2018 Press Conference on the State of the Economy
PRESS BRIEFING ON THE STATE OF THE ECONOMY BY THE PRESIDENT OF LAGOS CHAMBER OF COMMERCE AND INDUSTRY, MR. BABATUNDE PAUL RUWASE, FCA HELD ON 16TH MAY 2018 AT COMMERCE HOUSE, VICTORIA ISLAND
LAGOS CHAMBER OF COMMERCE AND INDUSTRY,
MRS TOKI MABOGUNJE
THE DEPUTY PRESIDENT
LAGOS CHAMBER OF COMMERCE AND INDUSTRY,
- KNUT ULMOVEN, MFR
VICE PRESIDENTS AND OTHER OFFICERS OF THE CHAMBER
HON LIFE VICE PRESIDENTS OF THE CHAMBER
MEMBERS OF COUNCIL OF THE LCCI
DISTINGUISHED GENTLEMEN OF THE PRESS
I am delighted to welcome you to the first in the series of our Quarterly Press briefing in 2018. Let me begin by expressing our thanks to the media for the good coverage you gave to our previous Press Conferences and other activities over the years. LCCI and the media have come a long way in shaping the nation’s economy through impactful policy advocacy and engagements. We are committed to the sustenance of this partnership as we both strive to create conducive investment climate for the benefit of all stakeholders.
As it is our practice, I would review the economic and investment conditions since the beginning of the year, highlight our concerns and make recommendations where necessary. I will now proceed to address specific issues of my presentation.
Nigeria’s Real GDP grew by 1.92% in Q4-2017 and averaged 0.78% in 2017. The economy returned to growth and recovery path in Q2-2017 after five consecutive quarters of contractions. However, few sectors are currently contributing to the positive GDP numbers. These include agriculture, transportation, mining which includes crude petroleum, and trade.
Productivity and growth remains lower than desired and fragile; population growth is high at 3% per annum, raising concerns about prospects for sustainable poverty reduction.
Headline inflation rate trended downwards to 12.48% in April 2018 from 18.72% in January 2017, the lowest since 2016. It is noted that improvement in crude oil prices and oil output, better liquidity conditions in the forex market and rising foreign reserve are partly responsible for the sustained moderation of the price level.
Foreign Exchange Market
Exchange rate volatility has reduced over the last three quarters and businesses are witnessing improved liquidity and relative stability in the forex market. Confidence has returned to the market but remains somewhat fragile due to continued dependence on oil revenue. Thus, stable global oil prices and local production levels of crude oil remain the two key critical factors driving the current stability in the FX market.
Meanwhile, there are concerns over the following issues in the forex market:
- Multiplicity of FX rate: The CBN currently operate multiple rates and this continue to raise transparency issues and impact adversely on investors’ confidence.
- The wide gap between CBN official rate of N305 rate and other rates at N360 and above continues to create undue arbitrage and transparency issues.
At $47.5 billion in April 2018, foreign reserve recorded significant growth of 109% from a low of $23 billion in October 2016, the highest since 2014. Growing reserves would impact positively on investors’ sentiments, stability and liquidity of the foreign exchange market.
Access to and cost of fund in Nigeria has been and remain a big issue for many domestic investors. With commercial bank lending rate at between 20-35%, depending on the borrower and other factors such as acceptability of collateral, it is very difficult to successfully access fund by the private sector especially the SMEs. We note the efforts of government through CBN and the Bank of Industry (BOI) to extend intervention funds to operators. However, the range of beneficiaries and economic wide impact of government intervention funds remain very limited. Investors in many sectors cannot finance projects profitably at an interest rate above 10%. These sectors are majorly agriculture, real estate, solid minerals, etc.
Nigeria’s total debt, both FG and states, was $71 billion and N14 trillion for external and domestic debt respectively as at year end 2017. Debt service costs was about 66% of government’s revenue in 2017. Nigeria’s external debt grew by 41% over the last three years from $10.7 trillion in 2015 to N15.1 trillion in 2017. Domestic debt seems to have grown even faster during the three-year period by 52%. The budget office recently reported that Federal Government spent a total of N4.3 trillion to service the country’s debt obligations to local and foreign debtors between January 2015 and September 2017. In addition, the Federal Ministry of Finance announced that the FG currently spend about N700 billion monthly on wages and debt servicing. This figure is higher than the average monthly FAAC shared between states and FG over the last 12 months.
At the current growth rate, it is projected that Nigerian debt stock will keep rising by more than 20% annually over the next decade. Mounting debts have the following implications:
- High debt service deprives the economy of revenues for infrastructure investments.
- There is a crowding out effect on the private sector credit.
- Exchange rate depreciation creates additional debt burden arising from foreign debt.
