Home Economy LCCI to CBN: supporting external reserves with foreign portfolio investment is unsustainable

LCCI to CBN: supporting external reserves with foreign portfolio investment is unsustainable

by Business News Report

By Omoh Gabriel

Lagos Chamber of Commerce and Industry has said that the approach of central Bank of Nigeria supporting external reserves with foreign portfolio investment is unsustainable peradventure portfolio investors develop apathy for Nigerian assets. The President of the Chamber Mrs Toki Mobogunje said this in Lagos at a press conference. She said  “We observed that the naira-dollar rate was pressured towards the end of 2019 on the back of increased foreign portfolio outflows due to the depletion in external reserve. Overall, exchange rate has demonstrated relative stability, supported by the sustained intervention of the Central Bank of Nigeria (CBN).  External reserves still hover around the $38 billion threshold, according to official data from the Central Bank of Nigeria. The approach of supporting the reserves with foreign portfolio investment is unsustainable peradventure portfolio investors develop apathy for Nigerian assets”. She said that the mono-product nature of the economy would continue to expose the nation to volatility in the global oil market with its attendant consequences on the economy. Mabogunje called on the Federal Government to intensify diversification efforts and embrace structural reforms to attract private investment and stimulate economic growth.

According to her, businesses still struggle to survive owing to multiplicity of levies, infrastructure challenges, sluggish growth, excessive regulation, high cost of credit and unfavourable government policies. She said the challenges confronting growth of businesses had remained in spite of the country’s upward movement by 15 places in the ease of doing business ranking. The LCCI president advised government to vigorously implement friendly policies to support expansion of businesses. Speaking on inflation, Mabogunje advised the government to stem rising consumer prices through increased investment in infrastructure, especially power and transportation.

This, she said, would help bridge the supply gaps and reduce transportation costs. “The rate at 11.98 per cent in December makes that the fourth consecutive month of rising inflation. Rising inflation has a profound welfare effect on citizens as it weakens purchasing power, as heightened food inflation naturally escalates poverty conditions. Policy makers need to worry about the increasingly intense inflationary conditions, especially the food component of inflation,” she said.

On the 2020 budget, Mabogunje urged government and its agencies to release performance reports to stakeholders and general public on periodic basis. Speaking on the adoption of Eco as a common currency within the ECOWAS sub region , she noted that the change had no significant implication on the Nigerian economy. She, however, explained that the manner of adoption of the currency by the francophone countries raised concern around the mutual confidence levels between the anglophone and francophone countries in the region. “Currency issues are not the biggest issues in the integration process in ECOWAS, as the bigger issues are around non tariff barriers to trade.

The challenges of weak compliance with the ECOWAS protocols, especially around the ECOWAS Trade liberalisation scheme and connectivity between countries in the sub region are major problems.

“It is important to get priorities right as far as economic integration issues are concerned,” she said.

Mabogunje lauded the 65 per cent loan to deposit ratio, saying it was a timely policy intervention to normalise credit markets, spur economic growth and broaden the interface between entrepreneurs and the banking system. She implored the Central Bank of Nigeria and fiscal authorities to strengthen collateral registry to enhance the profiling of borrowers. The LCCI president said this would help to address the downside risk with respect to loan asset quality arising from the new lending policy in the banking system.  Private investment inflows to Nigeria stood at $19.7 billion from the first to third quarter in 2019. The domination of portfolio investment in total capital importation combined with a sustained decline in foreign direct investment highlights the fact that the economy is considered risky by foreign investors. Government needs to do a lot more to ensure policy reforms that could attract private investment into the economy. We believe that it would be almost impossible for government to accelerate growth, create job opportunities and alleviate poverty without adequate private investment in the real economy. Promoting foreign direct investment (FDI) and domestic investment require impactful investment in infrastructure, policy consistency and stable macroeconomic environment. We should prioritise foreign direct investment (FDI) over foreign portfolio investment (FPI).

She said “we note that the finance act is aimed at generating more revenue for government and making the business environment more enabling by reducing the tax burden on micro, small and medium enterprises. We note that the act will help support the funding and implementation of the 2020 budget. However, the increase in VAT rate from 5 percent to 7.5 percent gives us concern. The new tax regime does not bode well for manufacturers and other stakeholders in the real economy. The new tax regime will affect cost of production and profit margin, with consumers at the receiving end. The VAT hike has implications for inflationary pressure and consumer demand. We advise government to utilise the additional income that will be generated from the increase in VAT to develop quality infrastructure, not only on payment of worker’s salaries”.

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