For Nigeria to sustain the pace of recovery in 2022 and navigate through the growing uncertainties in the global economy, it requires well-coordinated fiscal and monetary policies to promote growth-enhancing and confidence-building policies that will stimulate private and foreign capital inflows into the economy.
President of the Lagos Chamber of Commerce and Industry (LCCI), Asiwaju Michael Olawale-Cole made this assertion Tuesday at a press conference on the state of the country’s economy.
To actualise this, the LCCI boss recommended on food security, agriculture output should be sustainably boosted and continued dependence on imports discouraged, hinting that for food security, “scarcity is looming large on the horizon” warning that , and if nothing smart and quick was not done, the situation would further exacerbate the plight of the poor.
Olawale-Cole advised that fuel subsidies should be removed and oil theft curtailed if not eliminated, so as to provide fiscal space for subsidized production of goods and services as well as for infrastructure, health, and education financing, adding that the Human Development Index (HDI) of Nigeria, which is the index used by the United Nations to measure real development in a country, was 0.539 points in 2019, leaving it in 161st place in the table of 189 countries last published.
While the Central Bank of Nigeria (CBN) embarks on monetary tightening to tame inflation, the LCCI President stressed it should ensure that targeted concessionary credit to the private sector is sustained for MSMEs.
“The CBN needs to initiate a gradual transition to a unified exchange rate system and allow for a market reflective exchange rate. The CBN also needs to roll out more friendly supply-side policies to boost productive sectors, bolster investor confidence and help attract foreign investment inflows into the economy.
“There is a need to address structural bottlenecks and regulatory constraints that contribute to the high cost of doing business. A supportive and conducive investment environment is critical in facilitating private sector involvement in the economic recovery and growth process.
“The government should initiate moves towards having cost-reflective tariffs in the power sector as this will attract the needed investment to boost power supply and possibly end the frequent crashes of the national grid. We should also begin to initiate special-purpose interventions in boosting the deployment of renewable energy” Olawale-Cole restated.
Speaking on inflation, the LCCI President recalled in May 2022, the country recorded a rise in prices at the rate of 17.71 percent, higher than the 16.82 percent rate of change in prices recorded in April 2022.
He noted that the 17.93 percent recorded in May 2021was higher than the rate in 2022, a year after, saying that the same reasons could be adduced to have caused the 11-month high rate of price changes, still, stressed what was important is the policy response to this scourge.
“The food inflation in the past months easily confirms that food prices explain a high impact on the headline inflation. Cost of production due to rising fuel prices, forex scarcity, and supply chain disruptions may remain in the short term if these factors are not cushioned.
“The position of the Chamber was confirmed by the latest Nigeria Development Update by the World Bank which highlighted the vulnerability of the Nigerian economy due to rising inflation pressures, forex illiquidity crisis, worsening insecurity, poor power supply, and weak infrastructure. We reiterate our position on the rising inflation that rates hike alone will not tame the rising inflation.
“The Government must invest more in boosting supply and cushioning the cost of production. Also, the burdening impact of fuel costs on businesses will remain as long as we keep importing refined fuels for our teeming population and neighboring countries. We posit that only the removal of fuel subsidies and the boosting of local refining will resolve the worsening crises in fuel supply and its multiplier effects on production and prices” the LCCI head said.
On debt sustainability, Asiwaju Olawale-Cole revealed that the total public debt stock of the Federal Government (FG), states, and the Federal Capital Territory (FCT) rose from N39.56 trillion in December 2021 to N41.60 trillion (about $100.07 billion) by the end of the second quarter of 2022 as revealed by the Debt Management Office (DMO).Nigeria’s Debt-to-GDP ratio now stands at 23.27 percent, as against 22.43 percenton December 31, 2021.
This, according to him, was a result of new domestic borrowing by the FGN to partly finance the deficit in the 2022 budget, the $1.25 billion Eurobond issued in March 2022, and disbursements by multilateral and bilateral lenders.
