American business magnate and co-founder of Microsoft, Bill Gates, has drawn attention to Nigeria’s low tax collection rate, describing it as a significant challenge to the country’s ability to finance critical sectors like health and education.

Gates made this assertion during a Pan-African youth dialogue on nutrition held in Abuja on Tuesday, where he emphasized the need for Nigeria to bolster its tax revenue to improve its fiscal health and invest more effectively in public services.

While addressing the gathering, Gates highlighted that the country’s current tax collection rate is insufficient for meeting the essential needs of its citizens, especially in healthcare. According to him, for citizens to develop confidence in the government’s ability to provide quality healthcare, it is crucial that there be a clear commitment to managing health funding responsibly and efficiently.

“Over time, there are plans for Nigeria to fund the government more than it does today. The actual tax collection in Nigeria is pretty low,” Gates said.

He further elaborated that as confidence grows in how well government programs, such as primary healthcare, are run, there will be more support for increasing funding through taxation.

“It’s exciting that we are driving the credibility of those health programs. Citizens will feel like primary healthcare is among the priorities that should be well funded as you gain fiscal flexibility,” Gates added.

Gates’ remarks on Nigeria’s fiscal capacity came shortly after Taiwo Oyedele, Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, outlined his committee’s proposals aimed at easing the economic burden on Nigerians. In his statement, Oyedele revealed that the committee recommends the removal of taxes on essential goods and services, including food, public transportation, and housing.

The proposed measures are designed to alleviate the economic pressure on low- and middle-income Nigerians, who have been hardest hit by rising inflation and the removal of fuel subsidies. Oyedele highlighted that the tax reforms focus on exempting basic necessities from taxation, particularly by removing Value-Added Tax (VAT) on items essential for everyday living.

“We’ve identified food, accommodation, transportation, education, and health as critical areas of life, and we’ve removed almost all taxes, including VAT, on these items,” Oyedele explained.

The goal is to create a more manageable cost of living for Nigerians, especially those struggling with the increasing cost of basic goods and services.

However, this sentiment from Gates echoes long-standing calls from the International Monetary Fund (IMF) for Nigeria to increase its tax revenue. The IMF has consistently pointed out that Nigeria’s tax-to-GDP ratio, which hovers around 6%, is one of the lowest in the world. Comparatively, the average tax-to-GDP ratio in sub-Saharan Africa is around 17%, while in advanced economies, it is much higher.

The IMF has argued that without addressing this shortfall, Nigeria will struggle to meet its budgetary needs, fund development projects, or reduce its heavy reliance on borrowing.

However, the IMF’s recommendations have faced widespread opposition in Nigeria. This is because economic hardship has severely affected earnings across various sectors of the economy. The removal of fuel subsidies, rising inflation, and general economic instability have left many Nigerians in a precarious financial situation, making calls for higher taxes deeply unpopular. Critics argue that increasing taxes in such an environment would only worsen the economic burden on already struggling citizens and businesses.

The situation was also acknowledged by Gates. In addition to his remarks on taxation, he also pointed out the alarming level of food insecurity in Nigeria.

“Today, Nigeria has the second-highest rate of food insecurity on Earth,” he said, underscoring the depth of the country’s hunger crisis.

This statement aligns with several reports highlighting that millions of Nigerians face food shortages, exacerbated by inflation, inadequate agricultural output, and ongoing conflicts in food-producing regions.

The World Food Programme (WFP) and other agencies have warned that without swift interventions, the country could face worsening food shortages and malnutrition, particularly among children and vulnerable populations.

Nonetheless, Gates’ focus on improving the tax system reflects a broader global concern about Nigeria’s fiscal sustainability. With its growing population and need for substantial infrastructure and social spending, Nigeria’s ability to collect more revenue is expected to remain a central issue in its economic discourse.

Economic experts said the challenge moving forward, will be finding the right balance between these two priorities: increasing tax revenue to fund vital services while ensuring that tax policies do not compound the economic difficulties faced by everyday Nigerians.

The latest auction of Nigerian Treasury Bills (NTBs), conducted by the Central Bank of Nigeria (CBN) on September 4, 2024, showed the robust demand for government-backed securities in an economy facing ongoing macroeconomic challenges.

The auction attracted an overwhelming response from investors, with total subscriptions reaching over N1 trillion, a clear indication of the market’s hunger for stable and relatively risk-free returns.

The CBN offered a total of N233.31 billion across three tenors—91-day, 182-day, and 364-day bills. Despite this modest offering, investor interest soared, with total subscriptions hitting N1.13 trillion, representing an oversubscription rate of 384.17%. This figure is 9.96% higher than the N1.03 trillion in total subscriptions from the previous auction on August 21, 2024.

The high subscription levels reflect investors’ preference for the safety of government securities amidst an environment characterized by inflationary pressures and economic uncertainties. However, despite the strong demand, the CBN remained cautious in its allotment, sticking to its initial offering of N233.31 billion. This approach marked a 19.81% decrease in allotment from the N291.03 billion allotted in the previous auction, indicating a strategic move by the CBN to control the yield curve and manage liquidity effectively.

