OAL provided Legal Institutional and Regulatory Advisory services to Government, Ministries and Agencies of Nigeria with a view to strengthen the Financial Services sector.
The Financial Services Sector (FSS) is the oxygen and lifeblood of a strong economy. However, the Nigerian Financial Services system is not operating optimally because many key legislation and institutions are absent.
For example, there is no legislation to regulate how the banks give credit to the real sector and consumers to stimulate the economy. Banks engage in short term credit lending. Banking legislation that can deliver credit to the economy is required to support a viable economy. In the United States of America (USA), the Glass – Steagall Act and Frank-Dodd Act focused banks on their proper role of lending to the real sector and consumers, at low-interest rates, so as to stimulate the economy. Nigerian banking laws require major overhaul. Many vital institutions ought to be in place if the Financial Services Sector, will operate optimally.
Some Required Institutions Mentioned in Our Advisory are;
(i) Credit Guarantee Agency: One of the most critical Institutions is a National credit guarantee agency which will support viable business proposals. A scheme of guarantee stimulates and expands the economy as goods and services are produced to grow GDP. Modern economies run on credit guarantee schemes. Sadly, there is none in Nigeria. The Advisory made a recommendation.
(ii) Development Bank of Nigeria (DBN): Another key institution is a Development Bank to lend to the real sector. Although Nigeria has a Development Bank, the Bank is undercapitalized and so the Central Bank of Nigeria (CBN) has bridged the gap. The DBN needs to be properly capitalized to help support the economy.
(iii) Prudential Regulatory Authority (PRA): The third institution is the prudential regulatory Authority. The CBN currently provides a supervisory function in the Financial Services Sector. The CBN can benefit from revised legislation relating to the regulatory structure, supervision and management of the FSS. We recommended the model adopted by the Bank of England, when it created the Prudential Regulatory Authority. The Prudential Regulatory Authority ensures that banking supervision is optimal. The result is more access to credit by the real sector. A strong regulatory framework in relation to banking supervision can grow the economy exponentially. This will have tremendous impact on productivity, jobs, etc.
(iv) Foreign Exchange Act (FEA): The Foreign Exchange Act is now long overdue for amendment in order to ensure that there is only one operational exchange rate system in the country. A liberalized foreign exchange regime ultimately benefits the economy tremendously
(v) Review of Tax Laws: This is to eliminate multiple taxation and ensure the adoption of harmonized tax laws across the three tiers of government as recommended by the Joint Tax Board. The Advisory recommended tax incentives and massive reform of Tax Administration.
The underlying purpose of the Financial Sector reform process is to generate revenue and jobs, particularly in the context of low oil revenue, and the covid pandemic.
The Advisory is concerned with how Law can generate revenue and create jobs. The Advisory ran a National webinar with BusinessDay on “How law can be a tool for raising revenue and job creation”. The Vice President, Minister of Finance and Attorney General of the Federation attended.
The Advisory noted the need for Government to engage in critical thinking and make hard choices.
Government’s baseline of 15% revenue to GDP ratio was welcomed by the OAL Advisory.
The Advisory concluded with the following recommendations to Government on revenue generation:
- Aggressive Assets sale/Concession/PPP of government assets.
- Tax revenue from the Maritime Sector- Cabotage, oil rigs, vessels, etc. It is very surprising that the Maritime sector does not feature in recent development plans, in particular, the ERGP & ESP.
- Apapa Ports- This is a very viable source of revenue but the traffic gridlock in Apapa must be removed to make the Port viable for imports. It is estimated that 20Billion Naira is lost every day from the Apapa gridlock which is equal to N7.2 Trillion annually.
- Enforce rules to overhaul road tax.
- Legislate the Fly Nigeria Act to stop massive capital repatriation. Capital flight is estimated at over $500 Million Dollars annually.
- Legislate or incorporate the Nigerian National Fleet of vessels to stop massive capital repatriation. This is estimated at 1 Billion Dollars annually.
- Review the Land Use Act to transform dead capital. The Housing Inventory of Nigeria is estimated at 7trillion Dollars but this is trapped as it is not fungible and accessible to the Nigerian Financial system.
- Enforce local content policy and legislation, as set out in relevant legislation.
- Create robust legal framework for the digital economy, already contributing 17% of GDP, by enactment of digital economy Act; ditto for solid minerals.
- Create a National Credit Guarantee Agency and mobilize the Development Bank of Nigeria as critical Financial economic drivers.
- Enact Legislation for the office of Trade Negotiator.
- Enact the Ports and Harbor Bill to promote massive investments and generate revenues.
- Enact strong Public Audit Legislation alongside procurement, to stop leakages whose estimates are said to be, at least, 15trillion Naira annually.
- Reform AMCON and sell back the 5trillion debts on it books to the Banks, as the Banks have recovered from the world-wide financial shock, and are now viable and able to re-absorb the debt stock on AMCON’s books.
The recommended Advisory is under consideration.
