President Lagos Chamber of Commerce and Industry Mrs Mrs. Toki Mabogunje hastasked the Buhari led administration to ensure that there is proper coordination of fiscal and monetary policy in the country in order to move the Nigerian Economy forward. At the Chamber quarterly press briefing she said “Accelerating the pace of recovery requires both fiscal and monetary policymakers to be well-coordinated in promoting growth-enhancing and confidence-building policies that would encourage private and foreign capital inflows into the economy. As such, we recommend accordingly, While the CBN has adopted the NAFEX rate as the official rate in the gradual transition to a unified exchange rate system, the currency market is still beset with persisting liquidity challenge evidenced by wide premium between the NAFEX and parallel market rates. To consolidate on this positive development, there is a need for the CBN to scale up its intervention efforts and roll-out more friendly supply-side policies to boost liquidity in the market.
“This would help bolster investor confidence and attract foreign investment inflows into the economy. Deliberate efforts towards making the business environment more conducive for MSMEs and large corporates at national, subnational and local government level is imperative. This can be achieved by addressing the structural bottlenecks and regulatory constraints contributing to high cost of doing business. A supportive and conducive investment environment is critical in facilitating private sector involvement in economic recovery process. Deepening deregulation efforts in the downstream oil industry by; (a) ensuring market-reflective pricing model for petroleum products; (b) meanwhile the recent passage of the Petroleum Industry Bill is expected to drive private investment in the oil & gas sector, and (c) intensifying diversification efforts within the oil sector to gas and other petrochemical products. Clarity in government’s policy direction by ensuring consistency in economic policies. Policy consistency is imperative for long-term investment planning and business projections. Holistic and dynamic review of the security architecture to address the seemingly worsening security situation in the country.
“Juxtaposing current growth level with population growth estimated at 2.7% by the World Bank implies the economy is not growing fast enough to create new opportunities for its rapidly-growing population. Nigeria’s actual output performance is significantly below its potential output level. Achieving key development outcomes such as employment creation and poverty reduction will always remain elusive in the light of fragile recovery, and this reinforces the need for policymakers to pursue critical reforms to bolster confidence in the economy, accelerate post-pandemic recovery and alleviate poverty.
“The IMF and World Bank, are projecting growth figures of 2.5 percent and 1.8 percent respectively on the assumption of stronger commodity prices, transition to market-reflective exchange rate system, vaccination progress, and gradual implementation of reforms in the oil sector. While these factors appear somewhat realistic in our view, we believe (a) rising insecurity; (b) lingering forex illiquidity; (c) low vaccination rate and (d) lack of will to follow through critical reforms constitute major downside risks to the country’s growth outlook. With oil sector in contraction due to production constraints and regulatory issues, we expect the non-oil sector to drive growth recovery all through this year. Nonetheless, we also expect higher oil prices and likelihood of higher production volume [following supply easing by OPEC+ between May and July] to support growth performance in the third and fourth quarter. Looking forward, we anticipate an improvement in the second and third quarter growth performance largely on account of low base effect arising from Q2 and Q3-2020’s contraction.
“The Lagos Chamber notes the second successive deceleration in headline inflation in May 2021. Inflation reading for May 2021 printed at 17.93 % from 18.12% reported in the preceding month. While core inflation accelerated by 13.15% in May 2021 [compared to 12.74% in April 2021], food inflation rose by 22.28% in the review month [as against 22.72% in April 2021]. The year-on-year moderation in prices was on account of base effects associated with high food prices in the corresponding month of 2020. The uptick across the major sub-indices affirms the persistence of the major inflationary drivers. These include: Insecurity in the Northern and Middle belt of the country and its consequent impact on agricultural activities; high cost of logistics on the back of higher domestic energy prices – PMS, Diesel; lingering productivity challenges in the agricultural sector, leading to weak output outcomes; high cost of agricultural inputs and imported food items; lingering liquidity concern in the foreign exchange market; pass-through effect of exchange rate on imported raw materials and finished items and monetisation of Federal Government’s budget deficit via ways and means facility”.
According to the Chamber boss “inflation at 17.93 percent remains elevated and portends serious implications for various economic agents including households, businesses, and investors. An inflationary environment erodes consumers’ real disposable income, weakens purchasing power, escalates production cost, worsens cost of living, dampens corporate profitability and undermines investor confidence. We note the Central Bank of Nigeria’s commitment towards controlling the monetary component of inflationary pressure via frequent OMO auctions and CRR debits, however, the impact is limited as current inflationary drivers are supply-side issues obviously beyond the control of the apex bank. On the other hand, rising insecurity in the country has continued to undermine the Bank’s developmental finance efforts in the agriculture sector as well as heightening investment risk in the economy. The collaborative effort of the fiscal and monetary policymakers is required in addressing the structural constraints fuelling inflationary pressure. Addressing the security crisis across the country is also highly imperative”.
