor. You. I would like you to introduce yourself quickly so that we can get into the session.
Introduction by Doctor
Yes. Thank you very much. I hope I'm audible. Am I audible? Yes, you are. Good evening. Okay. Good evening. Yes. Good evening to everyone who are the platform. My name is Udo. I am an agronomist by profession and a public policy analyst. So I think that is about me. And I want to thank narametrics for always providing the platform. I mean, it's always a pleasure to be here to discuss on topical issues. Thank you. Okay. Thank you. You were part of the discussant last week and a number of things that came out and where we already know the bill was submitted as part of the 2023 Finance act amendment.
Discussion on Windfall Taxes
The Senate increased it from 50% to 70%. We know that windfall taxes happen across other parts of the world. It happened in Italy after Covid. A number of countries did do some form of windfall taxes, even in Africa. But when you consider all this. So what are your specific thoughts in terms of how we in Nigeria can go about implementing this before we open the microphone to the audience? Doctor du. Okay, thank you very much once again. So the windfall tax from the report that we saw in the media was supposed to, specifically tax unusual high profits that the banks, you know, was, making, from the activities in the forex market.
Doctor's Insights
And I think from the bill is supposed to start from. It's supposed to be applied retroactively from July. Okay. and this is not a tax that is directed at the banks for some special banking ingenuity on their side. This is just monies that they are making, you know, from the banking side of selling forex, making huge profit from it. So the government were requesting for 50% of that profit. But when the bill got to the Senate actually raised it to 70% that the. That the government should actually get 70%, which I am in support of that I don't feel it should have been higher, but 70% is a fair starting point.
Allocation of Funds
And then the government, on their part, said that this money is to help them fund capital project, critical infrastructure project. And also they mentioned two sectors they wanted the money to go into, which was healthcare and education. These are, I think, two critical sectors of the economy that deserves improved funding. As I'm speaking to you right now, the 2024 budget that was allocated for the education sector was 2.18 trillion naira. Out of the 27.5 trillion narrative budget. Initial budget was 24, and they said it increased 27. And that represents 7.8%, about 7% of the total budget.
Budget Concerns
And this still falls significantly below the UNESCO recommended 26% of national budget specifically for education. They recommend that national budget should allocate at least 26% of, you know, his budget. And out of this money, from the report, we understand that the federal minister of education was to get 1.23 trillion and the TED fund was to get 700. So it shows that the government still is under funding the educational sector of the country. And this is not particularly only about this administration. It is a recurring decimal in the country that the educational sectors, healthcare has always suffered underfunding.
Necessity of Education Funding
Okay? And these are basic necessities, you know, of empowering the citizens, because it is at least basic education is a right of every child in Nigeria to have access to basic education, health care. So I want to first of all, I think on the surface acknowledge and commend the government for having it, you know, in its plan, in its policy plan, fiscal policy plan to crawl this profit from the bank and then use it to fund the education sector. So I think the conversation, like you have said in the ground rule, is to dissect and, you know, scrutinize and see how this money is going to be spent judiciously, at least.
Economic Justice Discussion
If the money can be allocated and used to fund these sectors that the government have identified, identify that are critical sectors that needs this funding, then I think we should commend them. I think it should be a commendable. I think then that would be my opening remark. I think also the rewards that the government used, even the social and political analysts used to describe these tax as a way of promoting economic justice in the country. Because in a country with huge inequality, gaps between the rich and the poor and the bank making this sort of huge profits, it is wise that they pay their own fair share of tax to help fund infrastructure that they also have the benefit from road infrastructure, securities to secure them as well, legal frameworks that will help them also to recover maybe loans, delinquent loans that they might have given out.
Addressing Economic Inequality
So there's a lot of things that this is going to address apart from income inequality and also help for economic stability and prosperity. So I think I will leave it at that for now. Over to you, Wade. Thank you, Doctor Du. So we've had, we're going to open the mics now. So if you really want to say something about Doctor Dee's opening remarks, his focus, he says he's focused on two areas that the government have said that they're going to deploy some of these resources into, which is healthcare and education.
Continuing the Discussion
We've heard that the basic United nations expectations for education, for instance, is about 26%. I think healthcare is about 20% of budget. And we do know that Nigeria over the last 30, 40 years has really not been able to do that. And so my question and just to keep the discussion going, will be which areas are we going to be looking at it? Is it to pay for the lecturers in tertiary universities so that we can increase their salaries in education? Is it to improve the infrastructure and create new ways of learning for healthcare? Is it build new infrastructure, what's it called, teaching hospitals for some of our tertiary universities or specialist hospitals, as the case may be, or just even provide equipment, modern day equipment.
Opening the Floor
So I'll open the floor and my technical team at the back. If you see the request, please let's bring them on. And I see Habu and I don't think, I really can't see that, but there are two requests there, so let's bring them on so that we can hear them. But let's remember the ground rules is we are speaking to which areas we're looking at and how the government can actually deploy this 70% windfall tax that is expected to be collected from banks. So let's start with Habu. Please, please, can you bring him on? Okay. Why will I wait for my team at the back to sort themselves out? Let me welcome Oreke Lewa, who is our other speaker, who was also here with us last week.
Additional Perspectives
And let's take another aspect of the issues that were discussed last week, towards looking at which other areas where we should also be focusing on and what kind of things we're going to be talking about. Oreke Lewa, good evening. Could you just quickly introduce yourself? And then I, I'll take the next question and then we'll go on and go back to see whether we can get some of our speakers on. Hi. Hello, guys. I'm a consultant, researcher, academic. I just wanted to kind of give a little bit of a framing remark.
Framing Remarks
I think there are two aspects to this, right. The first is, of course, the specific areas that we want the government to invest in, though there are some structural issues at play, right? So, for example, we think about something like healthcare. We're not meeting up to our kind of international benchmarks for healthcare spending. But one of the primary reasons for that and the fact that we wouldn't have a, for example, childhood immunization program if it wasn't for international aid, is because of the constitutional position of health. It's on the residual list. And as a consequence of that, you have difficulty in terms of tracking and streamlining spending across the three tiers of government who are responsible for different aspects of it.
