The debt crisis of Nigeria, which has seen its debt profile climb by 410 percent over the last 8 years, has hit the manufacturing sector significantly hard, according to the Manufacturers Association of Nigeria (MAN). The MAN CEOs’ Confidence Index (MCCI) for Q1’23 was made available on Sunday, and in it, the group expressed concern that the N77 trillion in debt that President Bola Tinubu’s governance inherited would limit the government’s achievements if immediate critical steps were not taken.
According to the report, the public debt crisis is having unending repercussions for the manufacturing industry. First, private investment in manufacturing is being severely hampered by rising domestic debt. This is because of a decrease in access to credit and a subsequent increase in interest rates. Due to the reliance on foreign currency for the payment of external debts, a rise in demand for foreign exchange causes a further weakening of the naira and drives up the price that manufacturers pay to import non-locally produced key inputs.
Public debt decreases foreign investment and the influx of foreign capital.
Increasing cost of servicing debt is also consuming a greater volume of foreign currency, making the shortage a problem for the industrial sector for the past several years even worse. When a country is paying higher debt, it requires an increase in the level of revenue. Similarly, the Nigerian government has maintained its practice of breeding a hard environment for doing business by continuing to impose high and various taxes on manufacturers without discrimination. This is done in an effort to generate income for the government.
A significant public debt also led to a decrease in both foreign investment and the influx of foreign capital, all of which contributed to a worsening of the currency shortage. MAN additionally stated that contrary to the common belief among government officials that Nigeria has a revenue problem, the country’s debt dilemma is not an outcome of inadequate income, and it is counterproductive to consider manufacturing taxes as the final alternative for reducing the debt problem.
Devaluation of the naira and other factors impede the sector.
Moreover, the sector, which has continually been on the receiving end, hasn’t seen any substantial impact from debt finance on the several problems that have been hindering its performance for many years. Despite the enormous increase in the country’s debt profile of over 410% in the last eight years, the deterioration of infrastructure, the lack of availability of foreign currency, the tightening of credit, and the devaluation of the naira have become major concerns for members of MAN.
Taking grasp of the situation, in spite of the multitude of taxes, Nigeria primary issue is not the generation of revenue or even its collection, but rather, it is the diversion of revenue that has been collected so that it does not appear in the records. According to the report, MAN is of the opinion that debt worth N77 trillion is a significant weight to inherit and will most certainly limit the accomplishments of the new government.
MAN gave a detailed financial recommendation on the country situation.
Along the way, MAN recommended a few modifications be made: broadening the tax net to include more informal sector business operators and increasing the revenue base through better data acquisition. The Federal Inland Revenue Service (FIRS) should strictly enforce the Voluntary Assets and Income Declaration Scheme (VAIDS). To stop tax revenue from escaping the government, more work must be done to find and close tax loopholes. It is important to encourage budgetary restraint by cutting government spending and adhering closely to Section 41 of the Fiscal Responsibility Act and Section 38(subsection 2) of the CBN Act.