Yusuf: Nigeria needs unified forex to boost investor confidence

Dr. Muda Yusuf, Director- General, Lagos Chamber of Commerce and Industry (LCCI), in this interview with TAIWO HASSAN, speaks on sundry issues, including AfCFTA, electricity tariff and forex crisis, among others


What is the Chamber’s stance on the current headline inflation?

What I can say is that the Lagos Chamber of Commerce and Industry is concerned with the continued uptrend in domestic consumer prices as headline inflation further accelerated to 16.47 per cent in January 2021, the highest since May 2017. Besides, the uptick in domestic prices was largely driven by the persistent food inflationary pressures, with food inflation hitting a record 20.57 per cent; the highest level since the 2009 CPI series began.


So, we note the moderation in the monthly headline sub-index from 1.61 per cent in December 2020 to 1.49 per cent in January 2021, mirrored the food sub-index (December 2020: 2.05 per cent; January 2021: 1.83 per cent). This could be ascribed to the fact that festive-induced demand for food items, which elevated food prices in December 2020, moderated considerably in January 2021.


However, core inflation, which captures prices of non-food commodities and services, rose to a three-year high of 11.85 per cent in January 2021, buoyed by price increase in housing, water, electricity, gas, and other fuel component (December 2020: 9.1 per cent; January 2021: 9.4 per cent) and transportation component (December 2020: 13.1 per cent; January 2021: 13.6 per cent). Naira exchange rate depreciation and the forex liquidity challenges were also major drivers of core inflation pressures in the NBS reports.


What are the major inflationary drivers from the NBS’ reports?


For me, the major factors responsible for the uptick in headline inflation are basically supply-side issues, which include the following heightened insecurity around the country, but more pronounced in northern and Middle-Belt regions – the major food-producing regions in Nigeria.


Increased cost of transporting food items from farms to markets as a result of elevated prices of petroleum products (diesel, PMS), weak productivity in the agriculture sector and increased cost of agricultural inputs. Key drivers of core inflation include exchange rate and foreign exchange liquidity concerns evidenced by the widening premium between NAFEX and parallel market rates. These have disrupted production plans of many manufacturing firms following acute shortage of raw materials and other inputs.


What are the implications of the inflation rate crisis for Nigerian business and economy?


The consistent rise in domestic prices has profound implications for entrepreneurs and the larger investing community. Higher prices translate to increased production costs for manufacturing companies, with consequent impact on their bottom-line since it is not in all situation that higher inputs costs can be transferred to consumers. This weakens the capacity of corporates to deliver value to shareholders via dividend payment amid dim profit prospects. Rising food prices would see most low and middle-income households spend more on food commodities, with little amount to save and/or invest.


Persistent rise in food prices, if unresolved, would worsen Nigeria’s poverty situation, thereby pushing more Nigerians below the poverty line. Rising domestic prices mean deepening negative real returns on investment securities such as treasury bills, bonds, etc, even as yields on these instruments are unattractive relative to emerging market peers.


However, on the way forward, I believe that government at national and subnational levels should address security concerns in the country, due to its scale of importance as far as food production is concerned in Nigeria.


What is the way out to resolving the problem of frequent electricity tariff hike?


For me, there should be a strategic approach to electricity pricing to avoid a pushback from consumers. Only a few months ago, there was a review and another review at the beginning of this year. The commercial arguments may be strong, but there is a social context to be reckoned with, especially given the kind of product in question. It is also important to reckon with the economic and political ramifications of such price reviews. We need to worry about the sensibilities of the people. Let me reiterate that we are in support of a cost reflective tariff for electricity.


But the transition to  the new pricing regime should be strategic and gradual to minimise shocks and risk of pushback by the consumers. Context matters in policy conceptualisation and implementation.


We need to worry about social and economic contexts. p Purchasing power has been significantly eroded across all income classes, poverty situation has been worsening and there is spiralling inflation, there are fresh concerns about the resurgence of COVID-19.


These contexts should have a moderating effect on price movement at this time, especially for a product of high social significance. It is important to take these factors into account in order not to put the entire reform process at risk.

What are the implications of the delay in passage of the Petroleum Industry Bill (PIB) by NASS?


You know that the oil and gas industry is a major contributor to the Nigerian economy and government revenue. Also, Nigeria, with the largest oil and gas reserves in Africa, has huge untapped potential to achieve its economic goals, including gas-to-power ambitions.


However, despite having the largest reserves in Africa, Nigeria only received four per cent ($3 billion) of $75 billion invested in the continent between 2015 and 2019. So, this underscores the need to create a competitive environment to attract investment to the oil and gas sector. Further to the above, Nigeria’s petroleum industry faces many country-specific challenges, including joint venture funding and  arrears, regulatory overlaps, insecurity and inadequate infrastructure for domestic gas development.


The Lagos Chamber of Commerce & Industry is fully supportive of government’s efforts to drive industry reform through a new Petroleum Industry Bill. The current bill marks positive steps toward achieving its stated goals.


The bill mandates that ministries, departments, and agencies to consult with the Commission prior to introducing overlapping legislation, which will impact the oil and gas industry. It also allows for consultation with industry stakeholders before making regulations. However, some of these improvements appear insufficient to deliver the true value to Nigeria, which the bill aims to achieve. Some provisions in the bill could adversely affect the growth of the industry and the overall economy.


We firmly believe that based on constructive co-operation between the Nigerian government and other stakeholders, host communities and industry, the objectives of reform can be successfully met. Besides, PIB should seek to protect existing investments from value erosion.