Olawale-Cole further disclosed: “Nigeria’s debt-servicing bill has increased by 109 percent from N429bn in 2021Q4 to N896.56bn in Q1 2022.In Q1 2021, Nigeria spent N310.5bn on domestic debt servicing, while it spent $286.35m (N118.9bn) on external debt servicing, giving a total of N429.4bn.However, in Q1 2022, it was N668.69bn on domestic debt servicing, and $548.79m (N227.87bn) on external debt servicing, giving a total of N896.56bn.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”.
On FOREX, Olawale-Cole related that the Naira has recorded unprecedented volatility in the first quarter of 2022 with a widening premium between the official (NAFEX) rate (at N415/USD) and the BDC/Parallel market rate (of N615/USD), establishing that the Chamber’s position was that monetary authorities need to liberalize the FX market by unifying the multiple FX rates and ensuring FX rates are market-driven.
He emphasized this is critical in the process of enhancing stability, liquidity, and transparency in the FX market, as unification is expected to improve Nigeria’s currency management framework given that the multiple exchange rate systems have continued to create uncertainties and sources of arbitrage.
“The Monetary Policy Committee of the Central Bank of Nigeria, in their May 2022 meeting voted unanimously to raise the benchmark interest rate to 13% after two years of expansionary monetary policy. The rate has been maintained at 11.5% since September 2020.
“The hike in rates was primarily to curb the surging inflation rate which stood at 17.7 percent as of May 2022. The CBN is faced with the dilemma of deciding on a contractionary policy in the face of fragile growth. On a balance, it is quite clear and compelling that tackling inflation is quite urgent in the sequence of policy objectives.
“The nation’s foreign trade in goods rose quarter-on-quarter, QoQ, by 11 percent in the first quarter of 2022 (Q1’22) to N13 trillion from N11.7 trillion in Q4’21.According to the NBS, the value of exports rose QoQ by 23 percent to ₦7.1 trillion in Q1’22 from 5.76 trillion in Q4’21.Similarly, the value of imports rose QoQ by 21 percent to N5.9 trillion in Q1’22 from N4.87 trillion in Q4’21.The trade balance stood at a surplus of N1.2trillion in the first 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 refining capacity, production of petrochemical products, and accelerating reforms in the Oil &Gas sector to attract more foreign investments in the coming months.
“The capital importation report for the first quarter of 2022, showed that Nigeria attracted a total of $1.57 billion in capital inflows in Q1 2022, falling by 28.1% compared to $2.19 billion recorded in the previous quarter.Compared to the corresponding period of 2021, Nigeria’s capital importation declined by 17.46% from the $1.91 billion received in Q1 2021.
“The largest amount of capital importation by type was received through Portfolio Investment, which accounted for 60.87% ($957.58 million). This was followed by Other Investment with 29.28% ($460.59 million) and Foreign Direct Investment (FDI) accounted for 9.85% ($154.97 million) of total capital imported in Q1 2022.
“The concern here is that FDIs (at a low of 9.85 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” Asiwaju Olawale-Cole revealed at the briefing.
On the effect of lingering Russia-Ukraine war, LCCI boss said the most sustainable solution was for the government to boost local production of “hitherto imported staples to levels that meet local demand”.
In preparing for the reality of the future, he urged the FG to seriously undertake the completion of projects like the Trans-Saharan Gas Pipeline, a planned natural gas pipeline from Nigeria to A
“We should also target Trans-Saharan and European markets with the ongoing construction of the Ajaokuta, Kaduna, and Kano Gas Pipeline, popularly known as the AKK Gas Pipeline. Arising from the calamities of this war, Nigeria can explore emerging opportunities to earn huge foreign exchange inflow in the medium to long-term.
“We reiterate our recommendation that refining our crude remains the most sustainable option especially when we consider the huge cost of subsidies on government finances. In refurbishing the refineries, the government should consider the joint venture model similar to the Nigeria Liquified Natural Gas (NLNG) model” Olawale-Cole advised.