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LCCI Applauds Nigeria’s Economic Growth Performance

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This action also has implications for economic growth, job creation, and revenue generation for the government

…Highlight some threats to future growth that need special attention

Olushola Okunlade Writes

The Nigerian economy has recorded an impressive recovery from the recession induced by the COVID-19 pandemic in 2020.

The economy has consistently recorded growth rates breaking many analysts’ predictions of expected lower growth rates. However, the economy has continued to struggle with many inhibiting burdens like inflation, weak revenue generation, degenerated infrastructure, forex challenges, unsustainable cost profile seen in debt services and subsidy payments, and the daunting threats of worsening insecurity.

LCCI is concerned that if we continue in this trajectory, the economy may bleed away into stagflation which will impact production costs, job losses, worsened forex crisis, and dampened growth in the medium term.

The National Bureau of Statistics (NBS) announced that Nigeria’s Gross Domestic Product (GDP) grew in 2022Q2 by 3.54% year-on-year in real terms. This is the seventh quarter of positive growth. This rate is lower than the 2021Q2 rate which was at 5.01% decreasing by 1.47%. Quarter-on-Quarter, it was an increase of 0.44% points relative to 3.11% recorded in 2022Q1.

While we celebrate the latest growth figures, the Chamber wishes to highlight some threats to future growth that need special attention:

The oil sector has consistently recorded negative growth for the ninth consecutive quarter, contracting again by -11.8% y/y in Q2 2022 following a higher contraction of -26% y/y in Q1. The average daily crude oil production in Q2 was 1.43mbpd even lower than the 1.49mbpd produced in Q1. If oil revenue makes up more than 80 percent of government revenue, we expect the Government to tackle the menace of oil theft and pipeline vandalism with a sterner approach. 

The non-oil sector grew by 4.8% y/y in Q2 ’22 against 6.1% y/y in Q1 ‘22. Key drivers within the non-oil economy include transportation and storage (51.7% y/y), finance and insurance (18.5% y/y), telecommunications (7.7% y/y), trade (4.5% y/y), real estate (4.4% y/y), construction (4.0% y/y), manufacturing (3% y/y), and agriculture (1.2% y/y). Combined, these sectors account for 78.3% of the total GDP in Q2. We urge the government to continue with the non-oil campaigns and interventions to sustain the targeted financing towards boosting non-oil export for enhanced foreign exchange earnings.

The growth of 1.2% recorded for agriculture and 3% for manufacturing are comparatively low when compared with other sectors that grew above 5%. This is also indicative of the threats facing these sectors that power Nigeria’s real sector. The woes in these two sectors are responsible for the frightening rise in our inflation rate. And with the excruciating burden of debt service, subsidy payments, and worsening insecurity, many more production activities may be constrained in the coming months. 

The Federal Government needs to sustain its targeted interventions in selected critical sectors like agriculture, manufacturing, and export infrastructure, tackling insecurity, and freeing more money from subsidy payments. It is also worrisome that the 2023 budget estimations indicate that there may not be any significant allocation to capital projects in 2023. We urge the government to tackle oil theft to earn more foreign exchange, borrow from cheaper sources to reduce the burden of debt servicing, and take a decisive step toward removing fuel subsidies.

Economy

Economy: Dangote Petrochemical Plant To Position Nigeria As Polypropylene Hub In Africa

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Economy: Dangote Petrochemical Plant To Position Nigeria As Polypropylene Hub In Africa

…As Godwin Emefiele commends the effort, says timely and appropriate

Olushola Okunlade Writes

The Dangote’s $2 billion Petrochemical Plant located in Lagos when fully operational will position Nigeria as one of Africa’s largest petrochemicals hubs and boost non-oil export earnings for the country, according to the Dangote Group President, Aliko Dangote.

The 900,000 metric tons per annum capacity Plant, which is being built alongside the 650,000 barrels per day Dangote Petroleum Refinery will produce polypropylene strategically positioned to cater to the demands of the growing plastic processing downstream industries not only in Africa but also in other parts of the world.

Dangote who made this disclosure at the 2022 Zenith Bank International Trade Seminar on Non-oil Export recently in Lagos, said the refinery and petrochemical projects will ensure petroleum products’ sufficiency and security for Nigeria.

He emphasized the need for government to unlock the potential of petrochemical export by completing the OB3 pipeline to make gas available to manufacturers. “There is a need to prioritize financing gas infrastructure, gas allocation to the domestic market, and adjustment of fiscal framework to make the supply of gas to domestic market attractive for oil companies,” he added.

Dangote disclosed that the refinery reputed to be the largest single train greenfield petroleum refinery in the world is at an advanced stage of completion and that on completion, it is expected to export much more than 8 million tons of Petroleum products annually after meeting domestic consumption, while about 900,000 tons of polypropylene is also expected from the petrochemical plant.

