ADDRESS ON THE STATE OF THE ECONOMY BY THE PRESIDENT OF THE LAGOS CHAMBER OF COMMERCE AND INDUSTRY, MR. GABRIEL IDAHOSA, FCA HELD ON THURSDAY 18TH APRIL 2024, AT THE COMMERCE HOUSE, VICTORIA ISLAND, LAGOS

I present the compliments of the Lagos Chamber to you all at this second press conference in 2024. Thank you for continuing with us on this journey of quarterly reviewing significant economic developments in the preceding quarter and in this particular period, the review of the first quarter of 2024,and communicating our position to the broader business community and Government. This has become our traditional model of doing public policy advocacy in our quest for a stronger economy and a more business-enabling environment. Through macroeconomic review at this briefing session, we we will highlight areas of concern and make recommendations to the Government on policy alternatives that can better empower the business community to thrive. Let me especially appreciate the media for their contribution to driving this mandate over the years. As an institution with the mandate to promote business interests and national economic development, we appreciate the commitment of the media to deepen this partnership.

  1. GLOBAL ECONOMIC DEVELOPMENTS

As we look back at the happenings in the first quarter and try to project an outlook of the next quarter, the global economy continues to tell a story of persistently high inflation, aggressive global monetary policy tightening, supply chain disruptions, and growing uncertainties amidst geopolitical tensions. Growth projections may soon see a review depending on the scenarios that play out in the coming months. Globally, according to the Food and Agriculture Organization (FAO), food prices maintained a downward trend of seven months till March 2024, when the index re-recorded an uptick at 118.3. We may see another season of rising food prices if the disruptions to supply chains do not abate in the short term.

Looking further into 2024, the threat of escalations in the Middle East remains a deep concern for the global economy. Supply chains remain challenged due to the persisting war in Ukraine, the Israel-Hamas-Iran war, and the emerging threats to shipments through the Suez Canal and the Red Sea in recent times. These may all keep the oil price upward and volatile in the short term. With the 2023 average price at $82.95, the average price of $84.22 in March 2024,and the price at $90.77 as of 12th April 2024, we can expect to see even higher prices in the coming weeks and months.

  • THE DOMESTIC ECONOMY
  • GDP REPORT

Nigeria’s economy grew by 3.46% (year-on-year) in real terms in the fourth quarter, compared to 2.54% in the previous quarter, and declined by 0.05% when compared to 3.52% growth recorded in the same period of 2022. The growth in the fourth quarter is the thirteenth consecutive growth record. The economy in the first quarter of 2024 was threatened by the volatility in the forex market and how this impacted on FOREX-translated inflation, high cost of production, and spates of insecurity. With the average growth of 2.7 percent recorded in 2023, we need an aggressive growth mechanism to achieve the budget benchmark of 3.76 percent.

Assessment & Outlook

The growth in the fourth quarter was primarily driven by the services sector, which recorded a growth of 3.98% and contributed 56.55% to the GDP. In particular, the sectors include finance & insurance, utilities,  ICT, and arts, entertainment & recreation.

The last GDP report released by the National Bureau of Statistics (NBS) showed that agriculture, Nigeria’s largest single economic sector, accounted for 25.18 percent of GDP in the fourth quarter of 2023, with crop production accounting for 91 percent of output. The concentration of agricultural activities in crop farming is not desirable as these have come under challenges like farmer-herder crisis, kidnappings and insecurity of farmlands. We need to expand activities to poultry and fisheries which can be done with more secured environment. This is also critical local production that has not been able to meet the demand for eggs, chicken and fish in Nigeria. 

Policy Responses.