Economic Challenges
Right. That being said, I think that it is very important in this moment, especially because the windfall tax has been introduced on the grounds of equity and creating a fairer, more just economy, that much of this spending goes towards the development of human capital, both on the health side, also on the education side, but also towards creating new job prospects and opportunities for citizens. You know, it's a really challenging time for people. I think there's another kind of less focused on aspect or less kind of treated aspect, which is the fact that at present, the existential threat to all of this stuff, to all government spending, is the challenges that the economy is facing at the moment and the success of the reform program overall.
Government Commitment
And I think it's very important that we kind of balance the specific demands in terms of capital expenditure with a more holistic perspective in terms of the government actually being able to deliver on its base of premises. And I think I mentioned this in the previous session last week, that what we're seeing, especially across the MDA, is really poor budget performance. I'm seeing mdas as of August with budget performance of 7%, 6%. Now, hopefully, this means that more spending is targeted, but in reality, that means that many of these organizations are just paying for salaries and not much else.
Budget Performance Evaluation
And so I think it would be interesting to kind of think through what ways can the government use existing structures, because there's a tendency to create new things. Right. We'll get a new investment vehicle, or we'll get renewed hope homes, or we'll get, you know, a new kind of program on education. I think it would be interesting to see or have a conversation about what existing vehicles are there within the government infrastructure that we could channel funding through, or where do we think that funding is missing? I'll leave it there.
Insights on Infrastructure
Thank you, Rick. Lewa, while my team is still working out their technical issues, let's go to the second part of our discussion. Doctor D has spoken about the fact that there's health and education, and he also mentioned the fact that one of the reasons for wanting to go about this windfall tax is to ensure economic, to address economic inequality and wealth redistribution, and also looking at the banking sector's role and responsibility in supporting the current economic climate that we're in.
Windfall Tax Impacts
So when you consider all this and you consider the fact that there is recapitalization coming in and so on, do you think that in taking out these windfall taxes, we will be able to get enough towards supporting infrastructure, capital infrastructure, health, education and poverty alleviation? Well, I think there's, let's take, for example, infrastructure, right. There are two ways to look at infrastructure. You have the big ticket infrastructure, major roads being developed. If you're thinking from the federal perspective, federal government is responsible for interstate roads, right?
Types of Infrastructure
So major roads being developed, ports, all of those kinds of things that develop our capacity to do trade, to transport goods and people around the country. I think there's a less kind of thought about aspect of infrastructure, which is the kind of supporting infrastructure for trade. So if we think about the environment that we have at the moment, and also putting that in the context of the pressures on banks with a recapitalization exercise. One of the knock on impacts of the tight monetary environment is that cost of borrowing for businesses, especially small and medium businesses, is going through the roof.
Government Investment Opportunities
Right. And I think that one thing that the government could invest in is infrastructure that allows for lower cost loans through the traditional banking institutions rather than through fintechs channeled towards specifically small and medium enterprises in high priority sectors. I think in addition to that, if were thinking about if were going to be able to get enough. The infrastructure gap in Nigeria, I believe, is estimated somewhere around the region of $2 trillion. It's highly unlikely that we'll be able to, given the results that banks posted last year, and bearing in mind that this only applies to realized gains, not unrealised gains, the likelihood that we'll be able to fund two or three major roads from this windfall tax alone is unlikely.
Investment Seed Potential
However, the point is that when government is supposed to have the seed and then bring the private sector along in various different aspects, whether that's through PPP, whether that's through like investing in already existing private initiatives, providing funding guarantees, or some of the other supporting financing infrastructure to be able to make more out of that tiny seed. Right. So I think the question is not whether we're going to have like a, I don't know, superhighway or coastal highway funded directly from this, because I think that Nigerians don't really have the appetite for that anyway.
Multiplier Effect of Investments
I think it's more so about how the government is going to be able to amplify and create a multiplier effect through this form of investment.
Discussion on Windfall Tax and Investments
So it's going to have to really sit back. I think it's very easy to want to kind of do loads of ribbon cutting and say, oh, we'll build some extra schools or we'll build some extra departments. There's a plan at the moment to kind of turn some of the federal hospitals into more specialist institutions. But I think we also need to think more long term, given that this is a one off tax, about how we're going to be able to make it a sustainable investment. It's no use saying this year we're going to spend loads of extra money, but not being able to replicate that in future years. So I think we probably would, you know, I would rather see this maybe invested through the NSIA stabilization fund or the, I can't remember what it's called, the future fund essentially, but I'd rather see it invested in a way that isn't from direct payment to contractors, but actually a vehicle that would yield returns and be bankable for Nigeria.
Opening the Floor for Public Input
Thank you, Rekilewa. So let me bring on Job. So you've heard our speakers and we're trying to open the floor to the town hall and get more people to speak. So you heard Doctor D speak about healthcare and education in terms of where we expect those kinds of fundings to go into and what the federal government has already said. So what specific things do you think we should be looking at in terms of healthcare and education? And you heard Orki Lewa's position, or let's not try and get to the fact that we need about 26, 20, between 20 and 26%. But what kind of things that would help stimulate the economy in terms of areas of education and healthcare towards ensuring that we can see the ripple effect across board. Thank you.
Concerns about Government Plans
Okay, good evening, everyone. I think Riclia has said a lot about what the government can possibly do with the windfall tax, but my own concern is that please can you verify that you can hear me? Loud and clear? I can hear you, but let's remember that we're trying to get specific things that we want to get out so that the government is aware of what we're saying, not just what is it called. So that's why we're specific about people speaking to the aspects of where we think the government should start looking at or how quickly, when they are applying this, what they should be looking at. Please. Thank you. Okay, so thank you very much. So what I think the government can look at with the realized gain from the windfall tax is to look at major consumptions by Nigerians. And when I say major consumptions, I'm talking about food.
Suggestions for Addressing Economic Issues
With the current fuel price that has gone up now, I think the government needs to look at how to subsidize consumption so that people's consumption power can go up a little bit, maybe provide infrastructures for farmers, or just bring a long term plan and my own. What I'm skeptical about basically is this realized gain is not eventually being looted by the corrupt politicians that we have. So if it is not, we should have a long term plan. Let's not say that the realized gain is going to be used for healthcare, agriculture, or unemployment. Let's focus on one particular thing, do one particular thing and do it well if we want to use it for boosting our agriculture in order for us to be able to generate more foodstuff for the economy and for us to be able to provide food for the whole economy, good and welfare.