The business mogul revealed that the recently commissioned 3m mtpa Fertilizer Plant has “commenced export to India, North America, and Latin America. At steady state, will export two million tons per annum after meeting domestic consumption.”

He explained that the Dangote Fertiliser regarded as the second largest urea fertilizer plant in the world is leveraging Nigeria’s abundant gas reserves as raw material for the production of Urea.

Stressing the need for Nigeria to encourage non-oil export, Dangote said that Nigeria’s non-oil export is quite low compared to other African top oil producers. “This exposes the economy to oil price and production risks. Export opportunities abound in Nigeria but there are two main routes import substitution and export-oriented industries. Import substitution is ideal for economies like Nigeria which has a large domestic market and a huge import bill”, he added.

Dangote said that investors can build industries, which initially target the domestic market, then subsequently target export markets as they build scale and competitiveness.

He then urged the Federal Government to build on the country’s competitive advantage to develop industries that are primarily geared toward export. “Nigeria LNG Limited (NLNG) in Bonny is a good example of an export-oriented investment (though would be good to get a model where such revenues are sold in the I&E window”, adding that some countries have gone a step further to create special economic zones to achieve this objective.

In his goodwill message, the Governor of the Central Bank of Nigeria, Mr. Godwin Emefiele described the theme of the seminar “Unlocking Opportunities in Nigeria’s Non-Oil Export Business” as timely and appropriate.

The CBN Chief reasoned that the theme was apt because “the global economy and structure are changing rapidly before our eyes. The previous world economic order underpinned by globalization and seamless trade possibilities seems to be suffering major disruptions lately. We believe Nigeria has a lot of potential, and we can harness this for the good of our people and country.”

He pointed out that the CBN had undertaken several initiatives to promote the non-oil export sector because of its firm belief that the non-oil export sector holds enormous potential to contribute to employment generation, wealth creation, and economic growth of the country.

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Business

CBN Interest Rates Mean Less Credit To Private Sector, Reduced Investment, And Constrained Production In Economy – LCCI

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This action also has implications for economic growth, job creation, and revenue generation for the government

…CBN action has implications for economic growth, job creation, and revenue generation for the government – LCCI

Olushola Okunlade Writes

LCCI Statement on Monetary Policy Rate Hike by the Central Bank of Nigeria (CBN)

The Lagos Chamber of Commerce and Industry (LCCI) has stated that the recent hike in Monetary Policy Rate (MPR) by the Monetary Policy Committee of the Central Bank of Nigeria (CBN) from 11.5% to 13% was well expected by the Lagos Chamber following the recent fundamentals in the economy.

LCCI has also noted the trend around the rising inflation rates across many economies globally. It is well understood that the hike was meant to control the rising inflation rate feared to assume a galloping trend soon.

“The CBN has always maintained that Nigeria’s high inflation rate was due to non-monetary factors outside its purview. We have consistently pointed at factors responsible for the rising inflation including an epileptic supply of Premium Motor Spirit (PMS), high cost of Automotive Gas Oil (AGO/Diesel), electricity tariff hikes, insecurity, and the illiquidity crisis in the foreign exchange market. These factors have continued to put pressure on the cost of production translating to higher prices or cost-push inflation. These headwinds must be tackled head-on for the inflationary pressure to be tamed sustainably.”

LCCI stated that the hike in the interest rates will normally mean less credit to the private sector and that can translate to reduced investment and constrained production in the economy, at least in the short term. This action also has implications for economic growth, job creation, and revenue generation for the government. When the MPR was 11.5% some credit lenders charged as high as 25%  maximum rate to small companies. With the benchmark interest rate at 13%, we may likely have rates climb beyond 30% for SMEs.

While we agree with the proposition that a lower interest rate in Nigeria compared with higher rates in developed economies would lead to capital flight, we must restate our recommendation that interest rate hikes will not on their curb inflationary pressures.  The supply-side challenges like insecurity, forex scarcity, and uncertainties from the inconsistent policy environment must be tackled to curb the rising inflation. This is the more sustainable solution to the rising inflation in Nigeria.

In the coming months and into the third quarter, the CBN should expand its targeted intervention schemes to support the productive sectors of the economy to reduce the cost of production. Beyond the role of price stability, the CBN must pay attention to sustaining economic growth that can create jobs and boost government revenues. Again, we reiterate that hikes in rates alone will not tackle the near-galloping inflation trend in Nigeria. We need interventions to boost the supply of goods and services, build critical supportive infrastructure, and resolve the illiquidity crisis in the forex market.

