LCCI advocates coordination of fiscal, monetary policymakers to boost investment


…Lists other measures      

The Lagos Chamber of Commerce and Industry (LCCI) has said that accelerating the pace of recovery requires both fiscal and monetary policymakers to be well-coordinated in promoting growth-enhancing and confidence-building policies that would encourage private and foreign capital inflows into the economy.

The President, LCCI, Mrs. Toki Mabogunje who stated this at an event in Lagos recently, was reacting to the 2021 first quarter Gross Domestic Products (GDP) report as released by the National Bureau of Statistics.

Mabogunje noted the improvement in recovery as the economy grew by 0.51% in real terms in the first quarter of 2021 compared to 0.11% reported in the preceding quarter and the pre-lockdown 1.87% in the corresponding quarter of 2020.

She noted that while the Central Bank of Nigeria (CBN) has adopted the NAFEX rate as the official rate in the gradual transition to a unified exchange rate system, the currency market was still beset with persisting liquidity challenge evidenced by wide premium between the NAFEX and parallel market rates.

She argued that to consolidate on this positive development, there was a need for the CBN to scale up its intervention efforts and roll-out more friendly supply-side policies to boost liquidity in the market. This, she said, would help bolster investor confidence and attract foreign investment inflows into the economy.

According to her, “Deliberate efforts towards making the business environment more conducive for MSMEs and large corporates at national, subnational and local government level are imperative. This can be achieved by addressing the structural bottlenecks and regulatory constraints contributing to high cost of doing business. A supportive and conducive investment environment is critical in facilitating private sector involvement in economic recovery process.

“Deepening deregulation efforts in the downstream oil industry by; (a) ensuring market-reflective pricing model for petroleum products; (b) meanwhile the recent passage of the Petroleum Industry Bill is expected to drive private investment in the oil & gas sector, and (c) intensifying diversification efforts within the oil sector to gas and other petrochemical products.”

Mabogunje went on to call for clarity in government’s policy direction by ensuring consistency in economic policies adding that policy consistency was imperative for long-term investment planning and business projections.

She further called for holistic and dynamic review of the security architecture to address the seemingly worsening security situation in the country.

Speaking on the report, she submitted that the performance reflected a slow but gradual recovery from 2020 recession.

According to her, sectoral performances remained sluggish as eight sectors reported expansion while 11 sectors contracted. She pointed out that growth was driven by the non-oil sector, which expanded by 0.79% in the quarter under review while non-oil sector growth was largely fuelled by expansion in ICT (+6.3%); manufacturing (+3.4%); agriculture (+2.3%) and real estate (+1.8%).

“We attribute the marginal improvement to sustained relaxation of covid-19 restriction measures following significant moderation in covid-19 cases in the country, and this is supporting the further reopening of the economy.

“Agriculture demonstrated resilience in the first quarter amid heightening insecurity and lingering supply chain disruptions orchestrated by the pandemic. Manufacturing returned to positive growth trajectory after three consecutive quarterly contractions, partly supported by developmental finance intervention of the Central Bank of Nigeria amid numerous headwinds confronted by industry players including foreign exchange illiquidity, domestic inflationary pressure, weakening purchasing power, poor public infrastructure, and port-related challenges. Segments of manufacturing with high levels of backward integration had lesser degrees of shocks from foreign exchange crisis in the economy.

“We note the sustained recovery in the construction and real estate sector, supported by improved activities of private and public sector associated with implementation of capital projects. The ICT sector maintained its impressive performance in the reviewed quarter. This was expected given the opportunities created for technology in the post-pandemic era. The cost reflective tariff appears to have impacted positively on the electricity sector which recorded 8.66%. This was one of the highest sectoral growth performances in the GDP report.  But a lot of issues remain to be resolved in the electricity sector. Electricity supply in many parts of the country is still epileptic.  The metering programme is not keeping pace with demand. Other sectors with positive growth numbers in the reviewed quarter include human health and services (+4.7%) and water sewage (+14.8%)

“Transportation and storage sector recorded the most severe contraction of 21.9% principally driven by double-digit contraction in road transport sub-sector (-24%) and aviation (-12%). The weak performance of road transport sub-sector could be attributed to the multidimensional impact of insecurity on movement of people, goods, and services; and that of aviation sector to difficulties experienced by industry players in sourcing foreign exchange, which has continued to impact operational costs with a corresponding spike in air fare.

“Trade, Nigeria’s second sector by output contribution, maintained its negative growth trajectory in the first quarter, having contracted by 2.4%. We note the sustained moderation in the scale of its contraction in the first quarter, which partly reflects the gradual (positive) impact of border reopening on the sector’s performance amid other structural challenges facing the sector. Oil sector contracted by 2.2% in the first quarter, a significant moderation from 19.76% reported in the preceding quarter. The moderation in the scale of oil sector contraction could be attributed to improvement in oil production (from 1.56 million bpd in Q4-2020 to 1.72 million bpd in Q1-2021), buoyed by the decision of OPEC+ to ease supply cuts by 7.2 million bpd at the beginning of the year compared to 7.7 million bpd implemented by the group towards the end of 2020. The performance also reflects peculiar challenges around security, policy, and regulatory concerns in the sector”, she said.

Assessing the report, the LCCI President opined that juxtaposing current growth level with population growth estimated at 2.7% by the World Bank implied the economy was not growing fast enough to create new opportunities for its rapidly-growing population even as she posited that Nigeria’s actual output performance was significantly below its potential output level.

She maintained that achieving key development outcomes such as employment creation and poverty reduction would always remain elusive in the light of fragile recovery insisting that this reinforced the need for policymakers to pursue critical reforms to bolster confidence in the economy, accelerate post-pandemic recovery and alleviate poverty.

“The IMF and World Bank are projecting growth figures of 2.5 percent and 1.8 percent respectively on the assumption of stronger commodity prices, transition to market-reflective exchange rate system, vaccination progress, and gradual implementation of reforms in the oil sector. While these factors appear somewhat realistic in our view, we believe (a) rising insecurity; (b) lingering FOREX illiquidity; (c) low vaccination rate and (d) lack of will to follow through critical reforms constitute major downside risks to the country’s growth outlook.

“With oil sector in contraction due to production constraints and regulatory issues, we expect the non-oil sector to drive growth recovery all through this year. Nonetheless, we also expect higher oil prices and likelihood of higher production volume (following supply easing by OPEC+ between May and July) to support growth performance in the third and fourth quarter”, she added.

Looking forward, Mabogunje said, “We anticipate an improvement in the second and third quarter growth performance largely on account of low base effect arising from Q2 and Q3-2020’s contraction.”

Photo: President, LCCI, Mrs. Toki Mabogunje.

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