Focus on Specific Areas for Investment
And if we want to focus on education, let's properly invest it in education and let the process be transparent and let everybody accountable. Because a lot of manufacturing companies are going to be declaring a huge amount of loss this year because of the impact that this is having on their, on the industry. So I think it's either we focus on food or we focus on agriculture. So that's just my own contribution. Thank you very much. Thank you very much Jab. And so I hear you. So Jab is specific about let's focus on agriculture. And if we're focusing on agriculture, we should work out what we think our long term expectations will be.
Long-term Expectations for Agriculture
So that when we start to create the impact, we're not just thinking about like Morocco said, just having that windfall and saying, we're doing this, this, and let's have specifics in terms of how we build up and ramp up the investments in this area. So let me go on to Dieter, please, could you come on and give us your own perspective? Especially when it concerns the fact that, remember that Orekalewa has said something about working on major infrastructure, logistics infrastructure, and target infrastructure development, so that it can create socio-economic activities towards improving wealth and all. Thank you very much. I think we've lost him.
Implications of Windfall Tax on Banks
Hello. Why we are waiting for. Yeah, let me. Okay, so CO2. Go on, please go on. My position on the windfall is like, why is it now? Because this will necessarily deplete the cash, the liquidity of the banks. And there is a capitalization that is on coming. And these banks, they really need a amount of cash to be able to meet up. And with this burden on them, they'll be able to achieve that. And in the history of these countries, when recapitalization takes place, banks need to match or acquisition takes place for them to be able to resist the chunk that comes with capitalization.
Timing of Windfall Tax and Accountability
So I think it's in time with our economy. I don't think the banks will have much pockets like they declared last year. By the end of this year, to my own knowledge, if I should be right, I think it is the wrong timing and there's never been any accountability in this country. And transparency when it comes to the user of that. So are we very sure that they will use it at the end of the day for, what is it called, the education and infrastructures, I mean, healthcare infrastructures. Thank you very much.
Government's Responsibility to the People
Kelvin, welcome. it's great to have you on the session. I think I would like to bring you on so that, but first, quickly introduce yourself so that we'll know who you are. Okay. Then we'll take up the next game. Okay. Hi. Good evening. Hi. Thank you so much for having me. How do I introduce myself? Well, I'm in between roles. I consult for government. I also consult for the private sector. I think that's the shorthand version for now. Thank you so much. And who better to have one who sees both sides of the coin and is able to appreciate the intricacies of it?
Investor Confidence and Economic Policies
So let me. We're talking about the windfall tax and we're trying to, last week, we did talk a lot, and some of the things that came out were about banks' speculative, I hope you can all hear me, bank speculative activities and moral responsibility from a sustainable perspective. And also the fact that with all the things going on in terms of bank recapitalization, foreign investments, and policy consistency, what do you think, in your own opinion, would investors be looking at in terms of base and how do you think that could affect the fact that this windfall tax? People might, just might be looking at it and saying, okay, even if you take it, will investors be willing to put monies into the bank as recapitalization is coming in?
Challenges in Tax Implementation
And then secondly, when you look at government performance and policy implementation, is it just going to be another tax that is going to bring you money and is not going to be used in the right places? We've heard Doctor D and R. Kilewa talk about you putting it into health, into education, into strategic infrastructure development. So what are your thoughts before we go back to the townhouse? And thank you so much. So I will take you back to Q one of 2024, when the CBN sent the circular to the banks and had mentioned to them that they should not spend the whatever paper profits they've booked from revaluation gains on FX forwards.
Recapitalization and Its Impact
And my thoughts, when I saw that secularity banks was okay, you know what they were going to apply to? Because I was expecting recapitalization to be announced. They were going to apply to recapitalization for the banks. It was surprising and a good development. When they announced recapitalization, I specifically told the banks that they were not allowed to use revaluation gains from FX forwards to recapitalize and balance their gen ratios. And then after the banks closed their tax returns, their 2023 financial year taxes were paid. All of a sudden, in an emergency, this thing was sent National assembly, the proposal from the executive was actually 50%, and then the National assembly in their wisdom raised to 70% just like that.
Concerns about Policy Consistency
You know, when it comes to windfall taxes, they are usually processes. You don't just wake up in the morning and say you want to apply windfall tax because you're also sending a negative signal to the international community that there is no consistency in policy making. You know, apart from the fact that it's retractive. It's retractive. And the reason why they say it's retractive is because you're applying it to a previous financial year where companies have finished their annual assessment and they closed paid taxes and all of that stuff.
Lack of Consultation in Tax Policy
There was no technical consulting session done for tax policy costing. That's what it's called tax. People tell you it's called tax policy consulting. Banks were just taking all of a sudden like, you know, the, at a time when they are raising money to raise now, I'll tell you why it's good. The recapitalization is very good. Ten years ago, tier one banking license at 50 billion was about over $300 million. Tier two was half of that by 150 or $170 million.
Need for Strong Banking Sector
And then you have the devaluation of the naira dropped about 95% and the same 50 billion naira is now less than $30 million. So the need to recapitalize banks was imminent and it was important. I think it's one of the most important things that the central bank will do for this current decade that we're in. Because you need strong banks with very good churn ratios to be able to attract institutional capital. It's very critical and important you do that. But for you to apply a revaluation, what is it called? Windfall tax.
Complexity of Banking Regulations
Considering that in fact not all the banks had closed their open positions, some still have floating positions, presents legal issues. You've seen the statement from the Bankers Bank Directors association of Nigeria bid and release a statement. I think that is also going to suffice for the bankers committee speaking. I'm not sure they want to challenge the central bank directly because of how sensitive it is. So apart from, oh, the money is going to come and help government do this and do that. I think the question I've asked in meetings privately is so in 2025, 2026 financial year, how is the government going to raise the money, for example, cover for the shortfall that's presented in the increase from minimum wage from 30,000 to 70,000, are they going to apply another windfall tax?