The Nigerian Stock Exchange (NSE) experienced a depressed trend over the last six weeks after an impressive performance in Q1-2018 when it was adjudged one of the world’s best performing stock markets. The All Share Index (ASI) gained 7% year to date in 2018 compared to 40% performance it recorded in 2017.
It was also noted that the equity market failed to respond to impressive full year 2017 financial results released by many of the quoted companies in Q1-2018. This is likely the outcome of some recent policies such as the directive by the CBN that restricted dividend payments by banks with high Non-Performing Loans, (NPLs) and low Capital Adequacy Ratio from paying dividend to their shareholders.
FAKE AND SUBSTANDARD PRODUCTS:
We acknowledge the efforts of the Standard Organization of Nigeria (SON) and National Agency for Food and Drug Administration and Control (NAFDAC), in ridding the economy of fake and substandard products. But, the reality is that the incidence of fake and substandard products as well as counterfeiting is on the increase. It is a major problem for many leading brands in the consumer and durable products sector. It erodes the market share of the leading brands, impacts adversely on their reputation, and erodes their profit margins. There are also implications for the health and safety of the citizens.
We, therefore, request for better investment in the capacity of the Standards Organization of Nigeria (SON) and the National Agency for Food and Drug Administration and Control (NAFDAC). This is important to tackle the menacing and growing incidence of fake and substandard products. There are concerns about the overlapping responsibilities of SON and NAFDAC. Such overlaps also exist between SON and Weights and Measures unit of the Federal Ministry of Industry, Trade and Investment.
COST OF LOGISTICS
We acknowledge the efforts of government in fixing roads and we note the enhanced capital budget in the 2018 budget. However, the cost of logistics remains very high, arising largely from the poor state of the roads and the effects on transportation and logistics cost. We demand for a better funding framework for Nigerian roads. The current budget-dependent framework for funding of the roads cannot make the desired impact.
The proposal to set up a Road Fund needs to be quickly revisited and its implementation accelerated. This is the model that has worked in many other jurisdictions and we believe it will work here. The earlier we adopt this model for funding the roads, the better for the economy and the citizens.
The Lagos Water Regulatory Commission (LWRC), imposes tax on boreholes. These are in the form of borehole permit, Application fee, abstraction fee, and water treatment plant levy. We appreciate the need to worry about the impact of the indiscriminate drilling of boreholes on the water table. But, we do not believe that the solution to regulating the drilling of boreholes is the imposition of levies. Private sector players sink boreholes because of the acute water shortage in Lagos State. After all, the drilling of boreholes comes as an additional cost to business.
The Private Sector is ready to pay for public water supply if it is provided. Infact, it is cheaper to depend on public water supply than to be drilling and maintaining boreholes. The resort to borehole drilling is a product of necessity. We, therefore, urge the Lagos State Water Regulatory Commission (LSWRC) discontinue the imposition of borehole tax in the interest of equity, fairness, and morality.
Meanwhile, we appreciate the intervention of His Excellency, Governor Akinwumi Ambode in this matter.
HIGH COST OF GAS
Users of gas are currently charged in dollars, this creates pressures and volatilities of exchange rate depreciation. This pricing policy have been imposing a lot of burden on the manufacturing sector. It is inappropriate to charge in dollars for a product that is produced in Nigeria and sold in naira. Energy cost is a major component of cost and a major factor in the competitiveness of firms in Nigeria. We need to address the issue of gas pricing to support the non-oil sector of the economy and promote the realization of the objectives of Economic Recovery and Growth Plan [ERGP]. The government needs to support investment in gas infrastructure in order to bring down the price of gas to end users. This will enhance the competitiveness of our industrial sector as well as other sectors of the economy.
Late last year, the government introduced the palletization policy. We raised our concerns over its imposition, especially the implication for the cost of freights. Additional containers would be required by importers under a palletization regime. Additionally, we expressed concerns based on the fact that not all cargoes can be palletized. We appreciate the response of the government and subsequent review of the policy. In particular, we appreciate, the prompt and effective intervention of the Presidential Enabling Business Environment Council, (PEBEC).
We recall the Presidential Executive Order which directed the dismantling of all customs checkpoints outside 40 kilometres of international borders and the Port Areas across the country. Regrettably, this order has not been complied with. We receive frequent complaints about the actions of the Federal Operating Unit (FOU) and the CG Task Force, stopping containers on the highways in violation of the Executive Order. We demand that this executive order be strictly complied with in line with the ease of doing business agenda of government.
However, in the event of strong and credible intelligence, containers can be intercepted. But, this should only be an exception, not the rule. We request that all containers that have been duly cleared from the ports should not be intercepted on the highways
FREQUENT SUMMONS OF THE PRIVATE SECTOR BY THE NATIONAL ASSEMBLY
The frequency of summons of private sectors leaders by the National Assembly has become a cause for concern. Several Committees of the Senate and the House of Representatives frequently summon the CEOs of the private sector organizations to appear before them. These invitations have become a major distraction to investors, especially because of its frequency; burden of costs and the negative reputational effects.