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Economy

LCCI President, Asiwaju Dr. Michael Olawale-Cole Speaks On State Of The Economy At The Quarterly Press Briefing On Tuesday

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ADDRESS ON THE STATE OF THE ECONOMY BY PRESIDENT OF THE LAGOS CHAMBER OF COMMERCE AND INDUSTRY, ASIWAJU (DR.) MICHAEL OLAWALE-COLE, CON, HELD ON TUESDAY, 12TH APRIL 2022, AT THE COMMERCE HOUSE, VICTORIA ISLAND, LAGOS

Olushola Okunlade Writes

At the second series of Lagos Chamber of Commerce and Industry (LCCI) quarterly press briefings held on Tuesday, 12th April 2022 at the Commerce House, Victoria Island Lagos State, LCCI President, Asiwaju Dr. Michael Olawale-Cole, CON, welcomes everyone and gave an insightful analysis on the state of the economy.

ADDRESS ON THE STATE OF THE ECONOMY BY PRESIDENT OF THE LAGOS CHAMBER OF COMMERCE AND INDUSTRY, ASIWAJU (DR.) MICHAEL OLAWALE-COLE, CON, HELD ON TUESDAY, 12TH APRIL 2022, AT THE COMMERCE HOUSE, VICTORIA ISLAND, LAGOS
LCCI President, Asiwaju Dr. Michael Olawale-Cole, CON.

READ FULL ADDRESS ON THE STATE OF THE ECONOMY BY PRESIDENT OF THE LAGOS CHAMBER OF COMMERCE AND INDUSTRY, ASIWAJU (DR.) MICHAEL OLAWALE-COLE, CON, HELD ON TUESDAY, 12TH APRIL 2022, AT THE COMMERCE HOUSE, VICTORIA ISLAND, LAGOS

The briefing is a fundamental component of our public policy advocacy programs during which we review major developments in the domestic and global economies in the preceding quarter and communicate our position to the wider business community and government. The key objective of this briefing is to highlight areas of concern through macroeconomic diagnostics to make recommendations to the government on creating an enabling environment for the private sector to thrive.

The private sector plays a vital role in the Nigerian economy in terms of revenue generation, strategic partnerships, job creation, investment facilitation, and trade promotion, among others. The private sector accounts for over 80 percent of total economic activities in Nigeria.  It is therefore imperative to ensure an enabling operating environment for investors in the economy. A thriving private sector means more company taxes revenues for the government to meet critical infrastructural obligations. It is a win-win scenario.

The media has shown a collective responsibility towards what the Chamber is committed to achieving for the business community. Let me, therefore, as usual, express our profound gratitude to the media for being worthy partners in our advocacy activities and our quest for a better business environment. Our advocacy activities would not have been as impactful without your cooperation. As an institution with the mandate to protect business interests, we restate our commitment to deepening this partnership.

GLOBAL ECONOMIC DEVELOPMENT

The global economy is beginning to show signs of impressive recovery from the devastating effects of the COVID-19-imposed restrictions and disruptions. However, just as the world recovers from the Virus, the Russia-Ukraine war emerged and has persisted till today, to the irritation of the international community. Looking at manufacturing activities and services, the global Purchasing Managers’ Indices (PMIs) have so far not entirely captured the real effects of the persisting war in Ukraine. The global manufacturing PMI fell to 52.70 in March 2022 from 53.6 in February, and compared with 53.2 in January. The PMI decelerated in March but maintained a positive trajectory at above 50%.

This positive index reflects the sustained improvement in global activity level, largely supported by continued progress in the vaccination programme in advanced economies, successful containment measures, increased funding for vaccinations in developing countries, easing of restrictions and lockdowns, and sustained policy support by fiscal and monetary authorities. As of the end of March 2022, Nigeria recorded 14.85% vaccination of its population. Data by the World Health Organization showed that only about 2.2% of vaccination was achieved at end of 2021. The massive improvement in vaccination is highly commendable. But in comparison, Nigeria’s vaccination rate is dwarfed by that of Ghana at 41.05%, Egypt at 73.58%, South Africa at 55.64%, and Kenya at 31.51%. We restate our conviction that the way to go is more vaccination. The Government must do everything in its power to increase the vaccination rate in Nigeria, These could necessitate extensive enlightenment and educative programs and increasing the number of vaccination centers.  

Global GDP growth is projected to moderate from 5.9% in 2021 to 4.4% in 2022 according to the International Monetary Fund (IMF). The fiscal and monetary interventions from governments will continue to boost aggregate demand across economies in 2022. However, a major risk to growth in 2022 is the persisting disruptions to global supply chains arising from the prolonging Russia-Ukraine war which is increasingly impacting commodities’ prices across various economies.

