LCCI: Nigeria’s economy fragile, vulnerable to shocks

…says businesses struggling due to govt policies



The Lagos Chamber of Commerce and Industry (LCCI) has stated that the rising inflation, slide in private investment inflow and other macro-economic challenges have shown that the country’s economy is yet to recover as no growth has been experienced across sectors.

LCCI President, Mrs. Toki Mabogunje, stated this yesterday in Lagos at the first edition of “State of the Economy for 2020.”

She pointed out that the country’s inflation closed at the end of December 2019 at 11.98 per cent, making it the fourth consecutive month of rising inflation.

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.

She explained that policy makers needed to worry about the increasingly intense inflationary conditions, especially the food component.

The LCCI boss noted that the rising inflation had a profound welfare effect on citizens as it weakens purchasing power.

According to her, heightened food inflation naturally escalates poverty conditions as food is basic to human existence.

Also, she noted that intense inflationary pressures have a negative impact on investment as cost of production and business operations increase, adding that this typically takes a toll on profit margins as sales and turnover decline.

“We note the sustained uptick in headline inflation since September 2019.

“According to the National Bureau of Statistics (NBS), inflation rose to 11.98 per cent in December. This marks the fourth consecutive month of rising inflation. Both food and core inflation accelerated to 14.67 per cent and 9.33 per cent respectively in December,

“We believe government can stem rising consumer prices through increased investment in infrastructure, especially power and transportation. This would help to bridge supply gaps and reduce transportation costs.

“Similarly, there is need to address the security concerns in major food-producing areas of the country,” Mabogunje said.

On the state of the country’s private investment, the LCCI president explained that private investment inflows to Nigeria stood at $19.7 billion from the first to third quarter in 2019.

She noted that 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.

She advised that government needed to do a lot more to ensure policy reforms that could attract private investment into the economy, adding that “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).”

Speaking further on the country’s domestic economy, the LCCI president explained that in the third quarter of 2019, 10 sectors expanded, six contracted and three recorded moderation in growth.

This, to her, showed that economic growth is not broad-based across sectors.

Particularly, Mabogunje noted that the economy was still vulnerable to external shocks notably fluctuations in global oil prices.

This partly explains why two global credit agencies – Moody’s and Fitch – recently downgraded Nigeria’s economic outlook from stable to negative on the back of slow fiscal growth and increasing vulnerability to exogenous shocks.

According to her, “We note the sustained recovery of the economy albeit growth remains fragile. According to the NBS, the economy grew at an average of 2.17 per cent between January and September 2019, which is below the population growth rate of about three per cent.

“We also observe that economic growth is not broad-based across sectors. In the third quarter of 2019, 10 sectors expanded; six contracted and three recorded moderation in growth.”

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 (CBN) 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.

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