A faster economic recovery requires fiscal and monetary authorities to develop a medium-term growth plan, anchored on boosting local production, supporting ease of doing business, attracting private investment, developing physical and soft infrastructure.
Other measures required include: business-friendly regulatory policies, economic diversification and employment generation among others.
Lagos Chamber of Commerce and Industry (LCCI) Asiwaju Michael Olawale-Cole made these submissions Thursday while addressing the 134th Annual General Meeting (AGM) of the Chamber.
Asiwaju Olawale-Cole whose address touched on various economic issues, while speaking on inflation said consumer prices have been on the upward trajectory since November 2021 rising consistently from 15.40 per cent to 21.09 as at October 2022. He added that apart from rising to a double-digit, the rate has risen over the period of 12 months and still counting. Structural factors such as persistent pressure on food prices due to disruption to the agricultural value chain, the higher energy cost for industries, foreign exchange scarcity, insecurity in key food-producing states, and poor infrastructure have continued to drive consumer prices at a double-digit rate.
“Looking forward, inflation is expected to sustain its double-digit level in the short to medium term largely driven by persistent food supply shocks, foreign exchange illiquidity, and higher energy costs, speculative spending based on the naira redesign policy, insecurity, and electioneering campaign spending. These structural factors will continue to mount pressure on domestic consumer prices’’ Asiwaju Olawale-Cole stated. .
On monetary policy, he recalled that the he monetary policy committee of the Central Bank of Nigeria, CBN at its September meeting raised the MPR to 16.5 per cent; retained the asymmetric corridor of +100 and -700 basis points around the mpr; increased the crr to a minimum of 32.5 per cent; and retained the liquidity ratio at 30 per cent. The decision to raise the rate was in view of fighting the surging inflation rate which has risen consistently for the past eleven months.
‘’Looking forward, factors such as oil prices, oil production, output growth, inflation, foreign exchange stability, foreign capital inflows, credit to the private sector are expected to influence monetary policy decisions in the short to medium term. On the fiscal side, we expect to see clear communications and actions on driving revenue for the government in the face of the twin burden of fuel subsidy and unsustainable debt profile.
Asiwaju Olawale-Cole also spoke on business environment, noting that it witnessed some developments that either enabled the business environment or made it more challenging, recalling that the outgoing year saw the signing into law of the Nigeria start-up act 2022 established to create an enabling environment for the technology sector. I
He recounted in 2021, the ICT sector set a new record by contributing 17.92 per cent to our gdp; this year in the second quarter of 2022, another record was set, with the ICT contributing 18.44 per cent to our GDP. In the course of the year, the fiscal and monetary authorities, as well as the private sector rolled out various interventions to sustain the economic growth recorded this year.
“The Federal Government launched the national development plan (NDP) for 2021 to 2025 to succeed the economic recovery and growth plan (ERGP) which expired in december 2020. The plan is structured along six themes–economic growth and development, infrastructure, public administration, human capital development, social development, and regional development. The plan is estimated to have an investment size of N348.7 trillion over the five years. Unfortunately, his administration has not been able to resolve its debt crises and revenue challenges in order to finance this plan. Not much has been done in implementing this plan.
“At the monetary front, the Central Bank of Nigeria intervened with various programmes in the areas of financial inclusion, agricultural credit, SMEs’ finance support, digital currency (the e-naira), forex liquidity interventions, and most recently, the naira redesign project, among others” LCCI boss related.
Asiwaju Olawale-Cole address reads in part:
Debt profile
Nigeria’s debt-servicing bill has increased by 1.8 percent from n896.56bn in 2022q1 to n912.71bn in q2 2022. In Q2 2022, Nigeria spent n664.73bn on domestic debt servicing, while it spent $597.95m (N247.98bn) on external debt servicing, giving a total of N912.71bn. The borrowings are significantly increasing, and Nigeria is struggling to service these debts due to revenue mobilization challenges and an increased fuel subsidy burden. The international monetary fund (IMF) has warned that debt servicing may gulp 100 percent of the federal government’s revenue by 2026 if the government fails to implement adequate measures to improve revenue generation.
Fiscal development
The record 20.5 trillion naira (or $47.3 billion) proposed expenditure by the federal government to run the economy in 2023 reflects the huge needs that exist in critical sectors of the economy. The proposed budget, which is 19% higher than the 2022 budget is expected to take effect from january 2023 to address economic growth, fiscal sustainability, and security.
We are of the view that while nothing is wrong with the n10.78 trillion deficit, everything is wrong with the plan to issue n10.57 trillion (n8.8 trillion in new commercial loans and n1.77 trillion drawdown on bilateral and multilateral loans) new loans to finance the deficit, at a time that we are already placed on the watchlists of some of our foreign bondholders, and the world was a bit confused at our president’s well-publicized call for debt cancelation at the last united nations general assembly.
It is the exclusive use of debt to finance deficits that got us into the situation where we cannot keep the revenue we are earning today, as we use the bulk of our revenue to settle interest payments, and it is increasingly not enough to cover the interest payments. In the 2022 year-to-april, the interest payments were more than the revenue, and it is most unlikely that the revenue will be more than interest payments in the full-year 2022 or even in 2023.
External sector: foreign exchange
The protracted challenges for the naira exchange rate are deep-rooted in the weak productive base of the country. In the course of the year and recently too, the CBN announced the naira redesign project which drove some speculative spending that helped the naira to appreciate but that was short-lived because of lack of fundamentals to sustain such appreciation. The real solution to our forex scarcity crises is to boost production and expand exports. We must also resolve the crises around oil production as 80% of forex earnings come from the oil and gas exports. The naira witnessed a continuous fall from n415/usd early in the first quarter to about n443/usd as at mid-november.
