In continuation of its economic review of the four years of President Muhammadu Buhari’s administration, the Lagos Chamber of Commerce and Industry (LCCI) has said that the national debt grew from N12.6 trillion or US$65.4 billion in 2015 to N24.3 trillion or $79.4 billion in 2018 representing an increase of 93% even as it sated that an estimated 15% of these are owed by the states.
The Director-General of LCCI, Muda Yusuf who stated this in a statement in Lagos disclosed that in the 2019 budget, debt service provision was N2.14 trillion while capital expenditure provision was N2.9 trillion and estimated revenue for the federal government was N6.97 trillion.
This according to Yusuf implied that debt service as a percentage of revenue was 30.7% and debt service as a percentage of capital budget was 73.8% arguing that “this is quite instructive and raises the critical issue of the sustainability of current debt profile”.
He noted that the development underscored the high opportunity cost of debt servicing to the Nigerian economy while stating that the debt profile had the profound crowding out effect on the private sector.
“While banking sector credit to government has been increasing over the past few years, banking credits to the private sector has been on the decline. Investments in treasury bills and Federal Government bonds have become more attractive than investments in the real economy such as manufacturing, agriculture and solid minerals. Even the financial institutions would rather invest in treasury bills and bonds rather than lend money to entrepreneurs.
“The dynamics of the debt market has become a constraining factor on the financial intermediation role of the banking industry. This is a scenario that is detrimental to wealth creation and employment generation in the Nigeria economy. The good news, however, is that the Central Bank at its last MPC meeting has resolved to take steps to reduce the access of the banking sector to investments in government debt instruments. This is a welcome development for which the CBN should be commended’, he said.
On manufacturing, the LCCI DG observed that sector experienced some major challenges during the past four years saying that the factors responsible were both external and domestic even as he explained that the main external factor was the collapse of oil price which affected forex availability and triggered sharp exchange rate depreciation in the first half of the administration.
“However, the policy component of the problem resulted largely from foreign exchange policy choices which aggravated the problem of forex liquidity. The restriction of 41 items from access to interbank forex market added to the plight of some manufacturing firms. The forex situation had since eased from the second half of the administration with remarkable improvement in forex liquidity in the economy and notable stability in the rates.
“The high deficit in infrastructure, the gridlock at the Lagos ports, high interest rate and unfair competition from imported products were also factors that constrained the growth of the industrial sector during the review period. High energy cost continued to impede the competitiveness of the sector. The import dependent nature of the Nigerian manufacturing sector also posed considerable adjustment challenges for the sector over the past four years.
“However, segments of the manufacturing sector that had substantial backward integration capabilities had good leverage during the review period. These were firms that were able to sustain production and operations from substantial local inputs. Such firms became more competitive, more sustainable and profitable. They were largely in the food and beverage categories”, he added.
While admitting that the agricultural sector gained significant government support especially in funding, especially rice farming and processing, Yusuf however contended that the pace of mechanization was still low which was why food prices remained an issue in the country stating that it was only mechanized agriculture that could guarantee food security in a country with an estimated population of 200 million.
He said, “The protracted challenge of insecurity took its toll on the agricultural production in the country, especially in the last two years of the administration”.
In the oil and gas sector, he observed that “Pace of reforms in the oil and gas sector remained painfully slow over the past four years. The Petroleum Industry Bill [PIB] was stalled, impeding the progress of the sector. In the upstream segment, contracting processes under the joint venture partnership took between 12 – 36 months. This was a major problem for investors in the sector. This is one reason that no new investors are coming into the sector.
“The downstream was equally plagued by the excessive regulation which made it difficult to unlock the huge potentials of the oil and gas sector. It is desirable to fully liberalize the sector so that investors can inject the needed private capital. The price cap on the petroleum products and the dominance of the state-owned oil company [NNPC] had practically crowded out the private sector in the downstream oil sector. The economy is currently faced with a monopoly situation as far as the downstream petroleum sector is concerned.
“There is a huge potential for investment, jobs, capital and revenue to be unlocked in the sector through appropriate reforms”.
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