Funding Concerns
Or where's the money going to come from. Exactly. So the thinking behind, oh, you're going to use the money for this, for that because already nearly 70% of your budget goes to servicing debt and doing under recovery. The government says it's not in their budget. But the reason why that is clever by half is because whether you put it as a line item in your budget expense or not, the cash cow that brings you revenue to pay the line expense of under recovery on PM's is NPC.
Revenue Allocation Challenges
And if you don't put it, and they have to capture it as FX differential, the revenue was supposed to pay you as dividends to cover that line item, they're still going to take it from there, which is what you've seen play out currently with NNPC. So before we even go into the benefits of windfall tax, the monies that will come to the government, let's consider that the very concept of applying a retractive tax on the banking sector at a time when they are going through capitalization exercise, which is the biggest event of the decade for banking industry in Nigeria, is completely off.
Concluding Thoughts on Windfall Tax Implications
Thank you. Thank you, Kelvin. So what I hear you say in terms of your summary, and correct me if I'm wrong, I'll come to you shortly. What I hear you say is investor confidence. Is it going to be very strong? What are the effects on bank capitalization? And we can see that because they can use their retained earnings as part of what will go into their capital like it was done in 2005. And then the last aspect is legal issues. So even if we want to know from the audience where we want to spend them on whether it's major logistics, infrastructure or targeted infrastructure development or healthcare, I mean health and healthcare and education, there is a carrot dangling above our heads as it relates to those three areas.
Expectations from Government Policy
So let me come back to you, or before I come, I'll come to you, doctor Victor, let me come to you. So when you consider all this, I hear everybody say windfalls are important, are good, it's been done. I hear Kevin say he hasn't been thought through. Well, he has been thought through, but there are other things that you didn't touch base with the other side. So what are the expectations from you? It's going to happen. It's part of the law. You've said the areas that you wanted to come into. But what are your own expectations? Because these are critical issues that Kevin has raised. Investor confidence, effect on bank recapitalization, open positions, legal issues on them. How do we deal with all that.
Discussion on Governance and Policy Setting
Okay. So I think there's a corollary to American exceptionalism. There's a tendency whenever we think about Nigerian government policy, to exceptionalize Nigeria. I think it's important, as I kind of outlined last week, to recognize that especially since 2020, there's been a series of windfall taxes imposed. These are retrospective in nature, of course, but there have been a series of windfall taxes imposed across the globe. At the moment, almost two-thirds of European countries have imposed a windfall tax on the energy sector, for example, who benefited from the rise in energy prices as a result of the sanctions placed on Russia during the Russia Ukraine war?
Imposing Windfall Taxes and Economic Impacts
Right. Now, the reason for imposing a windfall tax, and it's very important to note this, is that in capitalism, we're told when you have the incentive of profit, then you create companies that are innovative, that strive to provide operational excellence, in order to be able to maximize their profits. But if you get a sector that benefits to the detriment of other sectors, it's very important the monies that banks have been able to make have a dotted line drawn from them. Right. The way to the manufacturing sector losses. Right. The loans that manufacturers are repaying at higher rates are the loans that they're repaying to banks.
Balancing Production and Financialism
Right. So it's very important to kind of put that into the mix. Now, the question is, as a country, when we're thinking about our trajectory for development, is our priority production or is our priority financialism? And I think our priority should be production. And so I think that ultimately, the conduit, the financial conduit, that's the banking sector, should not be the biggest beneficiary of government policy, but also should contribute to the development of productive organs, because ultimately, that's what allows it to sustain itself.
Role of the Financial Sector in Economic Development
And I think that's the reason why many leading figures in the banking sector have come out in support of the windfall tax, because I think they recognize the role, the unique role that the financial sector plays in the overall economy. I think the second thing to kind of put on the table is I don't think that, bearing in mind some of the conversations that have happened since and statements that have been made, I don't think there was ever. I think people were surprised that banks weren't able to use retained earnings for the recapitalization exercise.
Accountability and Recapitalization Processes
And whilst banks have been somewhat lazy in terms of all issuing rights as a means of recapitalization, I think the CBN was quite forward or assertive in asking banks to look to financing for their recapitalization from abroad. What part of it was also to try to integrate our financial sector, our banking sector better with a global economy. I think the final thing to kind of say on this is that when we kind of drop the social contract, ultimately it's an exchange of power. The people give their power to the government to govern over them.
Reflections on Governance and Democracy
Now we can have quibbles about the degree to which Nigeria's democracy has developed, or the degree to which Nigeria's democracy is truly reflective of the will of the people, even just on a demographic basis. Right. However, primarily it is the function of government, with the interests of all Nigerians at heart, to set policy which allows for the development of the economy overall. I think then, therefore, when we're thinking about some of the other things that have been raised in terms of potentially discouraging foreign investors, what happened last year was a unique event.
Future Economic Considerations
I don't think we're going to have another flotation because I hope we never go back to fixing the naira.
Investor Awareness and Economic Challenges
And so investors are aware that the gains that banks had in 2023 are not going to be replicated again, certainly not in the same way and certainly not with as much ease. Then we have to think now that we're in this situation, now that the economy is facing challenges on multiple fronts and also is situated within a challenging global macroeconomic environment, then we have to think about, okay, well, what is the best way forward in terms of ensuring that in this period of flux, we don't fall back in terms of education, we don't fall back in terms of health because were already starting on negative 20 compared to where we should be.
Government Revenue Concerns
But also, how are we going to ensure the ability of the government to post these, to fulfill these reforms now? It's important also to note, as someone said, many of our biggest taxpayers are posting losses at the moment. Government revenues are far below where they should be at this point in the year. And as I mentioned before, budget performance is really low. And so we can't keep asking government for things. We can't keep asking for subsidies on consumption without a correlating plan for how we're going to finance those.
Economic Decisions and Banking Sector Stability
And at this point in time, when you have economic crisis, difficult decisions have to be made. I think at the very least in this situation, we haven't seen a kind of massive uproar from the banking sector because I think they're on board with the government's program. And so I'm not really sure why we should necessarily oppose this. I'll leave it there.
Addressing Public Concerns
I don't hear an opposition. Everyone is just stating their concerns as it relates to the different aspects of the economy that we're talking about. And I think what Kevin was trying to bring out to focus was investor confidence. And like you said, if at the end of the day you're asking banks to integrate more globally and more internationally towards getting recapitalization from foreign investors, then foreign investors also have to take a step back and be sure that what kind of policies are they going to be dealing with? And I think we just rest at that.