For the first quarter of 2022, crude oil prices trended upwards. Brent crude oil spot price, which opened the year at US$84.19pb, peaked at US$128.27pb as of 9th of March and closed the quarter at US$107.27pb as of 31st March. It is expected that the Brent price will average $116/b in Q2 of 2022 and $102/b in the second half of 2022 according to the IMF. It is also projected that the average price will fall to $89/b in 2023. It must be noted that actual price outcomes will be dependent on the degree to which existing sanctions are imposed on Russia, and independent corporate actions will affect Russia’s oil production or the sale of Russia’s oil in the global market.

The war in Ukraine has disrupted the country’s harvest and planting cycles, meaning less food down the line even if the war ends today. Surging prices for oil and shipping will add to food costs. The global shortage of fertilizers is now worsened by the disruption of Russian and Belarusian supply – one-third of the global market for potash. Even countries far removed from the war, like Brazil and Argentina, will face agricultural disruptions.

DOMESTIC DEVELOPMENT

2021 FOURTH-QUARTER GDP REPORT

Nigeria’s Gross Domestic Product (GDP) grew by 3.98% (year-on-year) in real terms in the fourth quarter of 2021, showing a sustained growth for the fifth consecutive quarter since the recession witnessed in 2020 when output contracted by -6.10% and -3.62% in Q2 and Q3 of 2020 under the Covid pandemic. The fourth-quarter growth indicates a steady economic recovery accounting for annual growth of 3.40% in 2021. The Q4 2021 growth rate was higher than the 0.11% growth rate recorded in Q4 2020 by 3.87% points and lower than 4.03% recorded in Q3 2021 by 0.05% points

The oil sector contracted by –8.06% (year-on-year) in Q4 2021 in real terms, indicating an increase of 11.71% points relative to the rate recorded in the corresponding quarter of 2020 and -10.73% in Q3 2021. Annual growth stood at -8.30%, a rate better than the -8.89% recorded in 2020. The Oil sector contributed 5.19% to total real GDP in Q4 2021, down from 5.87% and 7.49% recorded in Q4 2020 and Q3 2021 respectively. Based on data from the NBS, average crude oil production in Q4 was 1.50mbpd, down from 1.57mbpd in Q3 2021 and 1.56mbpd in Q4 2020. Crude Oil Production in Nigeria decreased to 1.258mbpd in February from 1.399mbpd in January of 2022.

Meanwhile, the non-oil sector grew by 4.73% in real terms in Q4 2021, which is higher by 3.05% point compared to Q4 2020, and 0.71% point lower than the third quarter of 2021. Activities in Agriculture (crop production); trade; Information and Communication (Telecommunication); and Financial and Insurance (Financial Institutions), were responsible for the growth. In real terms, the Non-Oil sector contributed 94.81% to the nation’s GDP in the fourth quarter of 2021, higher than 94.13% in Q4 2020 and also higher than 92.51% recorded in the third quarter of 2021.

GDP Growth Outlook for Q2 2022

The persisting Russia-Ukraine war has triggered a positive oil price shock with spillover effects on operating costs, raw materials, and inflation in countries that are not directly engaged with the war. Nigeria is not an exception as prices of goods and services are moving northward with the potential implication of shrinking production of goods and services. The worsening security challenges in many parts of the country are another serious threat to the agricultural and manufacturing value chain, which is capable of reducing production and contracting these sectors.

If the above conditions persist, production volumes will be impacted by the raw materials supply chain disruptions caused by the war in Ukraine, the rising cost of diesel, and other internal security crises. Job losses are also very likely due to constrained production and disrupted supply chains. All of these will likely depress growth potentials in Q2 2022.

The agriculture sector showed some evidence of impacts from heightening insecurity and lingering supply chain disruptions as it recorded real growth of 3.58% (year-on-year), an increase of 0.16% points when compared with the Q4 2020, and an increase of 2.36% points from Q3 2021 which recorded a growth rate of 1.22%. However, the sector contributed 26.84% to overall GDP in real terms in Q4 2021. This is lower than the contribution in Q4 2020 and lower than Q3 2021 with 26.95% and 29.94% respectively.

The manufacturing sector recorded real GDP growth of 2.28% (year-on-year) in the fourth quarter of 2021, higher than the figure for Q4 2020 by 3.80% points and higher by 2.01% points for the Q3 of 2021. The growth rate of the sector on a quarter-on-quarter basis stood at 3.57%. In terms of real contribution to GDP, the manufacturing sector contributed 8.46% in Q4 2021, lower than the 8.60% recorded in the fourth quarter of 2020 and lower than the 8.96% recorded in Q3 2021.

Assessment & Outlook

Going into the second quarter of 2022, the manufacturing sector will likely suffer some shocks from the rising cost of diesel, logistics, foreign exchange illiquidity, domestic inflationary pressure, weakening purchasing power, poor public infrastructure, and port-related challenges as these may continue to present as headwinds to the sector’s performance. Additionally, with the war in Ukraine aggravating disruptions to supply chains of raw materials like wheat, barley, soybeans, sunflower, and corn, the rising cost of production may not abate soon.

