Rationale of the People's Budget: Fiscal Policy Measures of Budget 2000

Address by His Excellency President Olusegun Obasanjo to the Joint Session of the National Assembly Abuja, Thursday January 20, 2000.

Distinguished and Honourable Members of the National Assembly, it gives me great pleasure to welcome you back from the first Christmas and Eid-Fitri break in the life of our new democratic dispensation.

I wish you all to join me in prayer of gratitude to the Almighty for seeing us through the final half of last year. And may He continue to give us guidance in the forthcoming year as we undertake the collective responsibility for piloting the ship of this nation into a new century and a new millennium.

Distinguished and Honourable Members of the National Assembly, about two moths ago I presented to you the People's Budget for this year. At the time, I presented the broad outline of the fiscal policy measures that will support the budget.

In the meantime, we have concluded the widespread consultation process needed to get a detailed picture of the economy that we have committed ourselves to managing efficiently. It is thus with a deep sense of responsibility that I now present to you the details of the fiscal policy measures to back up that budget.

In practice this fiscal policy measures are the nuts and bolts of the budget, and I hope that with this brief address I can convey to you the philosophy behind the design of those measures.

Ladies and gentlemen, let me once more remind you that on the assumption of office in May last year, our present administration inherited a prostrate economy characterised by low capacity utilisation in the real sector, poor performance of the major productive sectors, import dependence, indiscriminate influx of sub-standard imports at ridiculous landing costs, and declining foreign exchange earnings.

Other noticeable features were high operating costs and inflationary pressures as well as unfavourable legal and fiscal environment for the private sector to become the effective engine of growth and development in the economy.

The weak and import-dependent industrial base and the low productivity in the agricultural sector left the economy vulnerable to macro-economic and fiscal imbalances. This was the background upon which previous budgets were implemented with adverse and crippling effects on the economy especially, on the manufacturing sector.

In order to make effective monitoring and assessment of the effects of the fiscal policy measures with a view to taking remedial action that would provide a level playing field for the various sectors of the economy, as well as create a favourable operational climate for industrialists, the Federal Government held several consultations with the Organised Private Sector through the initiative of the Consultative Committee on Revitalisation of the Economy under the Chairmanship of the vice president.

The Organised Private Sector and manufacturers subsequently documented their observations and requests vis-a-vis the administration of Customs and Excise, tariff and other fiscal and monetary measures.

Based on several levels of consultations and meetings as well as inspection visits in some cases, adjustment and amendments to the existing fiscal policy measures have been proposed. These measures are expected to improve the industrial climate and stimulate greater capacity utilisation.

They would also enhance productivity, competitiveness and job creation In line with the government policy of discouraging importation of non-essential raw materials and inputs, as well as finished goods, government, through the Inter-Ministerial Tariff Technical Committee comprising the representatives of the Presidency, Federal Ministries of Finance, Agriculture, Industry and Commerce, the Nigeria Customs Service and the Raw Materials Research and Development Council identified key areas that require tariff amendments as a means of fine-turning the policy measures.

Government has examined the outcome of these consultations and has consequently agreed on the following policy thrust in an effort to address the issues at stake.

Fiscal Policy Thrust for Budget 200

The fiscal policy thrust of the budget for the year 2000 is designed to achieve the following objectives

• enhance capacity utilisation in agriculture, manufacturing and mining industries

• provide appropriate protection of domestic, industries against unfair competition from imports and dumping

• encourage diversification of foreign exchange earnings through increased export activities;

• reduce operating costs and inflationary pressures, and

• provide appropriate incentives for investment in manufacturing, agriculture and mining with a view of making the economy, private sector-led.

Implementation of the Fiscal Policy

To achieve the above stated objectives, the following measures will be taken:

• Customs duty rates on major raw material inputs for manufacturing will be reduced, in order to revitalise ailing industries, increase sectoral capacity utilisation, enhance their competitiveness and increase employment generation.

• Towards this goal, the Federal Government will this year concede to the industrial sector over 19 billion naira in customs duty and other charges.

• Customs duty rates of the basic raw materials for the manufacture of pharmaceutical products will be reduced, with the view to enhance capacity utilisation, competitiveness, and control the influx of importation of drugs which could be locally produced. It should also reduce the cost of medication in the country.

• Other areas where reduction of duties will be effected are: Agricultural production and animal husbandry; petroleum products, soap and detergents, tyres and tubes, paper and printing, iron and steel, textiles, plastic and rubber, engineering (including CKD's) for motor vehicle plants, paints and chemical used in most of our industries in the production of essential products.

• There will be increase in the customs duty rates on some imported finished products, with the aim of protecting local producers of such goods whose warehouses are stocked with large volumes of unsold goods.