Detailed Breakdown of Auction Results

91-Day Bills

   Offer Size: N19.6 billion

• Total Subscriptions: N41.7 billion
• Allotment: N7.86 billion

While the 91-day bills were oversubscribed by more than double, showcasing significant investor interest, the CBN’s selective allotment resulted in only N7.86 billion being issued, far below the subscription total, suggesting a conservative approach to liquidity management.

182-Day Bills

• Offer Size: N10.55 billion
• Total Subscriptions: N17.97 billion
• Allotment: N1.99 billion

For the 182-day tenor, while subscriptions were also strong, the CBN allotted just N1.99 billion out of the nearly N18 billion in bids, reflecting a cautious stance in a market keen on securing medium-term returns.

364-Day Bills

• Offer Size: N203.15 billion
• Total Subscriptions: N1.07 trillion
• Allotment: N223.47 billion

The 364-day bills were the star of the auction, drawing a staggering N1.07 trillion in subscriptions. Despite this overwhelming demand, the CBN allotted N223.47 billion, the highest of all tenors but still a fraction of the total bids. This underscores the attractiveness of longer-term securities in a high-inflation environment.

Bid Rates and Stop Rates: A Market of Mixed Sentiments

The auction saw a wide range of bid rates across all tenors, reflecting mixed sentiments among investors about the future direction of yields and the broader economy.

91-Day Bills: Bid rates ranged from 16.30% to 20.00%, with the stop rate settling at 17.00%, a decline from the 18.20% recorded in the previous auction.

182-Day Bills: Bid rates varied between 17.50% and 20.50%, with the stop rate closing at 17.50%, down from 19.20% in the last auction.

364-Day Bills: Bid rates spanned from 27.00% to 30.00%, reflecting expectations for higher returns amid persistent inflation. The stop rate for these bills dropped to 18.94%, from 20.90% previously.

Despite the decline in stop rates across all tenors, the yields offered remained attractive, particularly for the 364-day bills, which provided a return of 23.3654%. The 91-day and 182-day bills also offered competitive returns of 17.7675% and 19.1881%, respectively, making them appealing options for yield-seeking investors.

As the CBN prepares to re-issue N2.2 trillion worth of maturing NTBs in the fourth quarter of 2024, the auction results from September provide key insights into investor behavior and market dynamics. The re-issuance program, part of the government’s broader efforts to manage liquidity and sustain economic stability, is expected to record another oversubscription.

In an economy where inflation remains a dominant concern and monetary policy is tightening, the continued strong demand for NTBs suggests that government securities will remain a cornerstone of investor portfolios. However, the CBN’s careful management of issuance and allotment will be crucial in navigating the balance between providing attractive returns and maintaining economic stability.

We’re learning that Japan’s Nippon Steel cannot acquire US Steel. The Pittsburgh-based entity had given itself up for acquisition in the heat of steely-fire global competition which has decimated the iconic company. The Biden Administration blocked a $14.1 billion deal which would have brought an investment of $3 billion and kept some older plants intact. To save those jobs, it is very likely that the US government will inject some funds into US Steel. Hello, that is Pennsylvania and this is election season!

When you read about the men who built America, this company has a “chapter”.  When the United States overtook the United Kingdom at the end of the 1890s, the Americans wanted a pillar upon which they could scale a virtuoso industrialization vision. Two men – JP Morgan (the banker) and Andrew Carnegie (the industrialist) – decided in 1901 to establish US Steel (sure, many mutations happened). The company became a catalyst as America industrialized. Simply, US Steel was a fulcrum of America’s 20th century economic dominance.

When I went to interview at Carnegie Mellon University for a faculty job, the dean took me to a building. He explained how Carnegie designed some campus buildings with a steel roll in mind, just in case if the educational vision fails, he could convert all to a plant. As a faculty, you would see that he created that university in the likeness of his industrialization playbook: tons of technical components. CMU is ranked #1  or #2 in AI, autonomous systems, computer science and computer engineering in the US.

By 1917, the largest publicly traded company in the United States was US Steel. But things happened. Yes, fifty years later, in 1967, the largest recorded public company on market cap  in the US was IBM.  Later, it was GE in the early 1980s. Today, we have knowledge companies like Apple and Microsoft running the show.

In all these cases, we can learn of one thing: accelerating destruction. Simply, generations of companies prepare nations for the next phase, and if they succeed, most times, they fade in relevance. When US Steel powered America, its success produced infrastructure companies like IBM  and Intel which then provided automation and computing capabilities for GE across industries. GE organized America in many ways, seeding pillars which enabled modern knowledge firms like Apple and Microsoft to blossom. 

The next generation of largest American companies will feed on the success of Google, Microsoft and Apple. I posit that native and new species of AI companies will rule the markets by 2050. It is magical that US Steel is looking for economic fire for the steel!

Possibly, this acquisition would have gone through if there was no war in Europe. Yes, even though US Steel may seem overlooked as the rain has since stopped falling there, it makes a product which remains vital for America’s national security. Biden does not want to disarm America even in the hands of an “ally”. But as they say, woe to that giant which cannot make its steel. And a giant wants to keep it in-house because things happen!