ADDRESS ON THE STATE OF THE ECONOMY FOR THE SECOND QUARTER OF 2023 BY THE PRESIDENT OF THE LAGOS CHAMBER OF COMMERCE AND INDUSTRY, ASIWAJU (DR.) MICHAEL OLAWALE-COLE, CON, MFR, FNIM, CNIM, FIoD

THE DEPUTY PRESIDENT, LCCI – MR. GABRIEL IDAHOSA, FCA

PAST PRESIDENT, LCCI – OLORI (DR.) NIKE AKANDE, CON

VICE PRESIDENTS HERE PRESENT

DIRECTOR GENERAL, LCCI – DR. CHINYERE ALMONA, FCA

DISTINGUISHED GENTLEMEN OF THE PRESS

I PRESENT THE COMPLIMENTS OF THE LAGOS CHAMBER OF COMMERCE AND INDUSTRY (LCCI) TO YOU ALL AT THIS THIRD PRESS CONFERENCE IN 2023. LET ME BEGIN BY CONGRATULATING ALL STAKEHOLDERS IN THE ECONOMY FOR A SUCCESSFUL TAKE-OFF OF THE NEW POLITICAL ADMINISTRATION AT THE FEDERAL AND STATE LEVELS.

I ALSO WANT TO THANK THE MEDIA FOR THE EXCELLENT COVERAGE YOU GAVE TO OUR PREVIOUS PRESS CONFERENCES AND OTHER CHAMBERS’ ACTIVITIES OVER THE YEARS. LCCI AND THE MEDIA HAVE COME A LONG WAY IN SHAPING THE NATION’S ECONOMY THROUGH POLICY ADVOCACY AND ENGAGEMENTS. IT IS MY HOPE THAT WE WOULD SUSTAIN THIS PARTNERSHIP AS WE

BOTH STRIVE TO CREATE CONDUCIVE INVESTMENT CLIMATE FOR THE BENEFIT OF ALL STAKEHOLDERS.

TODAY, WE PRESENT A REVIEW OF THE SECOND QUARTER OF 2023 AND COMMUNICATE OUR POSITION TO THE BROADER BUSINESS COMMUNITY AND THE GOVERNMENT. THIS IS OUR TRADITIONAL MODEL OF ENGAGING IN PUBLIC POLICY ADVOCACY IN OUR QUEST FOR A STRONGER ECONOMY AND AN ENABLING BUSINESS ENVIRONMENT.

THROUGH MACROECONOMIC DIAGNOSTICS AND REVIEWS, THIS BRIEFING IS DONE TO HIGHLIGHT AREAS OF CONCERN AND TO MAKE RECOMMENDATIONS TO THE GOVERNMENT ON POLICY ALTERNATIVES THAT CAN BETTER EMPOWER THE PRIVATE SECTOR TO THRIVE.

GLOBAL ECONOMIC DEVELOPMENT

THE GLOBAL ECONOMY RECOVERY REMAINED MODERATE IN THE SECOND QUARTER OF 2023, THOUGH FORECASTED TO SLOW CONSIDERABLY COMPARED TO THE PREVIOUS YEAR, AMID CONTINUED MONETARY POLICY TIGHTENING TO REIN IN THE STUBBORN INFLATION TREND.

THE WORLD BANK, IN ITS JUNE 2023 GLOBAL ECONOMIC PROSPECTS (GEP) IS POSITIVE ABOUT ITS OUTLOOK. IT INCREASED GLOBAL GROWTH PROJECTION BY 0.4 % TO 2.1 % COMPARED WITH AN EARLIER FORECAST OF 1.7 %. THIS IMPROVED GROWTH PROSPECT IS ATTRIBUTED TO SUBSIDING RISKS. INFLATION HAS BEEN PERSISTENT. IT IS, HOWEVER, PROJECTED TO DECLINE GRADUALLY AS DEMAND WEAKENS AND COMMODITY PRICES MODERATE ON THE BACK OF LONGER-TERM INFLATION EXPECTATIONS REMAINING ANCHORED.

TIGHT GLOBAL FINANCIAL CONDITIONS AND SUBDUED EXTERNAL DEMAND ARE EXPECTED TO WEIGH IN ON GROWTH ACROSS EMERGING MARKETS AND DEVELOPING ECONOMIES (EMDES). GLOBAL GROWTH COULD BE WEAKER THAN ANTICIPATED IN THE EVENT OF MORE WIDESPREAD BANKING SECTOR STRESS OR IF MORE PERSISTENT INFLATION PRESSURES PROMPT TIGHTER-THAN-EXPECTED MONETARY POLICY. AS A RESULT OF TIGHT GLOBAL FINANCIAL CONDITIONS, BORROWING COSTS WILL CONTINUE TO RISE, WHICH COULD LEAD TO FINANCIAL DISLOCATIONS IN THE MORE VULNERABLE EMDES.

SIMILARLY, THE WORLD ECONOMIC SITUATION AND PROSPECTS (WESP) MID-YEAR UPDATE RELEASED BY THE UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS (UN-DESA) NOTES THAT GLOBAL ECONOMIC PROSPECTS REMAIN SUBDUED. HOWEVER, THE SLOWDOWN IN GLOBAL GROWTH IN 2023 IS LIKELY TO BE LESS SEVERE THAN PREVIOUSLY EXPECTED, MAINLY DUE TO RESILIENT HOUSEHOLD SPENDING IN DEVELOPED ECONOMIES AND RECOVERY IN CHINA.

ACCORDING TO UN-DESA, GLOBAL GROWTH IS PROJECTED TO SLOW TO 2.3% IN 2023 FROM 3.1% IN 2022, THOUGH AN UPWARD REVISION BY 0.4% POINTS FROM THE REPORT’S JANUARY FORECAST. GLOBAL INFLATION IS PROJECTED TO DECLINE TO 5.2% IN 2023 FROM 7.5% IN 2022, MAINLY DUE TO LOWER FOOD AND ENERGY PRICES AND SOFTENING GLOBAL DEMAND. AMID EASING INFLATIONARY PRESSURES, THE GLOBAL ECONOMY IS EXPECTED TO PICK UP SOME MOMENTUM IN THE REMAINING PART OF 2023 AND 2024.