OUR RECOMMENDATIONS

Sustaining the pace of recovery in 2022 and navigating through the rising uncertainties in the global economy requires well-coordinated fiscal and monetary policies in promoting growth-enhancing and confidence-building policies that would encourage private and foreign capital inflows into the economy. To achieve these, we recommend accordingly:

  1. The Government needs to look for ways to resolve the lingering fuel supply crises by increasing importation to meet growing demand which is putting pressure on diesel and fuel prices. It has also become imperative now that Nigeria needs to have reserves for these critical commodities which can be accessed to meet sudden crashes in supply.
  2. We have always advocated for the removal of fuel subsidies and that such rescued funds be diverted to subsidize the production of goods and services in the face of the rising cost of manufacturing. 
  3. The Central Bank of Nigeria (CBN) should embark on easing the economy while keeping a tab on controlling rising prices. Credit to the private sector should increase and be targeted to support growth sectors and export-promoting sectors.
  4. The growing uncertainty is driven by the war in Ukraine, degenerating security crises, and difficulties around the sourcing of FOREX for the importation of raw materials.
  5. The CBN needs to initiate a gradual transition to a unified exchange rate system and allow for a market reflective exchange rate. The currency market is still beset with persisting liquidity challenges evidenced in the wide premium between the NAFEX and parallel market rates. To consolidate on the interventions earlier initiated, the CBN needs to 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.
  6. Deliberate efforts toward making the business environment more conducive for MSMEs and large corporates at the national, subnational, and local government levels are imperative. This can be achieved by addressing the structural bottlenecks and regulatory constraints contributing to the high cost of doing business. A supportive and conducive investment environment is critical in facilitating private sector involvement in the economic recovery process.
  7. The government should initiate moves towards having cost-reflective tariffs in the power sector as this will attract the needed investment to boost the power supply.

INFLATION

The Lagos Chamber of Commerce and Industry is concerned with the high and rising inflation rate which stood at 15.70% as of February up from 15.60% recorded in January 2022. On a year-on-year basis, the rate decelerated from 17.33% recorded in February 2021. Rising prices will remain a major concern for businesses and households, especially given the challenges associated with insecurity, infrastructure deficit, and foreign exchange fluctuations, all of which are factors that have continually triggered inflation in Nigeria in the past months. It is expected that the war in Ukraine which has disrupted supply chains of oil and gas, and food commodities will, in the short-term drive inflationary pressures northward.

Looking forward to the second quarter, we expect headline inflation to remain elevated as the combination of supply chain disruptions due to the Russia-Ukraine war, food supply shocks, FX policies, higher energy costs, FX illiquidity, heightened insecurity in major food-producing states, will continue to mount pressure on domestic consumer prices. We believe a broad-based harmonization of fiscal and monetary policies toward addressing the identified structural constraints will significantly help moderate inflationary pressure in the short term.

DEBT SUSTAINABILITY

The Federal Government spent N2.05trillion on domestic debt servicing and US$2.11 billion (N880 billion) in 2021. Nigeria’s total public debt as of December 31st, 2021 was N39.556trillion or USD95.779billion. The amount represents the total external and domestic debts of the Federal Government, thirty-six states, and the FCT. The comparable amount for December 31st, 2020, was N32.915 trillion or USD86.392 billion.

With the Total Public Debt Stock to Gross Domestic Product (GDP) of 22.47%, as of December 31, 2021, the Debt-to-GDP ratio remains within Nigeria’s self-imposed limit of 40%. This ratio is prudent when compared to the 55% limit advised by the World Bank and the International Monetary Fund (IMF) for countries in Nigeria’s peer group, as well as the ECOWAS Convergence Ratio of 70%. However, the Federal Government must be sensitive to, and mindful of the relatively high Debt-to-Revenue Ratio of about 90% in 2021. We must initiate measures to increase revenues without jeopardizing the existence of the businesses that pay taxes to the government.

We project that Nigeria’s debt stock and debt-servicing to revenue ratio will remain elevated in 2022. the Federal Government still plans to borrow an additional N1.6tn, while the 2022 debt target for domestic borrowing is N2.57tn. There is also a plan to borrow N2.57tn from foreign creditors, while N1.16tn is expected from multilateral/bilateral drawdowns. In total, the Federal Government plans to add N6.3tn new debts to the current debt stock, which would push the country’s total debt stock to N45.86tn by December 2022.