The assets and operations from these investments are the foundation upon which new projects can be built. It is therefore crucial that projects already underway be able to maintain the conditions under which they were designed and approved. Doing so will incentivise the launch of new projects, grow production and revenue for government and stakeholders, thereby guaranteeing long term sustainability of our oil and gas industry.


We are urging the National Assembly to put in place a law that will promote a more effective and efficient governance, administration, host community development and fiscal framework for the petroleum industry. A competitive bill would help preserve the integrity of the existing projects, whilst also encourage future growth of production and make Nigeria an investment destination of choice.


What is the chamber’s take on issues surrounding the foreign exchange market?

Indeed, the Chamber appreciates efforts of the Central Bank of Nigeria (CBN) in preserving the scarce foreign exchange resources at a time the country is faced with relatively lower oil price and production.

We reiterate our position that a disproportionate reliance on demand management strategies is not a sustainable solution to the recurring foreign exchange crisis. However, this year 2021, we urge CBN to de-emphasise demand management policies and intensify efforts in improving the supply side of the foreign exchange market.

We welcome CBN’s recent policy stating that beneficiaries of Diaspora remittances should be paid in foreign exchange. The policy is a step in the right direction in resolving the liquidity issue in the currency market by ensuring availability of foreign exchange, especially at the retail segment.


This should be replicated for other sources of inflows such as export proceeds, Foreign Direct Investment (FDIs) and Foreign Portfolio Investments (FPIs). Robust remittance inflow is expected to moderate FX pressure and narrow the wide parallel market premium as economic agents would have access to a harmonized rate. A unified FX framework is necessary to boost investor confidence.


What is your view on the recently passed COVID-19 protocols and restrictions?


The new non-pharmaceutical COVID protocols and restrictions will, no doubt, affect businesses adversely in the country. But managing such a huge public health issue as COVID-19 requires some measure of sacrifice from all. Already, some high COVID risk sectors and activities are already being targeted.


Sectors that may be worst hit include the bars and restaurants, event centres, entertainment industry, catering    services, rental businesses, aso ebi and related businesses, food and drinks sector, aviation and related services, among others. These sectors are largely labour intensive and the restrictions may impact on employment. But it is a price we have to pay to save lives.


In recent times, insecurity has been eroding business and investor confidence in the country. How best do you think the menace can be curtailed?


Business cannot thrive in an environment that is unsafe or perceived as insecure. Security of life and property is a critical factor in the investment decisions. It is a major risk assessment variable for investment. Afterall, it is only the living that would do business.


Meanwhile, the LCCI acknowledges the efforts of the Federal Government to ensure adequate security for all and sundry, but a lot more is still needed. As a promoter of private enterprise, it is our firm belief that we must continue to adopt innovative ways to address legacy and emerging security issues.


What are Nigeria’s chances in WTO with the emergence of Dr Ngozi Okonjo-Iweala as director-general?


Indeed, it is a great delight being the first female and first African to head the WTO since its formation in 1995 (replacing the General Agreements on Tariffs and Trade (GATT), which commenced in 1948). However, Dr Okonjo-Iweala’s emergence comes at a time the global trading system is faced with numerous challenges including supply chain disruptions, among others.


For Nigeria to fully take advantage of the opportunities offered under the leadership of Dr. Okonjo-Iweala, it is imperative to build capacity for international competitiveness of our products and services. Also imperative is the need to address trade facilitation issues, especially around port processes, ports infrastructures, international trade documentation, foreign exchange policies, trade policies and industrial policies.


We need to promote local value addition and backward integration to strengthen competitiveness of our domestic industries. We must undertake reforms of our tariff policy in accordance with the principles of comparative advan   tage, which would enable the country optimise opportunities in the global trade arena and enhance the citizens’ welfare.


While the emergence of Dr. Okonjo-Iweala as the new WTO Director-General is very gratifying and calls for celebration, there is a need to manage expectations around the outcomes for the Nigerian economy given the numerous productivity and competitiveness issues the country is grappling with. Ultimately, these are the factors that would determine the benefits that would accrue to the economy from global trade.

As the implementation of the African Continental Free Trade Area (AfCFTA) has commenced, what are the pros and cons for Nigeria’s economy?


We consider the operationalisation of Af- CFTA as a step in the right direction in deepening economic integration in Africa. The agreement requires participating countries to remove tariffs from 90 per cent of goods, thereby allowing free access to commodities, goods and services across the continent.


For Nigeria, the trade agreement serves as an avenue for local industries to penetrate new markets and establish strong cross-border supply chains with other African countries.


I believe the benefits and costs of the agreement will not be evenly distributed among participating countries and only countries with open, friendly, and enabling operating environment stand to benefit materially from the agreement.


This underscores the need for policymakers to expeditiously create an enabling environment that would enhance the country’s economic competitiveness in the AfCFTA framework. While the take-off of AfCFTA should be lauded, much work remains undone as critical parts of the agreement are yet to be finalised. Several key issues including schedules of tariff concessions, schedules of service commitment, rules of origin, investment, competition policy and intellectual property rights have not been concluded.


There is still lack of clarity on the type of value addition that must occur within an AfCFTA State party for a product to benefit from tariff reduction. We call on the AfCFTA Secretariat and the African Union to expeditiously finalise pending negotiations for effective AfCFTA implementation. There is still a great deal of sensitisation and enlightenment that need to be done on the implementation modalities.




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