The Lagos Chamber of Commerce and Industry said Nigeria’s service-to-revenue ratio of 73.5 percent has made the debt situation unsustainable.
The Chamber noted that the situation has provoked a growing fiscal concern.
LCCI President/Chairman of Council, Gabriel Idahosa made this public while speaking on the state of economy for first quarter of 2024.
Idahosa said that the concern is higher than Kenya’s debt service-to-revenue ratio of 64.3%, Egypt’s ratio of 20.5% and South Africa’s ratio of 20-25%, adding that the Chamber is concerned about the surge in the country’s debt profile.
While maintaining that the Chamber is concerned about the surge in the country’s debt profile, Idahosa urged the government to explore other avenues to manage debt, including equity issuance opportunities and sale of underutilised assets, including real estate.
Against this background, the LCCI boss urged the government to adopt prudent fiscal policy measures and investment-friendly tax policies that work in tandem with the efforts of the Central Bank to tame inflation.
LCCI President commended President Bola Tinubu on his recent directive to reduce his entourage size for both domestic and international travel by 60 percent.
Still, Idahoza urged other arms of government, including State Governors, members of the National Assembly, State House of Assemblies to adopt the same level of fiscal discipline, as well as encourage a transparent and accountable system of implementing the directives.
He urged the government to urgently address the structure of the power sector particularly, with focus on the transmission segment, stressing that the country needed to attract private sector investment into electricity transmission to bring in relevant financial, technical and management capacity.
Idahoza proffered that the Federal Government needs to step up efforts to address the security challenges that have negatively affected investment inflows.
On agriculture, he urged the FG to improve security and intensify the implementation of the national agricultural extension policy with focus on improved and relevant agricultural technologies, as well as consider fast-tracking the movement of policing from the exclusive list to the concurrent list.
He affirmed that this will ensure effective policing of the nooks and crannies of “our communities including the farmlands”.
Idahoza advised: “We urge the government to improve the security measures adopted in tackling the menace of oil theft and vandalism to boost oil exports and improve foreign exchange earnings.
“The cost of logistics has gone up due to the poor state of our roads and the inadequate connectivity amongst farms, factories, and markets. The LCCI commends the federal government for the recent effort to attract private investment into the infrastructure sector. We also expect improved implementation of the capital funding allocated to infrastructures in the 2024 Budget.
“While the CBN embarks on monetary tightening to tame inflation, it should ensure that targeted concessionary credit to the private sector is sustained for MSMES.
Idahoza spoke on monetary policy development, noting that the external factors that affected monetary policy in 2023 include the tightening of global monetary policy in response to high inflation and global capital flight, domestic macroeconomic factors include: persistent inflationary pressure, declining external reserves, and consistent exchange rate depreciation.
Speaking on interest rates, the LCCI boss recalled that during the period under review, the interest rate movement in the money market reflected developments in the banking system’s credit and liquidity conditions, stating in furtherance to CBN’S monetary policy stance, the MPR remained at 18.75% in the fourth quarter of 2023, while the cash reserve ratio (CRR) and liquidity ratio (LR) remained at 32.5% and 30.0% respectively. The asymmetric corridor also stayed at +100/-300 basis points around the policy rate.
“There were two consecutive postponements of the monetary policy committee (MPC) meeting in the last four months in 2023.
“Furthermore, the interbank rate increased by 6.66% points to 19.39% in november 2023 from 12.73% in september 2023, prime lending rate declined by 0.27% points to 14.05% in november 2023 from 14.32% in september 2023, while maximum lending rate increased by 0.37% point to 27.61% in november 2023, compared with 27.24% in september” Idahoza said.
He spoke further: “The exchange rate of the Naira in the fourth quarter of 2023 depreciated in all segments of the foreign exchange market. The depreciation reflected the huge FX obligations, sub-optimal crude oil production and declining capital importation. This resulted in low foreign exchange earnings from crude oil and a decline in foreign capital inflows thus exacerbating the demand pressure at the foreign exchange market.
“As a consequence, the exchange rate of the Naira at the Nigerian foreign exchange market (i.e. official market) averaged N899.40/$ in December 2023 compared to N761.83/$ in September 2023. At the bureau de change (BDC) segment, the naira depreciated to N1,214.52/USD in December 2023 from N962.33/USD in September.