The 2022 FGN budget is now projected to have a deficit of N7.35trillion from the approved N6.26trillion if the recent request for an additional deficit of N965.4billion by the President presented to the National Assembly is granted. In total, the Federal Government plans to add N6.3tn new debts to the current debt stock, which would push the country’s total debt stock to N45.86tn by December 2022. We are likely to have a higher debt service-to-revenue ratio if revenue levels do not increase significantly.

FOREIGN EXCHANGE MARKET

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 N589/USD). Let me reiterate the Chamber’s position that monetary authorities need to liberalize the FX market by unifying the multiple FX rates and ensuring FX rates are market-driven. This is critical in the process of enhancing stability, liquidity, and transparency in the FX market. The unification is expected to improve the country’s currency management framework given that the multiple exchange rate systems had been creating uncertainty issues and sources of arbitrage.

MONETARY POLICY DEVELOPMENT

The Central Bank of Nigeria (CBN) retained the Monetary Policy Rate (MPR), at 11.5 percent, and the asymmetric corridor of +100/-700 basis points around the MPR throughout 2021 and the first two meetings in 2022. The Cash Reserve Ratio at 27.5 percent and 30 percent Liquidity Ratio were equally maintained. The Monetary Policy Committee of the CBN will be faced with a tough policy choice of boosting economic growth and tackling inflation for the most of 2022. This policy dilemma will put the committee in a very tight position in the coming months and might propel the Committee to cautiously retain its policy stance in the first half of the year 2022.

A broad-based synchronization of fiscal and monetary policies is critical in achieving the twin objectives of output growth and price stability. Looking forward, we expect factors such as oil price & production, GDP growth, inflation rate, FX trends, private investment inflows, credit to the private sector, and domestic interest rates to influence monetary policy direction in the short to medium-term.

We recommend the following:

  1. The Federal and state governments need to show more commitment to the insecurity challenge considering its multidimensional impact on the economy.
  2. 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 the exchange rate and boost output growth.
  3. The need to improve the agricultural value chain, particularly in key commodity products like cocoa, palm oil, and cashew to diversify the country’s export receipts.
  4. On Government revenues, the Federal Government should improve its tax collection by expanding the tax net to reduce its dependence on oil revenues and reduce its exposure to global shocks like the war in Ukraine.

FOREIGN TRADE

The Lagos Chamber notes the release of Q4-2021 Foreign Trade Statistics by the National Bureau of Statistics. The value of Nigeria’s total merchandise trade stood at N39.75 trillion in 2021, a 57.6% increase over total trade in 2020. Total import was N20.8trillion, which is 64.1% higher than the value in 2020. The export trade in 2021 stood at N18.91trillion showing an increase of 50.99% more than what was exported in 2020.  Overall, Nigeria recorded a deficit of N1.94 trillion in 2021. Particularly in the fourth quarter, total export was largely dependent on crude oil exports which recorded N.3trillion (or 74.04% of total exports). Non-oil export was valued at N1.50trillion (or 25.96% of total exports).

The numbers expose the 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.

The government at all levels in conjunction with trade finance institutions needs to channel efforts towards the enhancement of value addition to non-oil exports. This can be supported by the establishment of Special Economic Zones (SEZs) that facilitate agro-processing for export. We also need more investment in export infrastructure, port operation efficiency, tackling the high cost of production, and boosting the supply-side of the FOREX market to improve liquidity and ease access to FOREX. Even within the oil sector, we need to diversify away from crude oil exports to boost refining capacity, and production of petrochemical products and accelerate reforms to halt the importation of petroleum products.

An effective harmonization of fiscal, monetary, trade and regulatory policies is needed to support businesses in the real sector. There is a need for a greater investment-friendly disposition of the government towards enhancing the quality of Nigeria’s trade infrastructure and better border management.

Nigeria’s trade outlook with the global community may likely weaken in the short term. The Nigerian economy will likely begin to feel the impact of oil theft on the oil export and thereby on the overall amount of export. And with imports continuing to outpace exports, the trade deficit is expected to widen in the full year of 2022, and that may put more pressure on FOREX. Looking ahead to 2022, we expect crude oil to sustain its dominance in Nigeria’s export while manufactured imports will most likely dominate the country’s import bill. We anticipate a sustained trade deficit in agriculture, manufactured goods, and raw materials goods this year.

CAPITAL IMPORTATION

In the fourth quarter of 2021, the Nigerian economy attracted a total value of capital importation worth $2.19 billion from $1.73 billion in Q3 2021 showing an increase of 26.35%. In comparison with the corresponding quarter of 2020, capital importation has increased by 109.28% from $1.05 billion. The Chamber is however careful to note that out of this amount, Foreign Direct Investment (FDI) amounted to only 16.38% ($358.23 million) of total capital imported in Q4 2021. The concern here is that FDIs 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.