Feedback on Windfall Tax
But let me bring in Doctor Victor, and you've heard all the things that have been said and the feedback from those within the town hall speaking about the areas and the things you want to do and the concerns that our speakers have shared as it relates to where it should go into how they think it should be executed in terms of that. So for me, and then we've heard Kevin also speak about the confidence of investors, issues of bank recapitalization. For you, as someone who is listening, what is your feedback to the government in terms of this windfall tax is here to stay.
Concerns About Revenue Generation
However, in implementing these and all these issues, let me not call them all these areas that are challenging for the resources to come to. How do we go about it? And which area specifically or which area specifically are you going to use? Are you going to put in this review us is towards ensuring that one there is a spiral effect in the economy. Well, thank you very much.
Perspective on Windfall Tax
I'm afraid I'm going to be approaching this rather differently than what we've been talking about. When I first heard about the windfall tax, from what I have heard from other speakers, it's like I'm not sure we're really listening. When they visit the finance minister who was talking, what is happening here? And I'm not speaking to government. Rather, I want to speak to us what the government is doing right now. I think we're in a very desperate situation right now where government is trying to raise money by every means necessary or every means possible.
Concerns on Government Revenue and Transparency
And the idea behind the waitfall tax is like saying, now let me put it in very. Let me, I don't want to say use straight language or whatever, but let me just put it a very crude way. You know what they call it over, I mean, over invoicing for contracts where you go and then somebody says, okay, increase the money. The road contract is probably a billion. I say, make it 2 billion. And then later I go back and say, give me the 1 billion on top, you can keep your 1 billion.
Equitable Distribution of Gains
What I see is when this came about, it was because of forex they raised. When the foreign exchange just went over the roof. It's like, okay, the banks are the ones making all the gains and they're keeping all this money. Now let's have our share. I don't know if anybody really listened when Edun was talking, but frankly, government is interested in the profits that the banks have made as a result of their policies.
Concerns on Government Taxation Policies
He's saying, guys, you can't keep this money alone. You keep declaring five profits anyway, I mean, every year. And these profits as a result, we made it possible for you. Now let's have our share. That's where it is. Now let me tell you what my own concern is. My concern is that governments may therefore look at this as another form of revenue generation or taxation, or quite taxation, another form of revenue generation.
Revenue Generation Manipulation
So they can, like you would do in the stock market or in forex or whatever, where you have a certain group of people manipulating the market, whether to go up or down for their personal gains. This is exactly what I see government doing. I don't know if anybody is seeing it or if anybody has seen through that, but I can assure it has come to stay. And it's not necessarily in the interests of the common man.
Resource Allocation for Development
Of course, money will be deployed to do, you know, infrastructure projects and all other things that governments normally do. But for me, the motive, let me use street language, is not pure, you know, and that's my worry. I may not be staying too long after this because I have a meeting at seven Zoom time, but I, let me just yield the mic at this point and then hear what others have to say before I leave.
Discussion on Future Engagements
Okay, thank you doctor. Victor and Kevin, I can see you raising your hand personally. I hear you. And the only way, and the only way we can change what people's perceptions are, is to speak about where we want it, where we want the directions to be.
Focusing on Constructive Feedback
Rather than just being more antagonistic, I'm trying to use the right word. Please pardon my friend. Rather than just being more aggressive and saying, no, I don't trust you're not going to do this. How do we channel our energy towards getting this windfall tax is going to happen? I don't know when, but it's part of the finance act.
Guiding Government Policy
How do we channel our energies towards directing government in ensuring that we can see the effects in the economy? Kevin, over to you. You heard what he said and you've spoken about investor confidence. We've spoken about so many other things in terms of how we think this world can be redistributed or mentioned.
Production Companies and Financial Strategies
The fact that a lot of the production companies made losses. Should we just take the money and just put it back into them and things like that. But you can respond to that. I'll come back to you once Kevin is done.
Data-driven Discussion
You know, it's always good to speak from a position of data, you know, and look at the numbers. If you look at the windfall tax, you see that Fugaz. The top six banks, they booked $3.1 billion in unrealized gainshead. Out of the $30.1 billion, only about $200 million is realized. $2.9 billion is still floating.
Financial Context and Banking Obligations
Yeah, if you look@their.net. balance sheets for FX onshore, 2.9 of that $3.1 billion is still floating. So what the government effectively can tax as windfall 70% is actually $200 million. That's what they can tax. And then you look at the non speculative CRR that is currently 45%, one of the highest in the world.
Historical Insights on Banking Practices
As a matter of fact, when the merfalet took over in 2014, CRR was 14%. The global recommended average for cash reserve ratio is actually 15%. Nigeria has it at 30 times. I don't need to go back to explain the story of CRR. CRR is basically like a tool the central bank uses to manage liquidity in the banking system and control money supply.
Regulatory Constraints and Financial Pressure
MFLA converted it to a tool to use to finance budget deficits for the government. You know, in violation of section 38. I don't want to go that angle. And so it means that for every 45, every 45 cobble that is deposited into a nigerian bank, these banks are obligated to keep 45% of that interest free with the Central bank of Nigeria.
Multiple Fees on Banking Institutions
Yeah, everyone. The banks will keep 45 cobalt. Exactly. You look at AMCON levy. AmCon should have been dissolved since 2021, 2022, based on the AmCon act of one decade. Amcon is still charging fees to the banks. You look at deposit insurance premiums that the banks have to pay to NDIC, AMCON Levy and CRR, the banks are exposed.
Market Challenges and Investor Sentiment
$1.8 billion for 2023. So the question about, yeah, revaluation gains, manufacturing companies, fx forwards. Good argument, but what are the numbers saying? The numbers are saying that for Fugaz, six top banks in Nigeria, $30.1 billion, 2.9, is unrealized.
Realizing Financial Gains
Only $200 million has been realized. Now it's coming at the same time, recapitalization, it's coming at the same time when the banks are doing recapitalization. I just needed to put that out there so that we see the numbers and see that it's not as rosy as we think it is.
