Quarterly Press Briefing – 2023 Q2 ADDRESS ON THE STATE OF THE ECONOMY BY THE PRESIDENT OF THE LCCI
ADDRESS ON THE STATE OF THE ECONOMY FOR THE FIRST QUARTER 2023 BY THE PRESIDENT THE LAGOS CHAMBER OF COMMERCE AND INDUSTRY, ASIWAJU (DR.) MICHAEL OLAWALE-COLE, CON AT THE COMMERCE HOUSE VICTORIA ISLAND, LAGOS.
THE DEPUTY PRESIDENT, LCCI
MR. GABRIEL IDAHOSA, FCA
PAST PRESIDENT, LCCI
CHIEF (MRS.) NIKE AKANDE, CON
VICE PRESIDENTS HERE PRESENT
DISTINGUISHED GENTLEMEN OF THE PRESS,
I PRESENT THE COMPLIMENTS OF THE LAGOS CHAMBER OF COMMERCE AND INDUSTRY (LCCI) TO YOU ALL AT THIS SECOND PRESS CONFERENCE IN 2023. MEANWHILE, I LIKE TO THANK YOU FOR CONTINUING WITH US ON THIS JOURNEY OF QUARTERLY REVIEWING THE SIGNIFICANT ECONOMIC DEVELOPMENTS IN THE COUNTRY. AND, FOR THIS OCCASION – THE REVIEW OF THE FIRST QUARTER OF 2023 AND COMMUNICATING OUR POSITION TO THE BROADER BUSINESS COMMUNITY AND TO THE GOVERNMENT. THIS HAS BECOME OUR TRADITIONAL MODEL OF ENGAGING IN PUBLIC POLICY ADVOCACY IN OUR QUEST FOR A STRONGER ECONOMY AND A MORE ENABLING BUSINESS ENVIRONMENT. THROUGH MACROECONOMIC DIAGNOSTICS, 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.
LET ME ESPECIALLY ACKNOWLEDGE AND APPRECIATE THE MEDIA’S CONTRIBUTIONS TO DRIVING THIS MANDATE OVER THE YEARS. AS AN INSTITUTION WITH THE MANDATE TO PROTECT BUSINESS INTERESTS, WE APPRECIATE THE MEDIA’S COMMITMENT TO DEEPENING THIS PARTNERSHIP FOR THE OVERALL GOOD OF THE NIGERIAN ECONOMY.
GLOBAL ECONOMIC DEVELOPMENT
THE GLOBAL ECONOMY HAS SHOWN SOME POSITIVE SIGNS IN THE FIRST QUARTER OF 2023 AS INFLATION AND ENERGY PRICES EASED FROM THEIR PEAK LEVELS. CHINA ENDED ITS ZERO-COVID POLICY WHICH ALSO IS EXPECTED TO PROVIDE SOME GROWTH IMPULSES.
RISKS TO GLOBAL GROWTH TILTED TOWARDS THE DOWNSIDE. THE FEARED ESCALATION OF THE WAR IN UKRAINE REMAINS A MAJOR SOURCE OF VULNERABILITY, PARTICULARLY FOR EUROPE AND LOWER-INCOME COUNTRIES. ANOTHER RANGE OF TRIGGERS COULD SPARK A FURTHER DETERIORATION IN RISK SENTIMENT WITH ADVERSE GROWTH IMPLICATIONS, ESPECIALLY GIVEN HIGH LEVELS OF PUBLIC AND PRIVATE DEBTS. THESE POTENTIAL TRIGGERS INCLUDE GEOPOLITICAL FRAGMENTATION, SUDDEN FINANCIAL MARKET REPRICING, INFLATION PERSISTING AND CHINA’S RECOVERY STALLING.
GIVEN THESE DEVELOPMENTS, THE INTERNATIONAL MONETARY FUND (IMF) IN ITS WORLD ECONOMIC OUTLOOK UPDATE FOR JANUARY 2023, PROJECTS THAT GLOBAL GROWTH WILL SLOW TO 2.9% IN 2023 FROM 3.4% IN 2022.
IN MOST ECONOMIES, AMID THE COST-OF-LIVING CRISIS, THE PRIORITIES REMAIN ACHIEVING SUSTAINED DISINFLATION AND REASONABLE REAL GROWTH WITH TIGHTER MONETARY CONDITIONS AND LOWER GROWTH POTENTIALLY AFFECTING FINANCIAL AND DEBT STABILITY. ALSO, SENTIMENT INDICATORS SUCH AS PURCHASING MANAGERS’ INDICES (PMIs) HAVE BEEN SIGNALLING A SHARP SLOWDOWN FOR MONTHS. AND AN ARRAY OF CONSUMER AND BUSINESS CONFIDENCE INDICATORS HAVE GIVEN SIMILAR SIGNALS.
LOCAL DEVELOPMENT
2022 FOURTH QUARTER GDP REPORT
GROSS DOMESTIC PRODUCT (GDP) GREW BY 3.52% (YEAR-ON-YEAR) IN REAL TERMS IN THE FOURTH QUARTER OF 2022, COMPARED TO 2.25% RECORDED IN THE PREVIOUS QUARTER AND 3.98% IN THE CORRESPONDING PERIOD IN 2021. ON AN ANNUAL BASIS, THE REAL GDP GREW BY 3.10% IN 2022 COMPARED TO 3.40% IN 2021. THE QUARTERLY GROWTH INDICATES THAT THE ECONOMY HAS RECORDED NINTH CONSECUTIVE POSITIVE GROWTH DESPITE CONTRACTIONARY MONETARY POLICIES.