FINALLY, ON GLOBAL DEVELOPMENTS, THE 2023 WORLD INVESTMENT REPORT RELEASED BY UNCTAD REPORTED THAT 4

GLOBAL FOREIGN DIRECT INVESTMENT (FDI) DECLINED BY 12% IN 2022 TO $1.3 TRILLION. THE SIGNIFICANT FALL WAS DRIVEN BY THE GLOBAL POLY-CRISIS, INCLUDING THE WAR IN UKRAINE, HIGH FOOD AND ENERGY PRICES, AND DEBT PRESSURES.

LOCAL DEVELOPMENT

2023 FIRST QUARTER GDP REPORT

GDP GREW BY 2.31% (YEAR-ON-YEAR) IN REAL TERMS IN THE FIRST QUARTER OF 2023, COMPARED TO 3.52% RECORDED IN THE PREVIOUS QUARTER AND 3.11% IN THE CORRESPONDING PERIOD IN 2022. THE QUARTERLY GROWTH INDICATES THAT THE ECONOMY REMAINED WEAK AND FRAGILE. HOWEVER, IT SHOWED TENTH CONSECUTIVE GROWTH DESPITE CONTRACTIONARY MONETARY POLICIES.

ASSESSMENT & OUTLOOK

THE GROWTH IN THE FIRST QUARTER WAS PRIMARILY DRIVEN BY THE FOLLOWING SECTORS: SOLID MINERALS 37.71%, SERVICES 4.35%, CONSTRUCTION 3.27%, AND MANUFACTURING 2.83%. THE GROWTH RECORDED IN THE SOLID MINERALS SECTOR WAS HIGHER WHEN COMPARED TO 22.04% IN THE PREVIOUS QUARTER, WHILE THE SERVICES SECTOR WAS LOWER COMPARED TO 5.69% IN THE FOURTH QUARTER OF 2022. CONSTRUCTION SECTOR GROWTH MODERATED FROM 3.80% IN THE PREVIOUS QUARTER. REAL GROWTH IN THE MANUFACTURING SECTOR CONTINUED, THOUGH SLOWED FROM 2.83% RECORDED IN THE FOURTH QUARTER OF 2022.

THE AGRICULTURE SECTOR CONTRACTED BY –0.90% IN THE FIRST QUARTER COMPARED TO 2.05% IN THE PREVIOUS 5

QUARTER. THE DECLINE WAS DUE TO LOWER LIVESTOCK PRODUCTION AND THE LEFTOVER IMPACT OF THE SEVERE FLOODS IN THE THIRD QUARTER OF 2022.

CONTRACTION IN THE OIL & GAS SECTOR FURTHER MODERATED TO –4.21% IN THE FIRST QUARTER FROM –13.38%, INDICATING A GRADUAL TRAJECTORY TOWARDS EXITING RECESSION. AS A RESULT, PREVENTING THE COUNTRY FROM BENEFITING FULLY FROM HIGHER GLOBAL OIL PRICES. THE OUTLOOK FOR OIL & GAS IS POSITIVE DUE TO THE RESOLUTION OF SOME MAINTENANCE ISSUES AND PARTIAL RECOVERY. PRODUCTION LEVELS ARE EXPECTED TO CONTINUE RECOVERY, WITH A HIGH RISK OF REVERSAL DUE TO INSECURITY, THEFT, VANDALISM, FORCE MAJURE EVENTS, AND LACK OF PAYMENT DISCIPLINE.

THE SIGNIFICANT IMPROVEMENT IN THE OIL AND GAS SECTOR IS ATTRIBUTED TO THE IMPROVED DAILY OIL PRODUCTION, ESTIMATED AT 1.51 MILLION BARRELS PER DAY (MBPD) IN THE FIRST QUARTER FROM 1.34 MBPD IN THE PREVIOUS QUARTER, DUE TO REDUCED OIL THEFT AND IMPROVED SECURITY. SUSTAINED GROWTH IN THE MANUFACTURING SECTOR MAY BE ATTRIBUTED TO RESILIENT CONSUMER SPENDING AND IMPROVEMENT IN ELECTRICITY SUPPLY. HOWEVER, GROWTH IN THE MANUFACTURING SECTOR REMAINED SUBDUED DUE TO HIGH INFLATION, CONTINUOUS RISE IN INTEREST RATE, FOREX SCARCITY, HIGH ENERGY COST (DUE TO SUBSIDY REMOVAL AND ELECTRICITY TARIFF), AND WEAKENING PURCHASING POWER WHICH COULD WEIGH FURTHER ON THE GROWTH PROSPECTS OF THE SECTOR.

IN THE SHORT TERM, GROWTH IN MANUFACTURING IS EXPECTED TO REMAIN WEAK DUE TO SQUEEZED CONSUMER SPENDING, WHILE THE OUTLOOK IN THE MEDIUM TERM IS PROJECTED TO IMPROVE DUE TO SUBSIDY REMOVAL WHICH MAY ATTRACT INVESTMENT IN OIL REFINING AND OTHER OPPORTUNITIES IN THE SECTOR.