On the exchange rate she said “The Lagos Chamber welcomes the adoption of the Nigerian Autonomous Foreign Exchange Rate (NAFEX) as the official exchange rate. The unification is expected to improve the country’s currency management framework given that the multiple exchange rate system had been creating uncertainty issues and source of arbitrage. The development is expected to bolster confidence of foreign investors in the economy. The move will also help the country to unlock external financing opportunities particularly from key multilateral institutions such as the World Bank and the IMF, who had for long advocated for a unified and flexible exchange rate system. However, we note the forex market is still faced with liquidity challenge. Many investors are lamenting about the difficulties in accessing foreign exchange for the importation of raw materials, equipment and critical inputs for production and processing. The situation is taking a huge toll on capacity utilisation, recovery and sustainability of businesses in the production sector. The LCCI notes the indefinite extension of the Naira for Dollar scheme by the Central Bank of Nigeria. We consider this as part of CBN’s efforts at encouraging foreign exchange inflows into the economy via remittance proceeds. The apex bank also licensed 10 new International Money Transfer Operators (IMTOs) to facilitate remittance flows into the economy.
“The Chamber notes the decision of the Monetary Policy Committee of the Central Bank of Nigeria to retain (a) Monetary Policy Rate (MPR) at 11.5%; (b) Asymmetric corridor around the MPR at -700/+100 basis points; (c) Cash Reserve Ratio at 27.5% and (d) Liquidity Ratio at 30% during its May 2021 meeting. We note the committee was faced with a policy dilemma of trying to maintain a balance between stimulating growth and ensuring price stability. The economy is currently in stagflation, evidenced by high inflation, high unemployment level and fragile growth. Weighing the pros and cons of monetary accommodation and tightening, retaining policy parameters was the most appropriate decision in the light of prevailing macroeconomic conditions.We acknowledge and endorse the recommendations presented by the MPC at its last meeting. Key among them include: The need for the Federal and state governments to show more commitment to the insecurity challenge considering its multidimensional impact on the economy. The need for an effective synchronization of fiscal and monetary policies to improve the investment climate to attract sustainable foreign direct investments into the economy. This would also help to stabilize exchange rate and boost output growth. The need for government to explore private sector collaboration in infrastructural development in the light of prevailing fiscal conditions. While the committee suggested issuance of Diaspora bonds targeted at specific projects, we also encourage government to explore equity options, which has proved to be more sustainable and cost-effective than debt. Connecting local assets to global liquidity by transferring certain portion of ownership in key state enterprises to private investors would greatly encourage investment inflows into the economy and unlock revenue opportunities for government. Furthermore, we restate our position on the need for government to ensure that borrowed funds are tied to specific assets with prospects for sustaining the productive capacity of the economy. We subscribe to the committee’s near-term outlook for the economy. We expect growth to improve in subsequent quarters on account of improved economic activities in the non-oil sector, supported by higher oil prices and production. We anticipate a modest deceleration in inflation in the second half largely on account of base effects associated with 2020’s price level. With the recent downtrend in inflation trajectory, we believe the MPC will be further encouraged to maintain policy parameters at least in near term amid slowing recovery and high inflation level.
She also said “The Lagos Chamber notes the release of Q1-2021 Foreign Trade Statistics by the National Bureau of Statistics. Nigeria’s trade with the global community rose by seven percent to N9.76 trillion in the reference quarter, driven by rapid growth in imports despite a contraction in export proceeds. The rapid growth in imports in the first quarter could be attributed to relaxation of global and domestic restriction measures, which consequently supported resumption of economic activities. The surge in imports highlights the fact that economic activities are gradually recovering from covid-19 disruptions. The exchange rate depreciation might have also contributed to higher import costs. The decline in exports earnings was buoyed by significant drop in crude oil receipts on the back of imposition of lockdown measures in India – Nigeria’s biggest buyer of crude oil. As such, trade deficit widened to N3.93 trillion in the first quarter of 2021, the worst quarterly performance in the last five years. The numbers expose the poor state of the non-oil sector and the continued dependence on crude oil for foreign exchange income despite the implementation of several policies and programs aimed at boosting domestic production and driving economic diversification. Persisting trade deficit across non-oil product categories from agriculture, manufacturing, raw materials to solid minerals reflect the numerous productivity challenges confronting the real sector. Over-reliance on crude oil for fiscal revenue and forex earnings will continue to expose the economy to fluctuations in the oil market even as the country lacks adequate buffers to absorb external shocks. This poses serious external stability risks. Government at all levels in conjunction with monetary authorities must match talk with action as far as economic diversification is concerned. Efforts must be channelled towards the enhancement of value addition in the non-oil products. Import substitution policies should be further encouraged to minimise importation and boost domestic productivity. Even within the oil sector, we need to diversify away from crude oil exports to boosting refining capacity, production of petrochemical products and accelerate reforms to halt importation of petroleum products. Effective harmonisation of fiscal, monetary, trade and regulatory policies is needed to support businesses in the real sector. There is need for greater investment commitment to enhance the quality of Nigeria’s trade infrastructure”.