• There will be drastic duty concession on the importation of the following:

• educational materials, for the enhancement and success of the Universal Basic Education programme;

• essential machinery and spare parts for the productive sectors of the economy (e.g. agriculture, mining, oil, gas and cement) etc.

• Import duty on fertilizer will enjoy significant reduction, so as to make the commodity more accessible to farmers.

• There will be legislation of the protocol on ECOWAS Trade Liberalisation Scheme (ETLS), for enhanced foreign exchange earnings as well as increased international market share of Nigeria non-oil products.

• We will abolish the ten per cent administrative charge paid to the Nigerian Export Promotion Council on the claims due to Nigerian exporters under the Export Expansion Grant, Manufacture-In-Bond Scheme (MIBS) and other export incentive schemes.

• Exporters of duly processed products will now be entitled to higher grant on their total annual export turnover instead of four percent in the preceding years.

• This is subject to the receipt of confirmation of repatriation of export proceeds from the Central Bank of Nigeria and other standing conditions such as performance Bond.

• Excise duty will re-introduced on stout, beer, wines, vermouth, fermented beverages and bleaching creams, in order to safeguard the health of our citizens and off-set part of the financial burden on public health budget.

EXOWAS Compensation Fund

The ECOWAS Protocol on Trade Liberalisation provides for the imposition of 0.5 percent levy on taxable value of goods imported from third countries into the community of West African States.

Although this protocol has been in existence, it has not been implemented by member countries. Following consultations with some member countries, agreement has been reached to commence the implementation of the protocol with effect from this year.

The amount collected under the protocol shall be utilised to meet:

• Ordinary budgets of the community and its institutions with the exception of the budget of the Fund for Co-operation, Compensation and Development;

• The compensation budget for loss of revenue arising from trade liberalisation;

• The compensation budget for loss of revenue arising from trade liberalisation;

• The funding of development projects and

• Any other uses as may be decided by the Authority or the council of the ECOWAS including any increase to the capital of the ECOWAS Fund.

Port Reforms

Measures are being taken to make our ports move user friendly: To this end, administrative impediments to cargo clearance including vehicles have been removed.

It is expected that this policy will attract more imports through Nigerian ports as against the practice whereby importers prefer our neighbouring countries to discharge and clear their goods. Furthermore, various port charges would be reviewed downwards to lessen the burden on importers.

Distinguished and Honourable Members of the National Assembly, the various measures proposed are thus designed to:

• revitalise the ailing economy;

• promote higher installed capacity utilisation on our various manufacturing industries which will definitely lead to increase in employment;

• promote the development of the agricultural sector;

• enhance international trade;

• increase revenue generation;

• and enhance co-operation and integration in the West Africa subregion.

Distinguished and Honourable Members of the National Assembly, let me seize this opportunity to draw your attention to the request made simultaneously to the Speaker of the House of Representatives and the President to the Senate during your break, for an addition of ten billion naira to the Appropriation Bill of Budget 2000, for the purpose of employment creation to kick-start the reflation of the economy.

It is envisaged that the measures will create not less than 200,000 jobs throughout the country, with a minimum of 5000 jobs being created in each state of the federation.

In anticipation of National Assembly approval of the proposal, and having signed the necessary authorization in accordance with the provisions of Section 82 of the National Constitution, which allows up to six months expenditure pending legislative approval of the Appropriation Bill, we will embark on the implementation of this programme as from next month.

And in the same vein we also intend take measures that will keep all those employed now in their jobs. This will include discharging part of our debt obligations to contractors and employers of labour who have creditably rendered services to the Government. Also, all poverty alleviation programmes will commence at once.

Distinguished and Honourable Members of the National Assembly, our management of the economy in the first seven months of this administration has by all evidence produced stability. Our national economy now enjoys greater confidence both at home and from abroad.

We have indeed gathered considerable momentum in moving up the economy in increased capacity utilisation, agricultural and industrial production, and revitalisation of the manufacturing and mining sectors. We must not and cannot afford to lose the momentum. An early approval of Budget 2000 will ensure that we retain that momentum.

I believe there is need to improve effective communication between the legislative and the executive, there should be more exchange of information and broader level of consultation between both sides. It is for this reason that I recently took the unprecedented step of briefing the joint leadership of the National Assembly on the details of the fiscal policy measures two nights ago.

It is also for this reason that I am addressing this August body of the joint session of the National Assembly today. Let nobody be in doubt about the monumental task ahead for all of us if we are to lift the country from morass and move it forward.

The decay is deep and widespread. We have only begun to fathom it. And only conscientious and united efforts can give us success. That is the spirit of the new millennium.

I thank you. May God bless you all.