Government Deficits and Financial Strategy
So my guess is that the wage bill, that deficit that the government has that we need to finance is 70% of $200 million going to fund it. And are the banks going to close their open positions of $2.9 billion? And all the madness the banks have to deal with deposit insurance premium and then AMCON levy, which is a repetition, by the way, AMCON levy and deposit insurance premium is a repetition.
Banking Stability and Government Dependencies
And the CRR of about 6 trillion naira plus that the banks have floating with the Central bank of Nigeria, that is not earning them any money. In a market where NTB stop limit is between 24 and 26% and in a market where you can see that the banks are struggling to close the ipo, I feel very bad and sorry for the security underwriters on those rights because they are struggling to close their ipo.
Interest Rates and Subscription Challenges
They are not getting the subscription because risk free rates for government securities is over 20%. These are things we need to look at and put in perspective as we talk about how lucrative the effects revaluation gains are. Thank you.
Engaging in Constructive Economic Dialogues
Thank you, Kevin. And let me come to you, Doctor De. Doctor D. You have something to say? Yes. We have actually gone deeper into some of the things that we're going to be talking about next week, which are the economic realities of the windfall tax.
Next Steps in Economic Discussions
And I'm glad that we're using this town hall to bring them out. So that next week we'll have a more detailed conversation around it. These sessions are going to run for the next about nine to ten weeks. So there are so many areas that we need to talk about. So let's go on.
Transparency in Windfall Tax Implementation
Yes. So I had to jump in continuation to the conversation from doctor Victor. Okay. Because this will be a recurring concern with the public and it has to do with the transparency of this windfall taxation, how it's going to be applied.
Sustainability of Windfall Tax Policies
Because essentially this is going to be a one off game. And so it's not going to be a sustainable policy because this has to do with the currency devaluation that happened. And then you can draw a queue, you know, from the recent announcement by the NNPC when they refused to use the word even subsidy to, you know, clarify to the public that the government was paying subsidy because it will go against the portion of the government.
Government Accountability and Economic Policy
Last year when they said subsidy was gone. So the NFC said that the cost of importing the petrol and the selling price was what they call importation shortfall. Those were the technical wars because we worked, I mean, I work in policy as well. And when we, these are the things we spot out when we review bilateral programs and proposals like this.
Perception Management and Policy Transparency
I said, because we could use fancy words to try and hide the true intention. Don't forget the government has a very big bill to pay now. They have just negotiated a 70,000 year minimum wage, which was not even captured in the 2024 budget. And that money has to come from somewhere.
Funding Strategies for Government Expenditures
Where is, where are they going to get the money from? Are they going to fund it through the loan that they just got from the World bank or are they going to use this money? So we need to go on the roadshow, on the town hall.
Engaging the Public on Economic Policies
Like what you are doing now is a town hall, right? This is a town hall conversation. Let us adopt the same strategy that the former minister of finance and the coordinative minister of the economy under the Jonathan governor, which was Ngozi Wella, and then central bank governor Sanusi, when they engaged in town halls, they went across the country trying to engage robustly with the people to tell them why subsidy has to go, the rationale behind it and how the government was going to cushion the effect, too.
Government Communication Strategies
All right? Because they were not just going to leave the people out to hang and dry. But this is why, I mean, I understand it's going to be mixed reaction. Some people were going to, as usual, those are in power today, resisted then the policy.
Pushing Government for Greater Transparency
But I'm trying to get this conversation going in the direction whereby it us push the government to engage with the public because this government lacks transparency already in terms of how they're running things with the Lagos Calabar highway. We don't even know how there's no bidding purposes.
Call for Government Accountability
They said they were only using the invitation of who they wanted to give. So there's a lot of transparency issues already, a huge pile up of transparency issues with the government. So I think we should encourage the government to come out, sending the Minister for finance, Waleedun, the governor and other representatives to come in and induce.
Public Engagement in Financial Oversight
You could maybe go and people will come in, expats, policy experts, I mean, leaders, community people, you know, representative of youth, students and all that. We engage them. How is the money going to be used? How do we have oversight?
Importance of Public Oversight
Because what makes people adopt policies and key into policies of government is when there is transparency and engagement, people bring in their ideas and there's a more greater oversight and we have representation as well from the House of Representative, Senate, National assembly because this money was not even captured in the 2024 budget.
Funding Obligations and Future Implications
So is the government going to borrow that money? Because I'm thinking they might borrow that money as a bill to pay their bills. Right. And then try and say they will refund it later. So that's the point I was trying to make.
Engagement and Responsibility for Resource Utilization
So let's try and see how we can have greater citizen engagement and responsibility in trying to make sure the government provides greater transparency and push the money into the direction which they told us they're going to push the body to, which is education, healthcare, infrastructure.
Healthcare Budget Allocation
And by the way, the budget for the healthcare was 1.3 trillion which was only four point which is very dismal for a country like Nigeria with 20 million people with no healthcare insurance and all that.
Final Insights and Conclusions
So I think the money needs to go to these critical areas of the sectors. Thank you, over to you. Thank you Doctor D, I'll come to you. And I'm glad that doctor D you're speaking about.
Narametrics as a Platform for Dialogue
I'm having these town halls and that's why narametrics is always number one in providing this kind of platforms for people to air their views and people to listen and those who are listening to also air their views in terms of what the expectations are.
Facilitating Government Engagement
Yes, and that's why we're doing this, so the government agencies can work with us and tell us whether they want a fiscal or a virtual session and we can arrange that for them.
Widespread Perception of Windfall Tax
And it's really important that we continue to have this kind of discussions because a number of people in the banking industry, in the general economy have said, oh, the windfall tax is good, the government requires the money and so on.
Closing Feedback on Economic Policies
But jab, let me have your feedback on this because so many people have expressed their fears. You have also expressed your areas of concern in terms of where you think it should go to, in terms of and how you think you should go about it. But what are your fears and how do you think this can be allayed?
Concluding Remarks
Okay, thank you very much.