  1. We urge the Government to create an atmosphere that promotes export growth and competitiveness. This is projected to boost export earnings, raise domestic revenue, improve citizens welfare, and increase business productivity and competitiveness.
  2. On managing the persistent high inflation, we recommend that both monetary and fiscal authorities should focus on the factors driving the inflation rates by tackling the supply-side deficiencies instead of focusing too much attention on the demand-side management.
  3. We urge the CBN to continue with its FOREX market reforms with intense discipline, as the high exchange rate against the naira is a major driver of  the skyrocketing inflation rates. On the fiscal side, the government needs to subsidize some productive sectors like agriculture, transport, and healthcare while keeping a keen eye on enhancing the country’s security profile. Other areas of intervention could be the adoption of a cheaper and more predictable method of duty rate for imports and investment in building agro-industrial hubs across the country.
  4. The LCCI urges the government to continue expanding credit available at concessionary rates to MSMEs to support their operations and capital investments. The high lending rates make it challenging for businesses to access credit, especially for SMEs that are the backbone of the economy. Continuous increase in production costs  lead to higher prices for goods and services, adversely affecting the competitiveness of Nigerian products in Africa and global markets respectively.
  5. We also recommend that reforms must include simplifying and harmonizing trade procedures as well as addressing bottlenecks such as port logistics, congestion, and transportation costs. This is expected to position the country as the commercial centre of the region and a springboard into regional value chains.
  6. On agriculture sector growth, we urge the Federal Government intensify the implementation of the national agricultural extension policy with focus on improved and relevant agricultural technologies.
  7. The cost of logistics has gone up due to the poor state of our roads and the inadequate connectivity amongst farms, factories, and markets. The LCCI commends the Federal Government for the recent effort to attract private investment into the infrastructure sector. We also expect improved implementation of the capital funding allocated to infrastructures in the 2024 federal budget.
  8. The LCCI recommends that the relevant arms of  government (Federal Executive, National Legislative and State Legislative) consider fast-tracking the movement of policing from the exclusive list to the concurrent list. This will ensure effective policing of the nooks and crannies of our communities including the farmlands, creating a clear path to sustainable growth of the agriculture sector and food security in Nigeria and West Africa.
  • MONETARY POLICY DEVELOPMENTS

During the first quarter of 2024, the Central Bank of Nigeria (CBN) deployed a tightening monetary policy to stabilize prices in response to the spiraling inflation rate. The Committee decided at the 293rd meeting of the MPC held on 26th and 27th February 2024 to raise the MPR from 18.75 percent to 22.75 percent, raise the CRR from 32.5 percent to 45.00 percent, and retain the Liquidity Ration at 30 percent. The CBN’s Monetary Policy Committee (MPC) at their 294th meeting held on the 25th and 26th of Marchfurther raised the benchmark interest rate to 24.75%, while the other parameters were unchanged.

The business community is currently plagued with increased borrowing costs, reduced investment incentives, heightened uncertainties in our policy environment, and a pressured foreign exchange market. The recent hikes in the MPR have directly translated into higher interest rates, making it more expensive for businesses to access credit for working capital, expansion, and sustainability. With the high yields from treasury bills and bonds, the government is attracting investments from both local and foreign portfolio investors. This could significantly reduce the real sector access to credit in the near term.

We have consistently advised that rate hikes alone will not curb inflation without resolving the challenges of the real sector.  The real sector has demonstrated the capacity to create more jobs, produce goods and services   for consumption and export, and expend  the economy’s GDP base. While we understand that high-interest rates attract Foreign Portfolio Investments (FPIs) and local investors to treasury bills and bonds, we are concerned about the drying up of funds away from the private sector to government treasuries.

  • INFLATION

The headline inflation continued its upward trend in March 2024, accelerating to 33.20% compared to 28.92% in December 2023, 4.28% points higher. Food prices in March increased by 40.01% from 33.93% in December 2023 on a year-on-year basis, implying 6.08% points rise. Food inflation further increased by 15.56% points when compared to 24.45% in the corresponding month in 2023. Similarly, core inflation at 25.90% in March 2024, represents 2.83% points increase compared to December figure at 23.06% and 6.26% points increase compared to 19.63% in the corresponding month in the previous year.

The inflationary pressures are primarily attributed to food and non-alcoholic beverages; housing, water, electricity, gas and other fuel; clothing & footwear; transport and furnishing & household equipment & maintenance.

