NIGERIA: ROAD MAP TO ECONOMIC REFORMS

UNCLAS SECTION 01 OF 02 ABUJA 001907 SIPDIS SIPDIS DEPARTMENT PASS TO USTR (AGAMA) DEPT OF TREASURY FOR RHALL, DPETERS E.O. 12598: N/A TAGS: ECON EFIN EINV PGOV NI SUBJECT: NIGERIA: ROAD MAP TO ECONOMIC REFORMS ¶1. Summary. The Nigerian government (GON) has introduced new policies hoping to accelerate growth and sustain macroeconomic stability. The policies are in-line with the new administration's mantra of upholding the constitution and following rule of law, respect for due process, integrity, accountability and transparency. Key components of the Road Map are institutional reform and restructuring within the Ministry of Finance and its agencies; establishing a Strategic Oil Revenue Reserve Fund; urging state assemblies to adopt the Fiscal Responsibility Act and setting up state debt management offices; reconstituting the Economic Management Team (EMT); suspension of waivers in taxes, duties and tariffs; greater participation of stakeholders in the budget process; and review of the value-added-tax (VAT) in-line with ECOWAS protocols. End Summary. ¶2. On August 23, Dr. Shamsuddeen Usman, Minister of Finance, unveiled "The New Road Map to Economic Reforms", with the goal of guiding and accelerating the economic transformation process and sustaining macroeconomic stability achieved under Nigeria's ongoing reform program. Usman said the new policy follows closely President Umar Yar'adua's objective of abiding by the constitution, holding to the rule of law, respecting due process and increasing accountability and transparency. The specific objectives of the Road Map are to establish a Strategic Oil Revenue Reserve Fund; urge state assemblies to adopt the Fiscal Responsibility Act while setting up state debt management offices; reconstitute the Economic Management Team (EMT); suspend tax waivers, duties and tariffs; increase stakeholder participation in the budget process; and review of the value-added-tax (VAT) in-line with ECOWAS protocols. . The Strategic Oil Revenue Reserve Fund -------------- . ¶3. Establishment of a strategic oil revenue reserve fund is aimed at reducing government revenue volatility and expenditure, and encouraging savings. The plan is for the three-tiers of government to agree on a constitutional means to save and manage windfall oil revenues above the budgeted price benchmark. Nigeria already has an excess crude account; however, account management has been challenged in court because claimants argue that the federal government has no constitutional authority to withhold funds from the states. . Fiscal Responsibility and Appropriations -------------- . ¶4. Usman reported President Yar'Adua was yet to sign the fiscal responsibility bill passed by the previous national assembly. The President has delayed signing the bill, ordered further analysis and is encouraging the 36 state governors to pass similar legislation. ¶5. Usman disclosed that the GON had submitted two bills to the national assembly requesting additional funds for the 2007 budget. The first bill will divert 172.8 billion naira ($1.35 billion) from capital projects, overheads and debt service to finance a 15% 179.2 billion naira ($1.4 billion) public sector pay rise promised by President Yar'Adua after the June 2007 general strike. The second bill will spend $609 million on the payment of severance benefits and contractor arrears. . New Economic Team -------------- . ¶6. Usman announced that the Economic Management Team (EMT) has been reconstituted and its membership reduced from 28 to 13 with the Minister of Finance as chairman. The EMT would become a think tank and the President approved the private sector inclusion of the Nigeria Economic Summit Group (NESG) and the Nigerian Economic Society (NES). The first EMT assignment is to develop specific, measurable and timely economic programs from the President's 7-point agenda from his inaugural speech. . Other Policy Measures -------------- . ¶7. The GON suspended the issuance of waivers or exemptions from payment of taxes, duties, or other tariffs from August 23 and appointed two international audit firms to review the validity of all waivers and exemptions already granted, and calculate total revenue loss to the GON. ¶8. The Road Map includes reforming the Nigerian tax system to enhance revenue collection and improve policy coordination between the Federal Inland Revenue Service (FIRS) and relevant departments in the Finance Ministry; and increasing stakeholder participation by all tiers of government in the national budget process. ABUJA 00001907 002 OF 002 ¶9. The Finance Ministry also plans to overhaul the Nigeria Custom Service (NCS) and produce a comprehensive tariff document to reduce delays at ports from two weeks to a few days; and reviewing the value-added-tax (VAT) to ensure compliance with ECOWAS protocols. . Comment -------------- . ¶10. The Road Map to Economic Reforms may consolidate economic reforms made during former President Obasanjo's second term. The Obasanjo administration grouped its objectives, policies and programs into the National Economic Empowerment and Development Strategy (NEEDS) document. The NEEDS program was thoroughly evaluated and received national consensus, however, Yar'Adua's administration, 100 days in office, has yet to demonstrate interest in transforming NEEDS I to NEEDS II. Nigerian history is replete with examples of incoming administrations "reinventing the wheel" and valuable time and effort will be lost if Yar'adua's administration comes up with its own version of NEEDS. There remain significant challenges in improving domestic business environment and in extending reform policies to states and local governments. GRIBBIN