RECOMMENDATIONS

1. THE FEDERAL GOVERNMENT NEEDS FOCUS ON ADDRESSING THE SECURITY CHALLENGES THAT HAVE PLAGUED THE BUSINESS COMMUNITY AND NEGATIVELY AFFECTED INVESTMENT INFLOWS. MY HOPE IS THAT THIS NEW POLITICAL ERA WILL WITNESS A MARKED IMPROVEMENT IN TERMS OF THE STATE AND FATE OF NATIONAL SECURITY IN NIGERIA.
2. THE FEDERAL GOVERNMENT NEEDS TO SUSTAIN ITS TARGETED INTERVENTIONS IN CRITICAL SECTORS LIKE AGRICULTURE, MANUFACTURING, EXPORT INFRASTRUCTURE.
3. WE URGE THE GOVERNMENT TO KEEP TRACK OF PLANS TO TACKLE THE MENACE OF OIL THEFT TO BOOST OIL EXPORTS AND EARN MORE FOREIGN EXCHANGE. WE ALSO COMMEND THE GOVERNMENT FOR THE EFFORT MADE TO DATE TO COMBAT THE CARTELS INVOLVED IN OIL THEFT. IF THESE EFFORTS HAD STARTED EARLIER, THE NATION WOULD HAVE MADE HUGE ECONOMIC GAINS. THE CHAMBER THEREFORE APPEALS TO THE GOVERNMENT TO INTENSIFY THE EFFORTS.
4. WE COMMEND THE GOVERNMENT ON THE TWO POLICY REFORMS: SUBSIDY REMOVAL AND EXCHANGE RATE HARMONISATION. WE EXPECT THE POLICIES TO BE SUSTAINED AND IMPACT POSITIVELY ON INVESTMENT, FISCAL AND EXTERNAL SECTORS.
5. IN A BID TO ENSURE COMPETITION AND ELIMINATE UNFAIR ADVANTAGE, ALL IMPORTERS OF PETROLEUM PRODUCTS, INCLUDING NNPC LIMITED, MUST HAVE EQUAL ACCESS TO THE FOREIGN EXCHANGE MARKET. ALSO, WE URGE THE GOVERNMENT TO ENSURE TRANSPARENT PRICING MECHANISMS TO ELIMINATE ANY FORM OF EXPLOITATION. WE EXPECT THE GOVERNMENT TO ROLL OUT APPROPRIATE CUSHIONING OR PALLIATIVE POLICIES AND MEASURES.
6. WE ADVOCATE THAT MORE POLICY REFORMS SHOULD BE EMBARKED UPON BY THE GOVERNMENT TO IMPROVE THE BUSINESS ENVIRONMENT, BOOST INVESTOR CONFIDENCE, STIMULATE ECONOMIC GROWTH, CREATE MORE EMPLOYMENT AND ALLEVIATE POVERTY.
7. CONTINUOUSLY IMPROVE ELECTRICITY SUPPLY AND RESOLVE ALL ISSUES ON DISCO PROFITABILITY AND REDUCE CONSUMPTION COSTS AND ADDRESS THE PROBLEM OF POOR GENERATION.
8. 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 IMPROVE INFRASTRUCTURE, SUCH AS THE COMPLETION OF THE SECOND NIGER BRIDGE, WHICH IS A KEY NATIONAL INFRASTRUCTURE. LCCI WOULD LIKE TO SEE MORE OF SUCH DEVELOPMENTS FOR THE ORGANISED PRIVATE SECTOR’S BENEFIT.
9. TO REDUCE THE SHOCKS FROM DISRUPTIONS TO SUPPLY CHAINS FOR RAW MATERIALS, MANUFACTURERS SHOULD BE ASSISTED WITH SUBSIDISED INPUT AND MORE ALLOCATION OF FOREX FOR THE IMPORTATION OF CRITICAL INPUTS.
10. WHILE THE CENTRAL BANK OF NIGERIA (CBN) EMBARKS ON MONETARY TIGHTENING TO TAME INFLATION, IT SHOULD ENSURE THAT TARGETED CONCESSIONARY CREDIT TO THE PRIVATE SECTOR IS SUSTAINED FOR MSMES.
11. WHILE ALL EYES ARE FIXED ON INFLATION AND EXCHANGE RATES MANAGEMENT, THE AUTHORITIES MUST NOT LOSE SIGHT OF THE UNHEALTHY UNEMPLOYMENT FIGURE.

MONETARY POLICY DEVELOPMENT

IN QUARTER TWO, MONETARY POLICY WAS INFLUENCED BY EXTERNAL AND DOMESTIC MACROECONOMIC FACTORS. THE EXTERNAL FACTORS INCLUDE THE TIGHTENING OF GLOBAL MONETARY POLICY IN RESPONSE TO HIGH INFLATION AND GLOBAL CAPITAL FLIGHT. DOMESTIC MACROECONOMIC FACTORS INCLUDE PERSISTENT INFLATIONARY PRESSURE, POLITICAL TRANSITION, AND DECLINING EXTERNAL RESERVES.

INTEREST RATE

DURING THE PERIOD UNDER REVIEW, THE INTEREST RATES MOVEMENT IN THE MONEY MARKET REFLECTED DEVELOPMENTS IN THE BANKING SYSTEM’S CREDIT AND LIQUIDITY CONDITIONS. IN FURTHERANCE OF CBN’S MONETARY POLICY STANCE, THE MPR WAS RAISED TO 18.5% IN MAY 2023 FROM 18.0% IN MARCH 2023, WHILE THE CASH RESERVE RATIO (CRR) AND LIQUIDITY RATIO (LR) REMAINED AT 32.5% AND 30.0% RESPECTIVELY IN MAY 2023. IN ADDITION, THE ASYMMETRIC CORRIDOR AROUND THE MPR WAS RETAINED AT +100/-700 BASIS POINTS.

FURTHERMORE, THE INTERBANK RATE DECLINED BY 3.49% POINTS TO 12.31% IN MAY 2023 FROM THE PREVIOUS MONTH’S, PRIME LENDING RATE INCREASED BY 0.02% POINTS TO 14.07% IN MAY 2023 FROM 14.05% IN APRIL 2023, WHILE MAXIMUM LENDING RATE FELL BY 0.28% POINT TO 28.31% IN MAY 2023, COMPARED WITH 28.59 % A MONTH EARLIER.

THE FOREIGN EXCHANGE MARKET

ON JUNE 14, THE CBN COLLAPSED ALL SEGMENTS OF FOREIGN EXCHANGE MARKETS INTO THE I & E WINDOW, WHERE THE “WILLING BUYER AND WILLING SELLER” WAS RE-INTRODUCED. THIS WAS AIMED AT UNIFYING AND ADOPTING A MARKET-RESPONSIVE EXCHANGE RATE. BASED ON THE ADJUSTMENT, THE RATE ROSE N742.31/$ FROM N463.38/$. WITH THE DEVALUATION, NAIRA EXCHANGE RATE CONTINUED TO RECORD DISTURBING FALL IN THE SECOND QUARTER OF 2023. IT AVERAGED N635.06 IN JUNE 2023 AT THE OFFICIAL MARKET, FROM N460.92/ USD IN MARCH 2023.