The Chamber notes that the key drivers of inflation and food inflation are insecurity affecting agriculture productivity, huge post-harvest losses due to investment gaps in agriculture storage and processing as well as exchange rate due to high propensity for import consumption. There is therefore  a clear need for the government to address the insecurity challenge and promote investment in infrastructure for agriculture storage and processing as well as boost supply in the foreign exchange market.

  • THE FOREIGN EXCHANGE MARKET

The exchange rate of the Naira in the first quarter of 2024 depreciated in all foreign exchange market segments,crashing to an all-time low above the N1,500/Dollar mark in March. The depreciation was fundamentally driven by low supply to the market but speculative activities played a huge role in distorting the real value of the Naira. Before the end of the first quarter, the Naira firmed up due to some FX policy reforms undertaken by the CBN.

In the last few days, the Naira rate of exchange with the Dollar improved, breaking some resistance and moving towards the level of N1000/Dollar or lower. The CBN needs to sustain its policy and regulatory reforms in the FX market, adopt policies that would attract more FX inflow into the economy as well as build market confidence in the performance of the FX market.

  • POWER SUPPLY AND ENERGY TRANSITION

We acknowledge that the removal of subsidy on electricity supply may have been in line with attracting more investors into the sector with a cost reflective tariff. We have also advocated that we subsidize production instead of consumption. However, our major concern is seeing businesses pay heavily for the services that they do not enjoy optimally. It is a grave concern that with a higher cost of power, companies are still not having access  to the service at the promised levels and quality.

We call for an aggressive metering programme designed to achieve 100 percent coverage of electricity consumers. This guarantees liquidity for the distribution companies and gives more satisfaction to consumers with a feeling of paying for what they consume. Beyond the provision of infrastructure, we need to have a sound regulatory and policy environment to attract more  investment into the power sector.

Creating the enabling environment to attract foreign investors to build renewable energy factories in Nigeria to upscale our energy transition and reduce our dependence on the national hydro grid which has continued to crash at close intervals in recent months should be a major strategic goal for the Federal and State Governments. We urge deep commitment to the Presidential Metering Initiatives’ target of installing about two million meters annually over the next five years. We expect the federal government to show more commitment to patronizing local meter manufacturers to boost local content development and foster growth in the power sector. Since States now have control of their electricity markets, we expect them to launch similar metering initiatives

  • OIL PRODUCTION SHORTFALL

Recent reports from the Nigerian Upstream Regulatory Commission, NUPRC revealed that crude oil production fell for the second consecutive month to 1.231 million barrels per day in March compared to 1.322 million barrels per day in February and 1.427 million barrels per day recorded in January. With oil production benchmark at 1.78 million barrels per day, we need to ramp up production to earn huge revenues from the rising oil prices.

Let us put in more efforts to improve oil production to take advantage of the high crude price. As we watch developments in the Middle East, we need to ramp up production, further reduce oil theft, and attract more investments into the oil and gas industry. With crude oil price staying above $90, more output will mean huge forex revenue that is so critically needed to strengthen the recovering Naira against major currencies.

  • STRONG INSTITUTIONS

We wish to use this medium to commend the swift actions by the President in investigating the activities of some government institutions like the Central Bank and the Ministry of Humanitarian Affairs as these actions have sent strong signals to the world that this government is serious putting putting governance right. We only wish to urge the government to hasten the investigations and finalize the next actions towards restructuring the institutions concerned and entrenching sound corporate governance. We need strong institutions with strict adherence to international best practices in procurements, payments, decision making, discipline and communications.

  • TARGETED SUPPORT TO STRATEGIC INDUSTRIES

As Nigeria strives towards stabilizing prices, boosting FOREX inflows, and attracting Foreign Direct Investments (FDIs), it is imperative to recognize the pivotal role that certain enterprises play in driving growth, fostering innovation, and creating employment opportunities. These strategic entities, often operating in key sectors such as manufacturing, agriculture, technology, and infrastructure, serve as the backbone of the economy, contributing significantly to its stability and resilience.