THE RUSSIA-UKRAINE WAR

The war between Russia and Ukraine will likely make the world’s hunger crisis even tougher to fight. The countries are two of the world’s major suppliers of staple grains like wheat, corn, sunflower, potash, etc. Nigeria’s food supply has started to feel some pressure as it imported 4% of wheat from Ukraine and 27% of wheat from Russia in 2021 according to Gallup News. Data from the National Bureau of Statistics shows that Russia was the sixth major exporter to Nigeria as of the third quarter of 2021 coming only after China, India, the USA, Netherlands, and Belgium in that order.

The most sustainable solution is for the government to boost local production of these staples to levels that meet local demand. The world economy is already feeling the impact of the disruptions caused by the war on global supply chains. This is reflected in the rising local prices of petrol and diesel, as in the case of Nigeria where we depend on oil imports. Today, it is not just about the skyrocketing price of diesel which has risen above N700.00/litre, but that the product is now scarce and difficult to get.

In preparing for the reality of our near future, we urge the Federal Government to take seriously the completion of projects like the Trans-Saharan Gas Pipeline, a planned natural gas pipeline from Nigeria to Algeria. With this, we can explore the opportunity of exporting gas to Europe in the long term. 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.

OIL THEFT

The menace of oil theft has become a rising cost to the economy as it deprives us of much-needed oil revenue. The position of the Government that the problems of the oil and gas sector are the push back against investment in fossil fuels and decreasing investment inflows into the sector, is quite debatable when we consider the inability of the government in stopping oil theft in the sector. The Nigerian National Petroleum Corporation Limited (NNPC) reported that Nigeria lost $3.2 billion in fourteen months. The weak regulation and systems in the oil and gas sector are a reason for divestments and low attraction of new investment. The Petroleum Industry Act (PIA) 2021 was meant to create a more standardized sector that foreign investors would be comfortable playing in, but unfortunately, the Act is in a perceived state of limbo amidst growing uncertainties.

As a country, we should be certain of the exact volume of Premium Motor Spirit, popularly called petrol, that we consume daily. We had the unfortunate incidence of adulterated fuel import into the country in January, and then the partial suspension of the PIA 2021 implementation. Beyond the accusations and trading of blame, nobody has so far been sanctioned or punished for their roles in the importation of contaminated fuel. These developments reflect a failure of  governance and regulation. We urge the government to conduct an audit of the current systems in the Oil & Gas sector towards having a standardized system that meets international best practices.

Recently, the Organisation of Petroleum Exporting Countries raised Nigeria’s oil production quota from the 1.735 million barrels per day target approved in April 2022 to a new target of 1.753 million barrels per day for May 2022. Regrettably, we do not seem prepared to meet these targets and boost our oil revenue on the back of the global oil crises and rising oil prices. With more than 84% of our revenue coming from the export of crude oil, it is expected that the Government will not allow oil theft to diminish our economic fortunes.

POWER SECTOR

It is becoming clearer that the national grid cannot supply sufficient power to meet our electricity demand. We have had issues with a disrupted gas supply, distribution companies lacking the capacity to take up power generated by the power generating companies, and the challenges of achieving 100% metering for power consumers. On the back of these challenges, businesses have had to deal with the rising cost of manufacturing, exorbitant logistics, and constrained production. 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 as 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.

We recommend that government invest more in technology to fight pipeline vandalism. The government should create funding for critical infrastructure and special purpose intervention in the power sector. The newly launched Infrastructure Corporation of Nigeria (Infracorp) has a mandate to focus on power, renewables, transport, and logistics. The INFRACORP will succeed in mobilizing private sector participation if we can achieve cost-reflective pricing in the power sector. The gas-to-power infrastructure requires an overhaul to resolve the persisting gas shortage. However, the most sustainable solution to Nigeria’s power shortages is the transition to renewable energy.

INSECURITY

The worsening insecurity profile in Nigeria is reaching a worrisome dimension with the unfortunate incident on Monday 28th March 2022, when some gunmen launched a deadly attack on a Nigerian Railway Corporation (NRC) Abuja-Kaduna evening train carrying an estimated 398 passengers. After the attack, reports confirmed that eight people were killed, and twenty-two people are still missing. Earlier, on 26th March 2022, the Kaduna Airport was attacked, leaving one dead and many maimed. This is rather frightening and increasingly threatening to the well-being of Nigerians. 

On behalf of the business community, the Lagos Chamber of Commerce and Industry is concerned with the current insecurity crisis because of its impact on businesses and the economy. We are also very concerned because of the apparent threat to our forthcoming general elections in 2023 and, by extension, a threat to our democracy. In the absence of peace and security, it would be challenging to hold credible, free, and fair elections that would reflect the choices of the electorates about whom their leaders should be.