CURRENTLY, THE NAIRA EXCHANGE RATE STANDS WAS N771.48/$ AS OF JULY 13, 2023. AT THE BUREAU DE CHANGE (BDC) SEGMENT, THE NAIRA DEPRECIATED TO N762.27/ USD IN JUNE 2023 FROM N750.78/USD IN MARCH 2023. THE BDC RATE CURRENTLY SELLS AT AN AVERAGE OF N811/USD. THE EMERGING GAP BETWEEN THE OFFICIAL RATE AND THE BDC RATE MAY BE ATTRIBUTED TO SEVERAL FACTORS, INCLUDING FX LIQUIDITY ISSUES AT THE NAFEX WINDOW, PUSHING ECONOMIC AGENTS INTO THE PARALLEL MARKET, AND THE CONTINUED FX RESTRICTION FOR THE 43 ITEMS IN THE CBN LIST OF FX RESTRICTIONS. THE CHAMBER’S POSITION IS THAT THE CBN NEEDS TO REMOVE THE FX RESTRICTIONS FOR IMPORTING 43 PRODUCTS IN THEIR LIST, COMMUNICATE THE NEW FRAMEWORK FOR EXCHANGE RATE MANAGEMENT AND ENHANCE THE CONSISTENCY OF THE CURRENT FRAMEWORK FOR MONETARY POLICY OPERATIONS TO ENSURE PRICE STABILITY. THIS IS CRITICAL TO ENHANCING STABILITY, LIQUIDITY, AND TRANSPARENCY IN THE FX MARKET.

INFLATION

THE HEADLINE INFLATION IN MAY 2023 INCREASED TO 22.41% COMPARED TO 22.22% RECORDED IN APRIL 2023, 0.19% POINTS HIGHER. FOOD INFLATION IN MAY 2023 WAS 24.82% ON A YEAR-ON-YEAR BASIS, 5.33% POINTS HIGHER COMPARED TO MAY 2022 AT 19.50%. THE INFLATIONARY PRESSURES WERE PRIMARILY ATTRIBUTED TO HIGH FOOD AND ENERGY PRICES, HOUSING, CLOTHING & FOOTWEARS, TRANSPORT AND IMPORTED INFLATION. WE FORESEE A FURTHER RISE IN THE INFLATION RATE IN THE NEAR TERM DUE TO SUBSIDY REMOVAL AND THE FLOATING OF THE NAIRA EXCHANGE RATE.

INCREASING THE MONETARY POLICY RATE HAS, THUS FAR, PROVEN TO BE INEFFECTIVE AND INSUFFICIENT IN TAMING INFLATION. THEREFORE, THERE IS A CLEAR NEED FOR THE GOVERNMENT TO STRENGTHEN ITS SUPPORT TO CRITICAL SECTORS LIKE AGRICULTURE, POWER, ENERGY ETC. IT SHOULD ALSO LOOK AT WAYS TO IMPROVE SUPPLY CHAINS AS WELL AS CUSHION THE COST OF PRODUCTION.

NATIONAL DEBT

THE RECENT DATA RELEASED BY THE DEBT MANAGEMENT OFFICE (DMO) PUTS NIGERIA’S PUBLIC DEBT AT N49.85 TRN ($108.30 BN) AS OF END-MARCH 2023 COMPARED TO N46.25 TRN ($103.11 BN) IN 2022. THE GROWTH IS REFLECTED IN BOTH THE DOMESTIC AND EXTERNAL DEBTS. THE EXTERNAL DEBT STOCK INCREASED TO N19.64 TRN ($42.67 BN) IN THE FIRST QUARTER OF 2023 FROM N18.70 TRN ($41.69 BN) WHILE DOMESTIC DEBT STOCK WENT UP TO N30.21 TRN ($65.62 BN) AS OF THE END OF MARCH 2023 FROM N27.55 TRN ($61.42 BN).

THE PUBLIC DEBT STOCK FOR MARCH 2023 DOES NOT INCLUDE THE CBN’S WAYS AND MEANS OF N22.72 TRN, WHOSE SECURITISATION WAS APPROVED BY THE NATIONAL ASSEMBLY IN MAY 2023. THE WAYS AND MEANS ADVANCES OF THE CBN WILL BE INCLUDED IN THE FGN’S DOMESTIC DEBT STOCK FROM JUNE 2023.

ACCORDING TO THE WORLD BANK, NIGERIA’S DEBT HAS REACHED RECORD LEVELS WITH IMPLICATIONS ON DEBT-SERVICING COSTS. THE WORLD BANK FURTHER NOTES THAT DEBT SERVICING CONTINUES TO POSE A LARGE AND GROWING FISCAL RISK. PUBLIC AND PUBLICLY GUARANTEED (PPG) DEBT REACHED 40% OF GDP IN 2022, AND THE OVERALL DEBT SERVICING (INTEREST PAYMENTS AND PRINCIPAL REPAYMENTS) TO REVENUE RATIO CROSSED 100% OF GENERAL GOVERNMENT REVENUES FOR THE FIRST TIME, REACHING 101.5%, MAINLY TO A LARGE INCREASE IN WAYS AND MEANS FINANCING FROM THE CBN.

COMPARED WITH TRADITIONAL FINANCING INSTRUMENTS, WAYS AND MEANS FINANCING IS EXPENSIVE, NON-TRANSPARENT, DISTORTIONARY TO MARKET INTEREST RATES, AND INFLATIONARY. HOWEVER, WITH THE SUCCESSFUL NEGOTIATION BY THE FEDERAL MINISTRY OF FINANCE, BUDGET, AND NATIONAL PLANNING, A MORE FAVORABLE TERMS (9%, WITH A 40-YEAR REPAYMENT PERIOD) FOR SERVICING A SIGNIFICANT PROPORTION OF THE STOCK OF WAYS AND MEANS FINANCING (N22.7 TN, ABOUT 92 % OF TOTAL WAYS AND MEANS FINANCING AS OF END-DECEMBER 2022). HOWEVER, NO AGREEMENT WAS MADE FOR THE REMAINING STOCK AS WELL AS FOR ANY FUTURE WAYS AND MEANS FINANCING. AS SUCH, DEBT SERVICING COSTS ARE EXPECTED TO REMAIN HIGH AND OVER 100% OF REVENUES OVER THE MEDIUM TERM. THE CHAMBER FROWNS AT THE DISREGARD OF DUE PROCESS TO RESTRUCTURE THE WAYS AND MEANS ADVANCES.