“While the BDC rate currently sells at an average of N1,290/USD the emerging gap between the official rate and the BDC rate may be attributed to several factors, including FX liquidity issues at the parallel market, increasing demand pressure including huge FX obligations and interest rates below inflation. The CBN needs to build market confidence around free FX pricing, and explore more policies that grow more fx supply into the economy.
“Total capital importation into Nigeria declined by 36.5% to US$654.65 million in the third quarter of 2023 from US$1.03 billion in the previous quarter and a 43.6% decline when compared to US$1.16 billion in the third quarter of 2022. A disaggregation of capital imported by type of investment showed that other investments, at US$507.77 million, accounted for the largest share of 77.6% of the total. Of this amount, loans amounted to US$507.71 million, representing 99.9% of total.
“Inflow of FDI was US$59.77 million (9.13% of total), of which equity was US$59.76 million, while “other capital” amounted to US$0.01 million. portfolio investment inflow at US$87.11 million constituted 13.31% of the total. A further breakdown of portfolio investment inflow showed that bonds were US$20.56 million and money market instruments were US$58.19 million, accounting for 3.14% and 8.89%, respectively.
“The continued decline in capital importation into the country as well as its current structure is a matter of great concern.
“ The headline inflation continued its upward trend in December 2023, rising to 28.92% compared to 26.72% recorded in September 2023, 2.20% points higher. food inflation in december 2023 increased to 33.93% on a year-on-year basis, 3.29% points higher compared to september 2023 at 30.64%. food inflation further increased by 10.18% points when compared to 23.75% in the corresponding month in 2022. Similarly, core inflation at 23.06% in December 2023, represents 1.22% points increase compared to September figure at 21.84% and 4.85% points increase compared to 18.21% in the corresponding month in the previous year.
“The inflationary pressures are primarily attributed to food and non-alcoholic beverages; housing, water, electricity, gas and other fuel; clothing and footwear; transport and furnishing and household equipment and maintenance.
“Increasing the monetary policy rate has, thus far, proven to be insufficient in taming inflation. Therefore, there is a clear need for the government to strengthen its support to critical sectors like agriculture, road infrastructure, power, energy etc. it should also look at ways to improve supply chains as well as cushion the cost of production.
“Nigeria’s public debt profile is expected to increase to at least N95.2 trillion as at the end of December 2023. The debt management office (DMO) put Nigeria’s public debt at N87.91 trillion ($114.35 bn) as at the end september 2023. With the approval of the national assembly for the securitization of the outstanding debit balance of N7.3 trillion owed by the federal government to the CBN, its inclusion has pushed the country’s public debt stock to at least N95.2 trillion.
“However, Nigeria’s high debt service-to-revenue ratio of 73.5% makes the debt situation unsustainable and a growing fiscal concern, higher than Kenya’s debt service-to-revenue ratio of 64.3%, Egypt’s ratio of 20.5% and South Africa’s ratio of 20-25%. The chamber is concerned about the surge in the country’s debt profile.
“The government should explore other avenues to manage debt, including equity issuance opportunities and sale of underutilised assets including real estate”.
Idahoza said LCCI viewed that the Ministry of Solid Minerals should provide clarity to all stakeholders, especially the State governments as to the position of mining in the exclusive list of the 1999 constitution, adding that the interference of the State government in private licenced miners’ operations could be a significant threat to the growth of the industry.
He advised that they should instead be encouraged to set up their mining SPVS to participate in the industry.
He called for the promotion of responsible mining by companies through improved regulation and robust community engagement, asserting that this will ultimately address land conflicts and environmental degradation.
Idahoza stated: “The adoption of local investors in mining should be the flagship for advertising the sector globally. the population of delegations to mining conferences should be tilted more towards the private sector.
“Growing the contribution of solid minerals to Nigeria’s GDP from the present 0.8% according to the National Bureau of statistics to 50% as proposed by the Honourable Minister requires much more collaboration with existing artisanal miners and small-scale operators.
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“The participation framework for mining credit facilities as announced by the Honourable Minister should be widely publicised”.
Idahoza thanked the media for being good partners in projecting LCCI engagements with the government towards creating a more enabling investment environment for the advancement of the Nigerian economy and the good of all investors, as well as all other stakeholders.