LCCI acknowledges the significant impact that the Dangote Refinery is beginning to make on Nigeria’s economy.  The 650,000 barrels per day refinery, a project of monumental scale, has started to fulfil its promise by addressing critical issues in the Nigerian energy sector. It was reported that with 100 million litres of diesel pumped into the market last week, the Dangote Refinery helped crashed the price of diesel from about N1,800 to N1,225 per litre. With another tranche of supply, the price of diesel has dropped  to a low of about N1,000 per litre.

LCCI recognizes the refinery’s contribution to enhancing energy security and reducing the country’s reliance on imported fuel. The availability of locally produced diesel signifies a significant step towards achieving self-sufficiency in energy production, ultimately bolstering Nigeria’s economic resilience.

Another game-changer intervention came from the commencement of international flights to the United Kingdom by Nigeria’s Air Peace. This has become a delight to Nigerian travellers as  foreign airlines have  crash their prices by about 60 percent. We need more support for local enterprises to play in sectors that have hitherto been monopolized by foreign enterprises. More local airlines covering more international routes means  more partnership opportunities, more jobs and more foreign currency earnings for our country.

These enterprises, notwithstanding their strategic importance, are not immune to the adverse impacts of economic downturns, market uncertainties, and global disruptions. The ongoing challenges, exacerbated by the rising cost of doing business and other socio-economic factors like threatening insecurity conditions, have intensified the need for targeted interventions and support from the government. Therefore, we call upon the Federal Government to implement measures aimed at providing special support to these strategic companies. This support package would be tailored to needs of the relevant with clearly defined objectives and time frame.

By extending support to such strategic enterprises, the Federal Government can stimulate economic growth, foster job creation, and promote inclusive development in many other economic sectors in the value chain of the target enterprise. Furthermore, these measures will contribute to enhancing the country’s competitiveness on the global stage, accelerating investment inflows, and positioning Nigeria as a key player in  regional and international markets.

  1. NEW CAPITAL REQUIREMENT FOR BANKS

The proposed recapitalization of our banks is expected to significantly impact our economy if successfully executed. The project  aims to enhance the banks’ resilience and solvency to support the growth of the Nigerian economy. With a target of having a GDP size of $1 trillion, we need a bigger, stronger, and more diversified banking industry to offer the required financial intermediary support to the economy.

The policy is likely to spur mergers, acquisitions, and capital injections, leading to a restructuring of the banking industry. While tier one banks may navigate the requirements more smoothly, tier two and tier three banks might face challenges raising capital, potentially resulting in consolidation and operational adjustments. Furthermore, it may accelerate the exit from the merchant banking segment and stimulate new opportunities and sectors, potentially leading to industry-wide innovation and expansion.

The apex bank is expected to implement robust measures to ensure transparency, accountability, and governance in the recapitalisation process. This includes stringent monitoring of capital inflows, thorough assessment of governance structures, and enforcement of anti-money laundering regulations to prevent misuse of funds and uphold the integrity of the financial system.

  1.  NATIONAL SINGLE WINDOW

Following from the points made above on ways to improve our foreign trade performance, we wish to commend the Federal Government on the recent inauguration of a National Steering Committee for the proposed National Single Window Project. However, to fully explore the benefits of this single window platform, we urge the government to involve the users (exporters and importers) at both the planning and implementation stages, for maximum impact. We also advise that best practices that have worked in some other climes should be adopted with automation technology driving the implementation strategy.

CONCLUSION

Distinguished Gentlemen of the Press, you have been a worthy partner projecting our engagement with the government towards creating an enabling business environment for the advancement of the Nigerian economy and the good of all investors and economic players. The Lagos Chamber, through engagements like this press conference, has consistently lent its voice to possible solutions to the several challenges facing our nation.

Let me reiterate our call on the government to remain focused on tackling the many economic issues discussed above,  though not exhaustive, to deliver good governance and accountability to Nigerian citizens and businesses. As a business community advocacy voice  the Lagos Chamber will  continue to engage relevant government agencies, the media, and other interest groups on actionable recommendations for growing our nation’s economy.

Thank you for listening.

MR. GABRIEL IDAHOSA, FCA

PRESIDENT,

LAGOS CHAMBER OF COMMERCE & INDUSTRY,

THURSDAY 18TH APRIL 2024

Similar Posts