THE GOVERNMENT SHOULD EXPLORE OTHER AVENUES TO MANAGE DEBT, INCLUDING OPENING EQUITY OPPORTUNITIES AND OFFLOADING/SELLING OFF SOME OF ITS REAL ESTATE HOLDINGS. THE GOVERNMENT SHOULD ALSO INTENSIFY ITS EFFORT TO DEAL WITH INSECURITY, OIL THEFT, AND VANDALISM, AS WELL AS BLOCK ALL REVENUE LEAKAGES IN GOVERNMENT INSTITUTIONS.

THESE ACTIONS WILL INCREASE REVENUE AND LESSEN THE PROPENSITY TO BORROW. IF THE GOVERNMENT HAD DONE THIS EARLIER, OUR DEBT STOCK WOULD HAVE BEEN VERY LIMITED.

FINANCE ACT 2023 AND PRESIDENTIAL EXECUTIVE ORDERS

THE FINANCE ACT (FA) 2023 IS THE 4TH IN NIGERIA’S SERIES OF FINANCE ACTS. THE PREVIOUS GOVERNMENT ADOPTED THIS FISCAL POLICY MODEL AFTER ITS RE-ELECTION IN 2019 TO SUPPORT THE IMPLEMENTATION OF THE ANNUAL BUDGET. THE FA 2023 WAS SIGNED BY FORMER PRESIDENT MUHAMMADU BUHARI ON THE EVE OF HIS LAST DAY IN OFFICE, BUT THE EFFECTIVE DATE WAS STATED AS 1ST MAY 2023. AS STATED IN THE 2023 BUDGET SPEECH, THE FA 2023 CENTRES ON 5 KEY FOCUS AREAS: TAX EQUITY REFORMS, CLIMATE CHANGE/ GREEN GROWTH, JOB CREATION/ ECONOMIC GROWTH, REFORMING TAX INCENTIVES, AND REVENUE GENERATION/ TAX ADMINISTRATION.

SOME OF THE MAJOR CHANGES OUTLINED IN THE FINANCE ACT 2023 ARE INCREASE IN THE RATE OF TERTIARY EDUCATION TAX FROM 2.5% TO 3%, ELIMINATION OF DOUBLE VAT ON GOODS PURCHASED FROM A NON-RESIDENT SUPPLIER, 0.5% LEVY ON GOODS IMPORTED OUTSIDE OF AFRICA INTO NIGERIA, REMOVAL OF INVESTMENT ALLOWANCE ON PLANT AND EQUIPMENT AND DEDUCTION OF LIFE INSURANCE PREMIUMS, AMONG OTHERS. IT ALSO AMENDED THE SHARING FORMULA FOR REVENUE GENERATED FROM THE ELECTRONIC MONEY TRANSFER (EMT) LEVY, WITH 15% TO THE FEDERAL GOVERNMENT, 50% TO THE STATES, AND 35% TO LGAS.

TO ADDRESS ITS BUSINESS-UNFRIENDLY FISCAL POLICIES, THE NEW GOVERNMENT SUSPENDED THE IMPLEMENTATION OF THE FINANCE ACT 2023, ESTABLISHED THE PRESIDENTIAL COMMITTEE ON FISCAL POLICY AND TAX REFORMS, AND ISSUED EXECUTIVE ORDERS CONCERNING SOME KEY ELEMENTS OF THE FINANCE ACT 2023. THE STEP IS CRITICAL TO ADDRESS MULTIPLE TAXATION FACED BY BUSINESSES IN THE COUNTRY AND REDUCE THE TAX BURDEN.

TO ADHERE TO THE PROVISION OF THE 2017 NATIONAL TAX POLICY, WHICH STATES THAT A MINIMUM OF 90 DAYS’ NOTICE MUST BE GIVEN BEFORE TAX CHANGES TAKE EFFECT, THE FEDERAL GOVERNMENT HAS ISSUED EXECUTIVE ORDERS POSTPONING THE DATE TO IMPLEMENT THE CHANGES OUTLINED IN THE FINANCE ACT TO SEPTEMBER 1, 2023.

THE KEY CHANGES INTRODUCED BY THE RECENT EXECUTIVE ORDERS ARE HIGHLIGHTED BELOW:

• CUSTOMS, EXCISE TARIFF (VARIATION) AMENDMENT ORDER. IN THE NATIONAL TAX POLICY, THE GOVERNMENT HAS MOVED THE COMMENCEMENT DATE OF THE CUSTOMS AND EXCISE TARIFF. THE INITIAL START DATE OF MARCH 27, 2023, WAS SHIFTED TO AUGUST 1, 2023.

• REMOVAL OF 5% TAX ON TELECOMMUNICATION SERVICES AND LOCALLY MADE PRODUCTS. UNDER THE 2023 FISCAL POLICY MEASURES, EXCISE DUTIES OF 5% WERE APPROVED ON MOBILE TELEPHONE SERVICES, FIXED TELEPHONE, AND INTERNET SERVICES. THIS HAS BEEN SUSPENDED. THE EXCISE DUTIES ESCALATION ON LOCALLY MANUFACTURED PRODUCTS HAS ALSO BEEN SUSPENDED. THIS ACTION HAS STOPPED A POSSIBLE INCREASE IN THE COST OF DATA AND AIRTIME, THUS PREVENTING MORE PEOPLE FROM BEING PUSHED INTO POVERTY.

• SUSPENSION OF TAX ON SINGLE-USE PLASTICS AND SOME VEHICLES. THE FINANCE ACT 2023 CONTAINED 10% EXCISE DUTIES ON SINGLE-USE PLASTICS (SUPS). THIS HAS BEEN SUSPENDED AS A SIGN OF THE GOVERNMENT’S COMMITMENT TO CREATING A MORE BUSINESS-FRIENDLY ENVIRONMENT.

• SUSPENSION OF IMPORT ADJUSTMENT TAX (IAT) LEVY ON CERTAIN VEHICLES. THE GREEN TAX SURCHARGE IN THE FINANCE ACT 2023 INCLUDES ADDITIONAL IATS ON SPECIFIC MOTOR VEHICLES.

