New Telegraph

LCCI: Nigeria’s economy faces bleak output in 2021

…hinges recovery on oil price, production

 

Following the devastating impact of COVID-19 on global and domestic economy in 2020, the Lagos Chamber of Commerce   and Industry (LCCI) has predicted that Nigeria’s recovery to growth trajectory is expected to commence properly in Q2 2021.

 

The chamber noted that the country’s business environment would remain bleak in the first quarter occasioned by the second wave of COVID-19. Disclosing this, the    Director-General of LCCI, Dr. Muda Yusuf, in an executive summary of economy and business review for 2020 and outlook for year 2021 compiled by LCCI and made available to New  Tele  graph, yesterday, said that the economy risked further perpetuation of the current recession, if the impending COVID-19 persists into Q1 2021.

 

LCCI said for the country to foster economic  resilience in 2021, the Federal Government needed quick implementation of structural reforms, including review of the foreign exchange management framework and significant investment in critical infrastructural developmental projects. To him, these are imperative to jump starting the economy in the New Year. The LCCI’s director-general explained that looking forward, certain factors would shape the economy in 2021.

 

They include COVID-19 resurgence, African Continental Free Trade Area (AfCFTA), power sector reforms, Finance Bill 2020, passage of Petroleum Industry Bill, external sector trends, as well as new national economic development plan to shape government’s policy direction in the coming year.

 

Speaking further, the Chamber stated that the economy was already in a fragile and precarious position pre-pandemic, adding that the economy was faced with myriad of challenges, including subdued economic growth, falling income per capita, rising inflation, external vulnerabilities, escalating debt profile, insecurity, high unemployment incidence and weak investment confidence.

 

These challenges, according to him, were amplified by COVID-19-induced disruptions as the economy lacks adequate buffers to suppress the shock. Yusuf said: “Considering Nigeria’s output performance between Q1 2020 and Q3 2020, we expect the economy to end 2020 in a negative growth territory within the region of -2 per cent and -1 per cent.

 

“The magnitude of contraction in 2020 will be more severe compared to year 2016’s annual contraction of 1.62 per cent.

 

Our position resonates with projections by the World Bank and International Monetary Fund (IMF) that output growth will sharply contract to its lowest level since 1980.

 

“The economy was faced with positive but sluggish growth before the pandemic with real GDP growth averaging 1.94 per cent between Q2 2017 and Q1 2020, much below population growth rate of 2.6 per cent. “Recovery to growth trajectory is expected to take full course most likely in Q2 2021 due to base effect of Q2 2020 when output contracted steeply by 6.1 per cent. “We expect the pace of recovery to remain subdued within the region of one per cent in 2021 in the absence of shocks. In our view, Nigeria’s recovery prospects depend largely on oil price and production level as GDP performance in recent quarters has significantly mirrored trends in both variables. “It is instructive to note that Q2 2017 growth recovery was facilitated by rebound in international oil prices rather than government’s intervention efforts. We see a similar type of recovery in year 2021. “However, shocks including resurgence in COVID-19 and significant oil price volatility are the major downside risks.” On the country’s business environment, he pointed out that the business community witnessed two major disruptions in 2020 – COVID-19 and #End- SARS protests, adding that the pandemic, through its various containment measures, disrupted business and commercial activities nationwide.

 

According to him, LCCI’s findings showed that MSMEs with active presence in Lagos lost at least N2.7 billion in revenue to the lockdown. Also, the sharp naira exchange rate depreciation, coupled with sustained acceleration in domestic prices escalated the cost of production as well as operating costs for investors in the economy even as revenue was pressured by unfavourable economic conditions.

 

Yusuf also said that the major challenges faced by the business community in the outgoing year included liquidity crisis in foreign exchange market, sharp exchange rate depreciation, high energy and production cost, port congestion, cumbersome and burdensome customs processes, insecurity, inconsistent government policies, regulatory uncertainties, land border closure and Apapa gridlock.

 

He said: “The outlook for the business environment in 2021 is not very bright as there are no quick fixes for the structural issues and the desired regulatory and institutional reforms.

 

“The security situation as well requires new strategies and approaches. It is not clear what new strategies are in the works.

 

“Without bold policy pronouncements in this regard, constraints to the ease of doing business, including FX shortage, escalating production costs, high regulatory costs, infrastructure inadequacies, and delayed cargo clearance will persist into 2021.

 

“These constraints will be more profound on businesses in the real economy. We believe the sluggish pace of recovery will continue to subdue consumer demand, albeit the impact on earnings performance will be disproportionate across sectors.

 

“While most MSMEs will struggle to survive in 2021 amid unfavourable economic conditions, we expect most large corporates to demonstrate resilience in the coming year.

 

“We expect the economy to return to the path of positive growth in the second quarter of 2021 and this would expectedly impact on the macroeconomic environment, which may ease some of the critical economic conditions currently impeding economic growth.”

 

On governments providing fiscal stimulus to support households, small businesses, and their economies generally, Yusuf said that central banks eased monetary policy conditions through large-scale purchases of financial assets and interest rate reduction to rescue their respective economies.

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