Gentlemen of the press, we are not averse to these invitations; but we take exceptions to the frequency and basis of such invitations. The burden of cost of shuttling between Lagos and Abuja and lodging in hotels, the adverse reputational effect of public pronouncement about such invitations, and the general disruptions to business that results from the invitations. The insistence, most times, by the National Assembly, that it is the CEOs that must appear before them, is even more worrisome. Most often, the information, demanded by the National Assembly can be obtained from the statutory agencies of the government.
We appeal to the leadership of the National Assembly properly vet these summons and invitations to private sector players in order to minimize distractions to private investors.
RIGHT OF WAY AND MULTIPLE TAXATION ON TELECOMMUNICATION COMPANIES
The Telecommunications companies in the Nigerian economy are facing very difficult challenges regarding the challenges of securing the Right of Way for the deployment of their fibre optic cables across the country. They face challenges with regards to the multiplicity of taxes/levies. The Telecommunications Association estimates that operators in the sector pay thirty-eight (38) different taxes and levies to the various tiers of government.
Gentlemen of the press, the telecommunications sector is a very strategic sector for the economy. It is a major facilitator of investment in other sectors.
Therefore, we need to do everything possible to protect the sector from avoidable distractions.
The government needs to curb the incidence of multiple taxation, vandalization of the telecommunications equipment and the unbearable cost of the Right of Way demanded by state governments.
Internet connectivity is critical to the development of all sectors. Internet connectivity has a potentially great impact on the educational development, awareness, and exposure of the youths. It is therefore in the interest of the larger economy to reduce the burden of these distractions and taxations on the telecommunications sector.
IMPORT DUTY ON SOLAR PANELS /RENEWABLE ENERGY:
Before now, one of the incentives enjoyed in the renewable energy sector was zero import duty on solar panels. The idea was to motivate the citizens to alternative energy sources, particularly renewable energy. This is also in line with federal government agenda on the diversification of energy sources. The decision to impose the 10% import duty on solar panels conflicts with government’s objectives towards diversification of energy sources. We request that the federal government, through the ministry of finance, directs the Nigerian Customs Service (NCS) to reverse the import duty on solar panels.
A major impediment to the adoption of renewable energy is the cost of acquisition of the equipment. Rather than impose a fresh import duty, government should in fact be subsidizing renewable energy equipment. We look forward to prompt government response in this respect.
Gentlemen of the Press, Section 14 of the Nigerian Constitution stipulates, among other things that “the security and welfare of the people shall be the primary purpose of the government.” Evidently, the government has not lived up to expectations in this regard. The insecurity, killings, kidnappings, unwarranted attacks, armed robbery is a seriously worrisome development and has become a major source of concern. The herders crises and attacks; has led to loss of lives with serious consequences for the agricultural sector. It has escalated the risk of farming in many locations in the country. The security problem is a major issue that we need to fix very urgently. No effort should be spared by the federal government to fix this problem. Our security agencies need to live up to their responsibilities.
The growing incidence of cybercrime calls for a more concerted effort to curb the menace. Most affected are the financial services sector, E commerce, mobile based transactions and telecommunications. These sectors have suffered huge losses as a result of cyber fraud. This is a major challenge of the rapidly evolving digital revolution.
There is need to build and regularly upscale the capacity of our security agencies and other relevant institutions to tackle the problem. The various security agencies and other relevant institutions need to collaborate and coordinate efforts to deal with this problem.
The political transition process is beginning to gather steam. The private sector players need to be more active in the entire chain of the electoral process. I encourage the private sector players, entrepreneurs, and the entire citizens of the country to register and obtain their PVCs. They should stand for elections for various offices from the local councils to the Presidency; from councillors to the National Assembly.
The business community cannot continue to be passive in the political and electoral process. The reality is that the quality of economic policies is impacted by the quality of political governance. It is the economic policies that determines the prosperity or otherwise of our businesses. It is the economic policies that will determine how equitable the society will be and the capacity of the economy to create jobs. It is the social and economic policies that will determine the degree of social justice that we experience as a people. For these and other reasons, we need to play a more active role in influencing the choice of political leaders at all levels of government.
This is significant to ensure that those in authority put in place appropriate economic governance framework that will promote investment. We need a political leadership that will build institutions that are supportive of investment. We need to position the private sector as a true engine of growth. We need to develop an economy that rewards hard work, creativity, innovation, wealth creation and entrepreneurship. We need to do away with structures and polices that allow rent-seeking opportunities to flourish. These are the kinds of political and economic environment that we should enthrone at the next election.