• PRESIDENTIAL FISCAL POLICY AND TAX REFORMS COMMITTEE’S MANDATE IS TO ENHANCE REVENUE COLLECTION EFFICIENCY AND ENSURE TRANSPARENT REPORTING AND PROMOTE THE EFFECTIVE UTILISATION OF TAX AND OTHER REVENUES TO BOOST CITIZENS’ TAX MORALE, FOSTER A HEALTHY TAX CULTURE, AND DRIVE VOLUNTARY COMPLIANCE, WHICH IS IN TANDEM WITH THE AREAS OF CONCERN OF THE BUSINESS COMMUNITY.

THE KEY CHALLENGES IN NIGERIA’S TAX SYSTEM INCLUDE MULTIPLE TAXES AND REVENUE COLLECTION AGENCIES, A FRAGMENTED AND COMPLEX TAX SYSTEM, LOW TAX MORALE, HIGH PREVALENCE OF TAX EVASION, HIGH COST OF REVENUE ADMINISTRATION, LACK OF COORDINATION BETWEEN FISCAL AND ECONOMIC POLICIES, AND POOR ACCOUNTABILITY IN THE UTILISATION OF TAX REVENUE.

THESE ACTIONS HAVE SENT POSITIVE SIGNALS TO BOTH LOCAL AND FOREIGN INVESTORS ABOUT THE GOVERNMENT’S STRATEGIC INITIATIVE TO CREATE A CONDUCIVE BUSINESS ENVIRONMENT IN THE COUNTRY.

THE ELECTRICITY ACT 2023 AND ELECTRICITY SUBSIDY REMOVAL

• THE PROPOSED ELECTRICITY SUBSIDY REMOVAL FOR ELECTRICITY TARIFF TO REFLECT THE MARKET-FRIENDLY PRICING SYSTEM IS A CALL FOR EXPLOITATION OF THE EMERGING OPPORTUNITIES IN THE FORM OF RENEWABLE ENERGY AND EVEN THE TRADITIONAL ENERGY SUPPLY.

• THE ELECTRICITY ACT 2023, PASSED BY THE PRESENT ADMINISTRATION, MANDATES ELECTRICITY-GENERATING COMPANIES TO EITHER GENERATE POWER FROM RENEWABLE ENERGY SOURCES OR PURCHASE POWER GENERATED FROM RENEWABLES. THE ACT PROMOTES THE TRANSITION TO CLEANER ENERGY SOURCES. THIS WILL CONTRIBUTE TO REDUCING CARBON EMISSIONS, IMPROVING AIR QUALITY, AND MITIGATING CLIMATE CHANGE’S EFFECTS. IT ALIGNS WITH GLOBAL EFFORTS TO COMBAT CLIMATE CHANGE AND MEET SUSTAINABLE DEVELOPMENT GOALS.

• THE ACT PROVIDES FOR STATES TO ISSUE LICENSES TO PRIVATE INVESTORS TO OPERATE MINI-GRIDS AND POWER PLANTS WITHIN THEIR BORDERS. THIS OPENS OPPORTUNITIES FOR PRIVATE SECTOR INVESTMENTS IN ENERGY, LEADING TO INCREASED GENERATION CAPACITY AND IMPROVED ACCESS TO ELECTRICITY IN UNDERSERVED AREAS. IT ENCOURAGES COMPETITION AND INNOVATION IN THE SECTOR.

• THIS HAS CREATED HUGE NEW BUSINESS OPPORTUNITIES IN THE RENEWABLE ENERGY INDUSTRY FOR BOTH SMALL AND LARGE-SCALE INVESTORS TO DEVELOP AND DEPLOY RENEWABLE ENERGY TECHNOLOGIES, SUCH AS SOLAR PANELS, WIND TURBINES, AND ENERGY STORAGE SYSTEMS, WHICH REQUIRE SKILLED LABOUR AND HUGE INVESTMENT. THIS WILL HELP STIMULATE ECONOMIC GROWTH AND FOSTER INNOVATION IN THE RENEWABLE ENERGY SECTOR IN THE COUNTRY.

• A MORE RELIABLE AND EFFICIENT ELECTRICITY SUPPLY COULD ENHANCE THE OVERALL BUSINESS ENVIRONMENT AND ATTRACT FOREIGN INVESTORS, PARTICULARLY IN SECTORS THAT ARE HEAVILY RELIANT ON A CONSISTENT POWER SUPPLY, SUCH AS MANUFACTURING, TECHNOLOGY, AND SERVICES.

FUEL SUBSIDY REMOVAL

NO FULL FUEL SUBSIDY REMOVAL HAS TAKEN PLACE SINCE 2016. THERE HAVE BEEN DISCUSSIONS AND CONSIDERATIONS BY SUCCESSIVE GOVERNMENTS REGARDING SUBSIDY REFORMS AND FINDING ALTERNATIVES TO ADDRESS THE FISCAL CHALLENGES ASSOCIATED WITH THE SUBSIDY REGIME. ACCORDING TO NIGERIA EXTRACTIVE INDUSTRIES TRANSPARENCY INITIATIVE (NEITI), THE FEDERAL GOVERNMENT HAS SPENT $74.386 BN ON FUEL SUBSIDIES BETWEEN 2005-2020, WHICH ACCOUNTS FOR 2.48% OF FUNDS NEEDED TO REDUCE THE INFRASTRUCTURE DEFICIT IN NIGERIA.

