The Role of Regulators in a Depressed Economy
The Role of Regulators in a Depressed Economy
There is no doubt that our economic challenges, as a nation, are multifaceted and require strategic regulatory interventions which may not be assessed independent of governance variables.
On 31 August 2016, the National Bureau of Statistics (NBS) announced that Nigeria had entered into a recession. According to the NBS, Gross Domestic Product declined by -2.06%, annual inflation rose to 17.1% in July from 16.5% in June, and food inflation rose to 15.8% from 15.3%.
The impact of the challenges posed by the recession is being felt both at the macro and micro levels. Nigeria, being largely import dependent, has witnessed a continuous depletion of its foreign exchange reserves. Also at the micro level, many organizations are unable to cope with rising operating costs, and are, therefore, compelled to scale down on their operations, leading to loss of jobs and income. There is no doubt that our economic challenges, as a nation, are multifaceted and require strategic regulatory interventions which may not be assessed independent of governance variables.
However, our regulators must rise to the occasion and embrace multi-dimensional and carefully coordinated initiatives in getting the nation out of its current predicament.
Below are some suggested actions for our regulators. These actions will help with the stabilization of the ailing economy in the short term and achieve the much needed sustainable economic growth in the medium term:
Embrace Collaborative Policy Making
The policies of the various regulators and ministries, departments and agencies of government should complement each other and should be targeted towards the same goal. For example, the monetary policy directives of the Central Bank of Nigeria must complement the fiscal policies initiatives of the Ministry of Finance and vice versa.
There must be a consistent story around the policies of various regulators which should tie into the overall policy thrust of the government.
Government must never be seen to be reversing itself due to policy inconsistencies, else investor confidence will continue to erode and the nation will be worse-off for it.
Create a Competitive Business Environment
Regulators need to consider the competitiveness of the global economic landscape in the formulation of policies. Consequently, our policies should be targeted at making the Nigerian business environment competitive to attract long term foreign investment.
Over the past six months, quite a few businesses have moved their regional hubs out of Nigeria owing to our business environment. We need to quickly stem this tide and work to attract more Foreign Direct Investment into the country.
Formulate Pro-Business Policies
Regulators need to be guided by the fact that businesses need to survive and indeed grow for the nation to emerge from recession.
Therefore the policies of the regulators especially during this period of recession need to be specifically designed to stimulate and support businesses activities.
This is the time to offer incentives, waivers and other forms of sweeteners for business who are ready to make long term investments in Nigeria, amidst the current challenges.
Manage the Revenue Generation Drive
Owing to the recession, most regulators are now working hard to be self-funding or, at the least, support the subvention received from the government.
Regulators, however, need to strike a healthy balance between the drive for revenue generation for government spending (which is encouraged during recession) and over levying the businesses that generate the revenue.
The policy decisions of our regulators especially our tax authorities as seen over the past few years, show a tendency for inconsistencies and controversies in the interpretation of the tax law. This is coupled with an aggressive revenue drive which clearly impacts negatively on the business climate. Regulators therefore need to adopt effective and efficient strategies to improve compliance levels and generate additional revenues, without adversarial consequences.
Our review of reforms, particularly tax reforms around the globe point to the need for our regulators to adopt a “risk-based approach” to compliance management, as the necessary solution to this challenge.
Based on the above, regulators definitely have an important role to play in getting the nation out of recession. Regulators must rise to this challenge and work as a team in leading the nation out of recession.
This article is an excerpt from our Thought Leadership document "CFO Outlook Survey 2017" . Click here to download the publication.
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