Speaker's Opinion on Banks and IPOs
So firstly I would like to say something regarding what Mister Kelvin said. I slightly disagree with the concerns of Mister Kelvin with the banks whose financial sector. So I'm talking about their IPO. Fidelity bank was able to achieve their ipo. So the fact that Zenith bank had to extend their own by two weeks, I do still believe that it is something that will be very difficult for them to achieve. And secondly, and okay, let me just round that up. I think for those bank recapitalization for two years deadline, I think they should be able to achieve it. And then secondly, the banks, before the collapse of the exchange rate system that led to this profit that they've declared either realized or realized, they've been making billions, hundreds of billions in profit after tax. Even before then 2022, 2023, most of them were making hundreds of billions in profit. The recapitalization was. So when it will come is where we didn't know. So it is here. And then I think that they should just put their heads together to figure that out.
Bank Services and Accessibility
And then second, thirdly, I think for, sorry, I'm diverting a little bit away from the windfall tax. I think the banks, the government really needs to look at the activities of the banks. I think they provide banking services rather than financial services. How many percentage of Nigeria can afford to go to banks and get loans to facilitate any of the activity? An average Nigerian cannot go to the bank to go and get a loan where you'll be paying almost 35% to 40% interest. So let's talk about housing loan, car loans, business loans. Small businesses cannot go to bank to go and get loan. These are the major core activities of bank to provide financial services and activities for small businesses, not just big organizations where you just issue out what they do majorly is just LC. They make LC payments and that's where they are getting.
Interjection and Development in Banking Services
Jabba, I need to interject you. That's the topic for another day and it's a very diverse topic. But let's also remember that the fact that, yes, these banks, they do provide financial services and financial advisory, aside from just your regular banking of deposits and withdrawals and also the amount of expenditure in terms of infrastructure collaboration that they do, the expansion of financial services and a number of that. But that's a discussion for another day and I had to interject you there. Time is never really our friend, but I would like to throw this out to my three speakers who have joined us today, Oreke, Lewa, Kelvin and Doctor Yu, so that you can give us your closing bids, everybody. And like Kelvin explained, if you look at the fugaz, which are the top five tier one banks, potential $200 million in terms of FX revaluation gains realized, another 2.9 billion yet to be realized. And that was at the point at which exchange rate moves from about 460 to about 960 at the end and end of 2023.
Exchange Rate and Government Taxation
And then we're looking at exchange rate at 960 at the end of December 19, 2023 and about 1500 thousand, 600, 2024. Do you see the windfall tax going on again in 2025? Because like you all are aware taxes are based on prior year. So do you see another windfall tax? Do you see the extension of this in 2024? In 2025? And if you do, and based on all the positions that have come out today and all the things that we are looking at, do you see it as an opportunity for the government to be more logical and sequential in the way they go about applying it and applying it to the areas of the economy that is required and that will be. I threw that question out so that you can help us close out on this session and then we can move on. Thank you.
Final Thoughts from Oreke Lewa
So let me start with Oreke Lewa. Sorry, I didn't catch all of the question, but I would say in terms of. Actually give me a second. Start with somebody else. I didn't catch all the question. Hello. You didn't get the question. I said, okay. So what I was saying is that exchange rates, 460 January 2023, 930 or 930? Between 900, 930 and 960, December 2023. So FX revaluation 100% December 2023 and possibly December 2024, 1800 to 960. So are we looking at another wait for tax against 2025? And if that be the case, do we say we should do that? But do we think that government can continue this? And what exactly should they do in ensuring that the windfall tax is actually revitalizing the economy? I hope you got that.
Windfall Tax Insights
Yeah, I got it. I got it now. Thank you. All right. So, I mean, it's important to note that the also 1 second, it's important to know that windfall taxes. So, for example, World bank advocates for a windfall tax on energy sector, on the energy sector as a permanent thing. So it's not something that's limited to just this year. However, I do think that there is a marked difference between the situation last year and the situation this year. So last year you had government policy which dramatically altered the terms of engagement in the foreign exchange market, whereas this year we're working through some of the kinks in the system, if one might say it like that, in terms of trying to get a foreign exchange market that actually functions in an efficient way so that we can actually achieve a proper price equilibrium, I think we've got some more challenges on the way to that, but I do think it's important to kind of point out the difference between what happened last year and what happened this year.
Government Investment and Economic Revitalization
That being said, in terms of how the government can, going forward, ensure that the monies used are actually revitalizing the economy? I think we need to be a bit more creative, and I'm really interested to see the concrete plans that the government has, if it has intentions of investing in specific sectors or specific areas of government. One of the really interesting things about the student loan program, for example, was the ability of the fund to invest in other things in order to generate more income and use that as a means of stabilizing the fund and being able to ensure its continuity and sustainability. I think we need to start thinking less about what we can pay for in cash. And I know Nigeria is a cash society, but what we can pay for in cash today and start thinking more about how we structure our investments as a nation. I think that's a really important point.
Health and Education Investments
Earlier I talked about NSIA's future generations fund. And if you think about some of the investments that NSIA has been making recently, you've got investments in the medical sector, which is happening in partnership with the private sector. So you've got quite a few ppps. But crucially, it's not involving cash down. We built a hospital, right. And I think that's really, that's the kind of mindset shift that I'm hoping to start seeing when you get bulk amounts of money for government, which are extraordinary revenues. The final thing that I would just say is that I think we're at a critical juncture. And as much as I talked earlier about the need to be able to ensure the success of the reform program, I think what Nigeria really desperately needs, and I spoke about this last year, Noi spoke about this recently as well, is a rewriting of the social contract.
Importance of Social Contracts
And I think this is a really good opportunity for the government to really make the terms of it clear. If it is doing a Robin Hood tax, which is what it's framing, the windfall tax to be really clear about the social gain that's going to come from the investments that it makes with that money. I do hope independently of the windfall tax, that we next year, certainly in the government budget and towards the end of this year start to see a bit more seriousness about meeting our international, at least our ECOWAS and African Union benchmarks in relation to health and educational human capital development. But I think also we need to kind of allow for the government to take a step back and think about how it can support the private sector to do other things.
Agricultural Policies and Government Role
Right. You know, we talked about agriculture. The cost of production in agriculture is so high, but much of that is about structural issues. And so I'd rather the government address that or tackle that on a policy level rather than kind of like throwing money at subsidizing. I'll leave it there. Thank you, Annie. Doctor Yu, over to you. Oh, thank you. So it's been an interesting conversation for me. Maybe I'll just wrap it up by saying that for your question, if we would be expecting the windfall tax to continue into 2024, I mean, that would depend on the, a lot of conditions, right? Maybe you look at the policy of the government side, how if the windfall tax is going to be put in place, we're going to see how the public will receive it.