• PRESIDENT BOLA TINUBU REMOVED THE FUEL SUBSIDY.
• THE WORLD BANK ESTIMATES THAT NIGERIA WILL NEED TO INVEST $3 TRN IN INFRASTRUCTURE TO REDUCE THE INFRASTRUCTURE DEFICIT IN THE COUNTRY. THIS, NO DOUBT, HAS SHORT TO MEDIUM-TERM EFFECTS ON THE ECONOMY.
• THE PETROLEUM INDUSTRY ACT 2021 (PIA) MARKS A SIGNIFICANT MILESTONE IN NIGERIA’S PETROLEUM INDUSTRY, AS IT ESTABLISHES THE NIGERIA NATIONAL PETROLEUM COMPANY LIMITED (NNPCL) – A KEY PLAYER IN THE SECTOR. THE CREATION OF NNPC LTD UNDER THE PIA SIGNIFIES A PARADIGM SHIFT TOWARDS A MORE COMMERCIALLY ORIENTED ENTITY THAT OPERATES WITHOUT DEPENDING ON GOVERNMENT FUNDING. THIS MOVE IS AIMED AT ENHANCING EFFICIENCY, COMPETITIVENESS, AND ACCOUNTABILITY.
• ONE OF THE NOTABLE PROVISIONS WITHIN THE PIA IS THE REQUIREMENT FOR NNPC LTD TO EXPLICITLY OUTLINE THE LIMITATIONS AND RESTRICTIONS IT OPERATES UNDER IN ITS MEMORANDUM AND ARTICLES OF ASSOCIATION. BY DOING SO, NNP LTD ENSURES TRANSPARENCY AND CLARITY IN ITS OPERATIONS, SETTING A PRECEDENT FOR RESPONSIBLE CORPORATE GOVERNANCE PRACTICES.
• THE COMMITMENT TO TRANSPARENCY AND ACCOUNTABILITY AS A PLAYER AND NOT A REGULATOR WILL STRENGTHEN THE CONFIDENCE OF STAKEHOLDERS AND INVESTORS IN THE NIGERIAN PETROLEUM INDUSTRY. THE NNPC LTD SHOULD NOT ASSUME THE ROLES OF THE DEFUNCT NNPC AS BOTH THE PLAYER AND REGULATOR IN THE INDUSTRY.

THE CHAMBER COMMENDED THE FEDERAL GOVERNMENT ON THE REMOVAL OF FUEL SUBSIDY. THE REMOVAL WILL GREATLY IMPACT THE GOVERNMENT’S COFFERS, REDUCE THE OUTRAGEOUS COST OF GOVERNANCE, IMPACT GOVERNMENT’S CAPACITY TO FINANCE INFRASTRUCTURAL DEVELOPMENT, AND GROW THE ECONOMY. FURTHERMORE, WE ANTICIPATE THAT THE DECISION WILL RESULT IN IMPROVED INVESTMENTS, ESPECIALLY ALONG ITS VALUE CHAIN, PROMOTE HEALTHY COMPETITION AND EVEN ENSURE PRODUCT AVAILABILITY.  

TRANSPARENCY IN THE DOWNSTREAM SECTOR

THE LAGOS CHAMBER OF COMMERCE AND INDUSTRY VIEWS WITH CONCERN INCIDENTS OF SPECULATION AROUND THE PRICING OF PMS AND THE OPAQUENESS IN THE PRICING MECHANISM OF PETROLEUM PRODUCTS IN THE DOWNSTREAM SECTOR. THE CHAMBER IS ALSO WORRIED BY THE LIKELY IMPLICATIONS OF THE DOMINANCE OF A MONOPOLY SUPPLIER LIKE THE NNPC LIMITED ON COMPETITION.

THE CHAMBER MAINTAINS THE SUPPORT IT GAVE THE GOVERNMENT ON FUEL SUBSIDY REMOVAL, AND IT IS NOT UNAWARE OF THE IMPACT OF THE FX RATE HARMONIZATION ON THE LANDING COST OF FUEL. LCCI, THEREFORE, URGES THE REGULATOR TO STRENGTHEN ISSUES AROUND TRANSPARENCY IN PRICING IN CONJUNCTION WITH OTHER CRITICAL STAKEHOLDERS. BY REINFORCING TRANSPARENCY, THE REGULATOR CONSCIOUSLY PROMOTES COMPETITION AND MARKET-DETERMINED PRICES AND PREVENTS A RETURN TO FUEL SUBSIDIES.

TO GUARANTEE COMPETITION, THE REGULATOR SHOULD ENSURE THAT NNPC LIMITED, AS THE HISTORICAL SOLE SUPPLIER AND THE SUPPLIER OF LAST RESORT, DOES NOT USE ITS DOMINANT MARKET SUPPLY POSITION TO KEEP NEW IMPORTERS OUT OF THE MARKET BY SUPPLYING PRODUCTS AT A PRICE THAT IS NOT REFLECTIVE OF EITHER INTERNATIONAL IMPORT PRICES OR THE CURRENT FOREIGN EXCHANGE RATE.

THE CHAMBER ADVOCATES FOR AN INCREASE IN FX SUPPLY TO THE INVESTORS’ AND EXPORTERS’ FX (I&E) WINDOW TO CHECK THE EXCESSIVE INFLUENCE OF FX DEMAND BACKLOG ON PRICES, ESPECIALLY IN THE SHORT RUN.

OVER THE YEAR, THE CHAMBER, LIKE MANY REPUTABLE INTERNATIONAL INSTITUTIONS AND LOCAL ORGANIZATIONS, HAS CONSISTENTLY EXPRESSED ITS FEARS AND CONCERNS ABOUT THE ENORMOUS FISCAL BURDEN THE SUBSIDY REGIME HAD PLACED ON THE NATION’S FINANCIAL WELL-BEING.

PALLIATIVES FOR NIGERIANS

PRESIDENT BOLA TINUBU WROTE TO THE HOUSE OF REPRESENTATIVES, SEEKING AN AMENDMENT TO THE 2022 SUPPLEMENTARY APPROPRIATION ACT TO ALLOW THE FEDERAL GOVERNMENT TO SOURCE N500 BILLION FOR PALLIATIVE TO CUSHION THE EFFECT OF SUBSIDY REMOVAL. IN HIS LETTER, THE PRESIDENT PROPOSED GIVING N8,000 TO 12 MILLION HOUSEHOLDS WITHIN SIX MONTHS. THE HOUSE OF REPRESENTATIVES APPROVED THE REQUEST EXPEDITIOUSLY.

THE CHAMBER COMMENDS THE FOCUS AND DESIRE OF THE GOVERNMENT TO PROVIDE PALLIATIVES FOR NIGERIANS. HOWEVER, WE ARE CONCERNED ABOUT THE IMPLEMENTATION OF THE DISTRIBUTION OF FUNDS. HOW WOULD THE POOR 12 MILLION HOUSEHOLDS IN NIGERIA BE DETERMINED? WHAT PARAMETERS AND CHANNELS WILL THE GOVERNMENT USE TO DISTRIBUTE THE MONEY? FOR THIS FORM OF PALLIATIVE TO MAKE ANY MEANINGFUL IMPACT, IT HAS TO BE MANAGED APPROPRIATELY AND TRANSPARENTLY.