The 2021 Global Peace Index published by the Institute for Peace and Economics ranked Nigeria at 146 out of 163 countries, only better than countries like Iraq, Syria, Libya, Afghanistan, Sudan, Somalia, Yemen, and Russia, which are typically known to have been conflicting areas for a long time. The security challenges are continuing to spiral into general lawlessness and anarchy. Also, the Global Conflict Tracker hosted by the United States Council on Foreign Relations recorded that attacks by bandits across the North-West have claimed at least 5,000 lives since 2018. Since 2009, nearly 350,000 people have been killed in the North-Eastern part of the country due largely to the activities of Boko Haram Islamist insurgents. The number of displaced people in the Lake Chad Basin is about three million.   

Insecurity in Nigeria is multidimensional and pervasive, ranging from armed banditry, kidnapping, attacks on state infrastructure, perennial herder-farmer clashes to gang violence, attacks on police stations, prisons, airports, and power transformers, intercommunal violence, ritual killings, mob justice, and casual intimidation of ordinary citizens by the law enforcement agents. In the South-South region, we have an economic war as the Government struggles to maintain the peace required to achieve optimal crude oil exploration for FOREX earnings. Nigeria earns about 80% of its foreign exchange earnings from the Oil and Gas Sector. There are political agitations in the South-East, secessionist agitations in the South-West. Today, we have terrorism, banditry, and kidnapping in the Northern part that have taken frightening dimensions and colorations.

In the face of these challenges, the Lagos Chamber of Commerce and Industry wishes to make the following recommendations:

  1. Nigeria needs a surveillance infrastructure that is monitored in real-time to respond to emergencies and foil planned crimes. This calls for more technology deployment to gather intelligence, provide 24/7 responsive surveillance, and track persons’ movements and activities, especially in already troubled areas.
  • Youth unemployment is a critical factor fuelling insecurity in Nigeria. The latest data from the National Bureau of Statistics show that youth unemployment is at 42.5% and youth underemployment at 21%. This is a driving factor for the insecurity crises in Nigeria. We need more jobs to engage our youths productively.
  • We must tackle gun control crises where unauthorized and unidentified people possess firearms without strict control. It is estimated that more than six million small arms are in the hands of civilian nonstate actors.
  • Drug abuse by our youth must be curtailed, and drug traffickers adequately prosecuted and punished as a deterrent. The United Nations Office on Drug and Crimes (UNODC) in 2021 revealed that about 14.4% of Nigerians were engaged in drug abuse. This portends a negative trend for the country’s future when we estimate the connection between drug abuse and violence.
  • The huge amount of N2.41 trillion earmarked for the defense and security sector in the 2022 Federal Government budget may have reflected Government’s commitment to resolving security challenges. We however need to be prudent with spending and put in place checks to prevent the diversion of funds to other uses like sponsoring political activities. At the state and local government (LG) levels, governors and local government chairpersons have severally been accused of mismanaging “security votes” within the states. There is a need for better accountability in the disbursement of these funds for suitable projects.

For immediate action, we recommend that the President, Commander-In-Chief of the Armed Forces, Federal Republic of Nigeria, President Muhammadu Buhari, GCFR, should convene a National Council of State Meeting to deliberate on the several issues around politics, the economy, insecurity, and the forthcoming general elections. We also call on the Federal and State Governments to expedite actions to restore peace, law, and order in the country before the full-scale launch of political campaigns for the 2023 general elections.

If we do not commit to a new order and more enabled and innovative security architecture, soon, security will suffer a heavier blow once politics takes center stage in governance. The major challenge waiting for the incoming Nigerian president (likely a civilian) will be to resolve the security crises. Still, first, we must restore and preserve law and order in Nigeria today for us to be able to hold the elections next year. The majority of Nigerians still have confidence in President Muhammadu Buhari, GCFR being an accomplished and retired Army General to be well equipped to tackle Nigeria’s daunting security challenges.

CONCLUSION

Distinguished Gentlemen of the Press, it is our collective responsibility to engage with the government in creating an enabling investment environment for the advancement of the Nigerian economy and the good of all investors and economic players. However, to achieve this, we need to have the right policy and regulatory framework. And because we know the Government cannot resolve all the issues highlighted above, the Lagos Chamber has always initiated engagements with the government at all levels on resolving critical issues for the economy.

Our policies and regulations must foster business competitiveness at national, sub-regional, continental, and global levels.  The environment must support businesses, preserve investments, and create job opportunities. Genuine commitment to implementing key reforms would not only stimulate output growth but would also put the nation on the path of macroeconomic stability over the medium term.

As a private sector advocacy group with the mandate to promote the interests of the business community, the Lagos Chamber of Commerce and Industry shall continue to engage relevant government agencies where and when necessary, on evolving policy issues that may affect the business community.

Thank you for listening, he concluded.

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