Public Perception and Investment Environment
Because already, like I said, the public is already welcoming the idea that they want to see greater investments in those critical sectors. And the public perception will really underline the government's political will. At the end of the day, if the people think that the money is not going where it should go, it might derail the conversation and public support might be eroded at the end of the day. So we'll also look at it from the angle of foreign investment too. Maybe if the government look at it that the windfall tax has reduced foreign investment in terms of banking sector. Because if Nigeria want to attract a lot of foreign capital, the policymakers would have to also give and see the reaction of this windfall tax in terms of the numbers, how much foreign investment have we lost in terms of the banking sector?
Assessing Impact of Windfall Tax
If it doesn't look good, maybe they might try to reform the tax to make the investment environment more appealing. And the last one I would look at would be the equity part of things, income inequality and world redistribution. We have to assess if we have made gains, right. With this particular windfall that the government, this tax bill that I'm going to get, have they been able to invest properly, social investment programs, trying to lift people out of poverty, invest in education, like the student loan. That said, that was one of the policies that suffered, you know, kickoff delays because they didn't have more money.
Government Support in Education Sector
So I would expect, and in fact, I think the EFCC had to borrow 50, sorry, not borrow, actually gave 50 billion naira to the executive secretary. You know, to add to the project, which is for me is a commendable policy as well. So I think this money should actually be used to support other critical policies like that because that's a part of education sector that the government said they were going to support. Right. So we could see them putting this money more into that student loan program, see how they can help people, you know, with this new economy that we are facing where everything has gone up, students need help. So we'll see.
Monitoring Future Policy Success
I think this conversation will take more shape when we gauge how they have been successful in 2024. Then we will now see how we can support the policy. And also, even the National assembly might even think about either reducing it by next year if the windfall doesn't increase or if they don't think. Okay, you mentioned that the money increased from 900 or something to 1600. So yeah, it's likely they might. But if it's not so successful, they might reduce the tax bill, right, from 70% to 50%. But I believe they increased to 70% because they thought that they could achieve a lot more by slapping a higher tax bill.
Future Tax and Economic Growth
So let's gauge the policy going forward for 2025, maybe sometime next. Sorry, at the end of the year. Over to you. Thank you. Thank you. Thank you, doctor. You, Kevin, over to your final thoughts and then we can. Thanks for having me. Thank you. Nara Matrix and sincere apologies. I came in 30 minutes late to the session. In closing, I'm going to respond to what jab the speaker said and I'm going to bring us back. So what's the reason behind the windfall tax? For example, in Nigeria, it's standard of living.
Addressing Economic Challenges
The idea that 30,000 naira used to be about $200.10 years ago, 30,000 naira is now less than today. You won't get, I think it's like less than $50. If I'm not mistaken. Dollar today is about 1640 and inflation is 33 points. NPR is 26.85. The current hike in PM's is going to raise inflation rates consistently. And we've had 22 months of consecutive increase before this first slowdown in July. So when you look at that and you look at what that speaker job said, you look at the fact that the central bank does not just raise NPR to apply to prime lending rates and commercial lending rates.
Inflation and Economic Recovery
They don't just raise it, they raise it because of what they call an inflation to interest yield curve. So if inflation comes down, if you can fix your exchange rate induced risk to inflation and you can fix the food side, because if you look at the CPI basket, 52% of inflation is food, 17% is energy. If inflation begins to come down, NPRO will automatically be revised down because they are always trying to maintain a band, even if that band has been disproportionate over a period of time. And you look at the fact that there is not a flow of credit in the financial system in Nigeria.
Challenges in Credit System
And then you consider that banks don't like giving consumer loans because most of those consumer loans are not collateralized. And then you also have the question of the fact that there is a lack of what I call big data infrastructure for banks to be able to do origination on loans in Nigeria, especially for loans that are not collateralized, backed by assets. And the neem BVN linkage is an attempt. But Nigeria, the government needs to build like a central repository for big data infrastructure to enable banks to provide clean lines to customers. That's the only way you can see that they bridge the gap to provide credit, consumer credit that the government is trying to deal with.
Importance of Government Strategy
Credit corporation, I don't subscribe to all this idea of discounting loans. The government is saying they're going to give single digit, because there's nothing like single digit loans in the financial system. Anybody giving you 9% loan in a policy environment where NPR is 26.85, he's paying it from his pocket. If the government is giving you that, they are paying it from their pocket somewhere or the other. So the goal is to get inflation down. If you get inflation down, everything is going to line up. If you get inflation down, you won't need to apply windfall tax. That's the point here.
Inflation as an Economic Cancer
The cancer in any economy is inflation. That's the cancer. If you fix inflation, everything lines up automatically. And if you look at the fact that in that fiscal strategy paper in 2014, the DG of Budget office migrated from revenue to debt and you see that has platooned from 16.8 to over 50%, you have debt to GDP ratio above fiscal responsibility limit. You see that the migration from revenue to debt, the interest on the debt that is weighing down the government budget to fix what is supposed to fix that is trying to use windfall tax to fix now is what has brought us here.
Addressing Core Issues to Break the Cycle
So fix inflation. And for you to fix inflation, you have to fix all these other factors of exchange rate. For you to fix exchange rate, you have to fix your balance of payment. Balance of payment comes from autonomous dependent sources for effects. I don't want to go into it because we don't have time, but it's a vicious cycle. But we have to come back to the center and we have to come back to the beginning and look at it. Why was the windfall tax brought up in the first place? The reason why it was brought up is because the standard of living has dropped and standard of living dropped because inflation is perennially high.
Conclusion of the Session
It looks like when wartime. Okay, thank you, everyone. It's been another interesting session. And thank you for all those who listened and all those who joined us in our town hall jab. World speaker. Sorry we couldn't. World peace. Sorry we couldn't bring you on. I'd like to thank all my. My speakers for today, Kelvin, Doctor D. all my. My people at the back end.