Foreign trade
The nation’s foreign trade in goods rose quarter-on-quarter, qoq, by 1.23 percent in the second quarter of 2022 to n12.84 trillion from n13.0 trillion in the first quarter of 2022. According to the nbs, the value of exports rose by 4.31 percent to ₦7.41 trillion in Q2’22 from n7.10 trillion in Q1’22. However, the value of imports declined qoq by 7.89 percent to n5.44 trillion in q2’22 from n5.90 trillion in Q1’22. The trade balance stood at a surplus of n1.97trillion in the second quarter of 2022.
To sustain this trade surplus, we need more investment in export infrastructure, enhanced and automated port operations, tackling high production costs, and boosting the supply side of the forex market to improve liquidity and ease access to forex. We need to also diversify our exports by boosting our local crude refining capacity, production of petrochemical products, and accelerating reforms in the oil & gas sector to attract more foreign investments in the coming months.
The chamber commends the government on the initiative to produce the new national trade policy 2023-2027 which replaces the outdated trade policy that has directed Nigeria’s foreign trade direction for years. It is hoped that when this policy is approved by the federal executive council (fec), it will support robust trade relations between nigeria and the rest of the world.
Capital importation
The total value of capital importation into Nigeria in the second quarter of 2022 stood at us$1,535.35 million from us$875.62 million in the corresponding quarter of 2021, showing an increase of 75.34%. When compared to the preceding quarter, capital importation decreased by 2.40% from us$1,573.14 million.
The largest amount of capital importation was received through portfolio investment, which accounted for 49.33% (us$757.32 million). This was followed by other investments with 41.09% (US$630.87 million) and foreign direct investment (fdi) accounted for 9.58% (us$147.16 million) of total capital imported in Q2 2022.
The concern here is that FDIS (at a low of 9.58 percent) are more valuable than the other types of investment inflows. We need more fdis to create jobs and increase output in the economy. To achieve this, we must tackle the worsening insecurity in many parts of the country and implement investment-friendly policies to create an enabling investment and regulatory environment.
Nigeria’s multidimensional poverty index 2022
The national bureau of statistics released the 2022 multidimensional poverty index (mpi) with five components of health, living standard, education, security, and unemployment. The report revealed that about 133 million people (63% of total population) are poor in many areas of human life in Nigeria.
Last year, the national poverty reduction with growth strategy was developed by the presidential economic advisory council to actualize president Buhari’s aspiration of lifting 100 million Nigerians out of poverty by 2030. The total cost of implementing the proposed initiatives was estimated at $1.6 trillion over 10 years between 2021 and 2031. Similarly, the report proposed the creation of a Nigerian investment and growth fund to mobilize funds for the implementation. During the period, the annual average reduction in poverty is projected to be around 11.2 million per annum, 80% of which will be self-employment, and 20% in wage-paying jobs. Unfortunately, most of these provisions have not been implemented due to weak finance base and uncoordinated policy mix.
Power sector
The national grid collapsed for the 7th time in September 2022 on September 26. It is evident that the national grid cannot supply sufficient power to meet the electricity demand of Nigerians. There have been issues with the vandalization of power installations, a disrupted gas supply, distribution companies (discos) lacking the capacity to take up power generated by the power generating companies (gencos), and the challenges of achieving 100% metering for power consumers.
With the cost of diesel at record levels and persisting poor power supply, businesses are running on unsustainable costs and producing at uncompetitive prices. This can lead to job losses if the output is constrained due to the unbearable cost of production. If not quickly tackled, these challenges will likely subdue the gdp growth potentials and projections for 2022. The most sustainable solution to Nigeria’s power shortages is the transition to renewable energy and the decentralization of the national grid.
Activities of service committees and sectoral groups
The activities of our service committees and sectoral groups were sustained during the year. This is despite the numerous challenges of the business environment. The council, executive committee, service committees, boards, sectoral groups held their meetings as scheduled and organized several seminars, lectures, and symposia in a continued effort to educate members and influence public policy.
All the committees and sectoral groups performed very well and the achievements recorded could not have been possible without the support and cooperation of chairmen, and members of the sectoral groups and board committees. I, therefore, would like to express my sincere appreciation for your cooperation and commitment to the promotion of the noble cause of our chamber.
I would like at this stage to pay tributes (in no particular order) to the immediate past president, chairmen, and chairpersons of service committees, boards, and sectoral groups for their exemplary performance during the year.
He stated that LCCI had an eventful year in 2022, adding that this strengthened its partnerships with public sector institutions and extended its presence on international frontiers.
He disclosed as part of its public sector engagement series, LCCI held the 2022 security meets business dialogue series on Tuesday, March 1, 2022.
On trade promotion, Asiwaju Olawale-Cole recalled that the 36 th Lagos International Trade Fair LITF held between Friday November 4 and Sunday November 13, 2022
with the theme “connecting businesses, creating value.” The fair he stated attracted exhibitors from foreign countries such as Japan, India, Ghana, Cameroun, Sierra Leone, South Sudan, and Rwanda.
“Many states and bilateral chambers of commerce mobilized numerous small and medium scale enterprises (SMES) to exhibit at the fair.
Asiwaju Olawale-Cole thanked LCCI EXCO, attesting to its contributions and deliberate collaboration from the management and staff at the secretariat led by the Director-General.
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