Our environment is suffering from serious degradation arising from pollution, deforestation and climate change in various parts of the country. Already, the negative effects of this degradation have started to manifest in the form of desertification, and water pollution which has adversely affected the livelihood of Nigerians in many parts of the country. The herders’ crises, the restiveness in the Niger/Delta and the Boko Haram phenomenon in the North East are partly a consequence of the damage to the environment.
In the light of these, we call for a ban on the exportation of woods from Nigeria. The present level of deforestation in the country is intolerable. It is better to encourage the exportation of furniture than the exportation of woods. Value addition has a more beneficial impact on the economy than primary product export.
The crowding out effects of the indigenous engineers in the construction sector is a cause for concern. The patronage of indigenous engineers is very low, and this has affected their capacity to grow. We need to make the construction sector in Nigeria a much more inclusive sector. We need to mainstream Nigerian Engineers in the construction sector activities in the country. This is the only way to build their capacity to become regional and global players. This is in the spirit of President Executive Order five which seeks to improve local content in public procurement with Science, Engineering and technology components.
NEXIM 500BN FUND
Exporters are complaining of access to the fund. Early last year, an export facility was approved by the Central Bank of Nigeria (CBN) and NEXIM. Many applications have been submitted to NEXIM and the Central Bank for processing. We appeal to the CBN and NEXIM is to expedite the action on the disbursement of the facility.
LAND USE CHARGE
We welcome the review of the land use charge fees following the concessions given by the Lagos State Government. However, there are still some grey areas to be dealt with. We appreciate the intervention of the Lagos State House of Assembly in the ongoing review of the Land Use Charge Law. We urge the State Assembly to expedite action on the review in order to remove the current suspense and uncertainty on the Land Use Charge Law.
BUDGET PASSAGE DELAY
Gentlemen of the press, we are getting close to half of the year, yet we do not have a budget. This is certainly not the best way to run the affairs of a country. The delay in the budgetary process would further entrench the vicious cycle of poor budget implementation, especially the capital component of the budget. The risk is that recurrent spending will be fully implemented while capital projects suffer the usual implementation deficiency. The delay has implications for planning in both the public and private sectors of the economy. Strategic planning for many organisations takes a cue from the budget structure and the policies that come with it. To the extent that the budget is not in place, uncertainty and associated business risks in the economy are heightened. This is surely not good for investors’ confidence, either from a foreign investors perspective, or from domestic investors standpoint.
Going forward, there is need for better communication between the national assembly and the executive arm of government. They need to be on the same page with regard to the fundamental principles of the budget. It is also necessary to clearly define the boundaries of responsibilities between the executive and legislature in budgetary appropriations to avoid the recurring problem of delays
It is imperative as well for all arms of government to demonstrate an unequivocal commitment to the spirit and letters of the Nigerian constitution and other complementary legislations.
ABANDONED FEDERAL GOVERNMENT PROPERTIES IN LAGOS
Several federal government properties in Lagos have been completely abandoned. We are worried about the economic and security implications. It is a colossal economic waste to abandon valuable government assets for many years and allowing such assets to rot away. Some of these properties include CBN properties in Lagos; the old federal secretariat, old National Assembly complex at the Tafawa Balewa Square, Independence Building that used to house the defence Ministry and former Federal Ministry of Commerce at Tinubu Square.
Beyond the economic waste that these abandonments represent, many of them serve as hideouts for hoodlums, criminals, and miscreants. The buildings thus pose security risks to Lagos residents. We urge the federal government to either return the property to the Lagos State government which is the original owner of the land; or give them out on lease to the private sector.
INDEGENOUS INVESTORS IN SHIPPING INDUSTRY
The value of Nigerian trade with the rest of the world was over $60 billion in 2017. This should normally impact on the maritime economy. This volume of trade is one of the highest in the Africa. Regrettably, the indigenous ship owners are not beneficiaries of this story. Foreign players have completely dominated the space. Given the developmental value of indigenous participation in any sector, we would like to stress the need to scale up indigenous participation in the Nigerian shipping sector. The sector is almost 90% foreign. Am aware that there have been several policies put in place to ensure the realisation of this objective. But implementation has been a big issue.
The policies and regulations enacted over the years by the Federal Government include the National Shipping Policy Act of 1987-2003, the Coastal and Inland Shipping (Cabotage) Act of 2003-2007, the Cabotage Implementation Guideline of 2007, the Cabotage Vessel Financing Fund (CVFF) Guideline, the NIMASA Act 2007, the Merchant Shipping Act, and the Nigerian Oil and Gas Industry Content Development Act of 2010. All of these were geared towards
The issues raised in this press briefing are not exhaustive. Our advocacy activity is a continuous one. We will continue to engage the relevant organs of government as issues develop. We have a collective duty [along with other stakeholders] to ensure a better investment environment for the progress of the Nigerian economy and the good of everyone.
BABATUNDE PAUL RUWASE, FCA
LAGOS CHAMBER OF COMMERCE AND INDUSTRY
16TH MAY 2018