THEREFORE, THE CHAMBER RECOMMENDS THAT A SYSTEM OF IMPLEMENTATION THAT ASSURES NIGERIANS OF INTEGRITY AND TRANSPARENCY SHOULD BE INSTITUTED. THE RESPONSIBILITY FOR EFFECTIVE IMPLEMENTATION SHOULD BE VESTED ON RESPECTABLE AND CREDIBLE INDIVIDUALS. IN ADDITION, THE GOVERNMENT NEEDS TO URGENTLY CONSIDER OTHER MEASURES TO SOLVE THE SOCIO-ECONOMIC AND ECONOMIC PROBLEMS, WHICH WILL SUSTAINABLY AMELIORATE THE EFFECT.

THE CHAMBER APPEALS TO NIGERIANS TO SUPPORT THE GOVERNMENT IN THE PROPER IMPLEMENTATION OF THIS MUCH-DESIRED POLICY. THE GOVERNMENT SHOULD ALSO HASTEN TO COMPLETELY SELL OFF THE EXISTING REFINERIES IN AN OPEN, COMPETITIVE BIDDING PROCESS OR PARTLY SELL THEM USING THE NLNG MODEL.

MEANWHILE, THE CHAMBER URGES INDUSTRY REGULATORS TO ENSURE A SEAMLESS TRANSITION, PARTICULARLY IN TERMS OF DISTRIBUTION CHANNELS, AND SPEEDILY ADDRESS ANY VIOLATIONS, LIKE TAMPERING WITH METERS THAT COULD THWART THE EFFICIENT IMPLEMENTATION OF THE POLICY. THE VEXING ISSUE OF OIL THEFT SHOULD ALSO BE ADDRESSED.

PROPOSED MERGER OF FIRS, NIMASA, AND CUSTOMS

WE NOTE WITH CAUTIOUS CONCERN THE PROPOSED MERGER OF THE NIGERIAN MARITIME ADMINISTRATION AND SAFETY AGENCY (NIMASA), FEDERAL INLAND REVENUE SERVICE (FIRS), AND NIGERIA CUSTOMS SERVICES (NCS) INTO THE NIGERIAN REVENUE SERVICES (NRS). WE UNDERSTAND THE GOVERNMENT’S ARGUMENTS ON THE PROPOSED MERGER, WHICH BORDER ON IMPROVING EFFICIENCY IN COLLECTING ALL DIRECT AND INDIRECT TAXES AND LEVIES.

THE LCCI SUPPORTS THE GOVERNMENT’S READINESS TO DECLARE A STATE OF EMERGENCY ON REVENUE GENERATION AND ITS RESOLVE TO TACKLE THEM HEADLONG.

THE CHAMBER’S PERSPECTIVES ARE IN TANDEM WITH THE GOVERNMENT’S NEED TO CHECK THE OVER-BLOATED AND INEFFICIENT WORKFORCE OF THE MINISTRIES, DEPARTMENTS, AND AGENCIES (MDAS). REGARDING THE MERGER, WE URGE THE GOVERNMENT TO EMBRACE CRITICAL STAKEHOLDERS’ ENGAGEMENT AND CONSULTATION, WHICH WE HOPE WILL PROVIDE FURTHER INSIGHTS INTO CHARTER-SPECIFIC RESPONSIBILITIES AND POSSIBILITIES.

SPECIFICALLY, THE GOVERNMENT SHOULD ENSURE THAT ANY ACTION THAT IS AIMED AT ENHANCING EFFICIENCY AND ENSURING THE EASE OF DOING BUSINESS MUST BE DONE WITH ADEQUATE CONSULTATION WITH STAKEHOLDERS. A CAREFUL STUDY SHOULD ALSO BE UNDERTAKEN TO CONFIRM THE MERIT OF MERGING THESE INSTITUTIONS TO ENSURE THAT THE ULTIMATE OBJECTIVES ARE MET.

WHILE WE COMMEND THE GOVERNMENT ON SOME OF ITS RECENT MEASURES TO STOP WASTEFUL SPENDING, WE URGE THE ADMINISTRATION TO HALT THE REVENUE LEAKAGE OF MORE THAN $ 5 BILLION PAID AS FREIGHT TO FOREIGN SHIP OWNERS.

CONCLUSION

DISTINGUISHED LADIES AND GENTLEMEN OF THE PRESS, YOU HAVE BEEN WORTHY PARTNERS IN PROJECTING OUR ENGAGEMENTS WITH THE GOVERNMENT TOWARDS CREATING A MORE ENABLING INVESTMENT ENVIRONMENT FOR THE ADVANCEMENT OF THE NIGERIAN ECONOMY AND THE GOOD OF ALL INVESTORS AND ALL THE OTHER STAKEHOLDERS. THE CHAMBER, THROUGH ENGAGEMENTS LIKE THIS PRESS CONFERENCE, HAS CONSISTENTLY LENT ITS VOICE TO POSSIBLE SOLUTIONS TO THE SEVERAL CHALLENGES FACING OUR NATION.

WE ARE CALLING ON THE GOVERNMENT TO BE FOCUSED ON TACKLING THE MANY SALIENT ECONOMIC ISSUES AND MAKING THE MOST OF THE OPPORTUNITY GIVEN TO IT BY THE NIGERIAN PEOPLE TO SERVE. AS A PRIVATE SECTOR ADVOCACY GROUP WITH THE MANDATE TO PROMOTE THE BUSINESS COMMUNITY’S INTERESTS, LCCI SHALL CONTINUE TO ENGAGE RELEVANT GOVERNMENT AGENCIES, THE MEDIA, AND OTHER INTEREST GROUPS, WHERE AND WHEN NECESSARY, ON ACTIONABLE RECOMMENDATIONS FOR A THRIVING BUSINESS COMMUNITY AND ECONOMY.

THANK YOU FOR LISTENING.

ASIWAJU (DR.) MICHAEL OLAWALE-COLE, CON, MFR, FNIM, CNIM, FIoD

PRESIDENT,

LAGOS CHAMBER OF COMMERCE & INDUSTRY,

TUESDAY,18TH JULY 2023