ASSESSMENT & OUTLOOK
THE GROWTH IN THE FOURTH QUARTER WAS PRIMARILY DRIVEN BY THE SERVICES, MANUFACTURING AND AGRICULTURE SECTORS WHICH CONTRIBUTED 5.69%, 2.83% AND 2.05% RESPECTIVELY. THE GROWTH RECORDED IN THE SERVICE SECTOR WAS LOWER COMPARED TO 7.01% IN THE PREVIOUS QUARTER, WHILE MANUFACTURING RECOVERED FROM –1.91% IN THE THIRD QUARTER. AGRICULTURE SECTOR RECORDED HIGHER GROWTH COMPARED TO 1.34% ACHIEVED IN THE THIRD QUARTER. CONTRACTION IN THE OIL & GAS SECTOR MODERATED TO –13.38% IN THE FOURTH QUARTER FROM –22.67% IN THE PREVIOUS QUARTER.
THE SLIGHT IMPROVEMENT IN OIL AND GAS SECTOR WAS ATTRIBUTED TO THE IMPROVED DAILY OIL PRODUCTION, ESTIMATED AT 1.34 MILLION BARRELS PER DAY (MBPD) IN THE FOURTH QUARTER FROM 1.20 MBPD IN THE PREVIOUS QUARTER, DUE TO REDUCED OIL THEFT AND IMPROVED SECURITY. RECOVERY IN THE MANUFACTURING SECTOR MAY BE ATTRIBUTED TO STRONG CONSUMER DEMAND DUE TO THE YULETIDE SEASON AND IMPROVEMENT IN ELECTRICITY SUPPLY. HOWEVER, GROWTH IN MANUFACTURING REMAINED SUBDUED DUE TO HIGH INFLATION, CONTINUOUS RISE IN INTEREST RATE, FOREX SCARCITY, HIGH ENERGY COST, AND WEAKENING PURCHASING POWER WHICH COULD WEIGH FURTHER ON THE OUTLOOK OF THE SECTOR.
RECOMMENDATIONS
1. THE FEDERAL GOVERNMENT NEEDS TO SUSTAIN ITS TARGETED INTERVENTIONS IN SELECTED SECTORS LIKE AGRICULTURE, MANUFACTURING, EXPORT INFRASTRUCTURE WHILE TACKLING INSECURITY.
2. 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 CARTEL INVOLVED IN OIL THEFT. IF THESE EFFORTS HAD STARTED EARLIER THE NATION WOULD HAVE MADE HUGE ECONOMIC GAINS. WE THEREFORE APPEAL TO THE GOVERNMENT TO INTENSIFY THE EFFORTS.
3. REMOVAL OF FUEL SUBSIDIES IS, AMONGST OTHERS, EXPECTED TO SPUR INVESTMENTS IN DOMESTIC REFINING AND PETROCHEMICALS AND CREATE A SIGNIFICANT VALUE CHAIN FOR THE VARIOUS STAKEHOLDERS. IT WILL ALSO RELEASE OVER N3 TRILLION PER ANNUM FOR SOCIAL SPENDING AS WELL AS CREATE DOMESTIC HIGH VALUED JOBS RATHER THAN SUBSIDISING JOBS IN OTHER COUNTRIES AT THE EXPENSE OF OURS.
THOUGH THE PLANNED REMOVAL OF FUEL SUBSIDIES MAY CAUSE FURTHER NORTHWARD MOVEMENT OF INFLATION IN THE SHORT TERM, IT IS ARGUABLY ONE OF THE BEST ECONOMIC DECISIONS TO REDUCE OUR UNSUSTAINABLE DEBTS AND WIDESPREAD CORRUPTION IN THAT SECTOR. WE EXPECT THE GOVERNMENT TO ROLL OUT APPROPRIATE CUSHIONING OR PALLIATIVE POLICIES AND MEASURES BEFORE THE SUBSIDY REMOVAL IN THE SECOND HALF OF THE YEAR. WE, IN NO WAY, WILL APPRECIATE DISRUPTION IN WHATSOEVER FORM TO THE ECONOMY IN THE EVENT OF SUBSIDY REMOVAL. THE GOVERNMENT MUST HOWEVER TAKE COGNISANCE OF ITS SOCIO-ECONOMIC IMPLICATIONS ESPECIALLY WITH UNEMPLOYMENT AT THE UNWHOLESOME RATE OF ABOUT 40 PERCENT.
4. CONTINUOUSLY IMPROVE ELECTRICITY SUPPLY AND RESOLVING ALL ISSUES ON DISCOS PROFITABILITY AND REDUCING CONSUMPTION COSTS AND ADDRESS THE PROBLEM OF POOR GENERATION AND NATIONAL GRID COLLAPSE.
5. THE COST OF LOGISTICS HAS GONE UP DUE TO THE POOR STATE OF OUR ROADS AND THE LACK OF CONNECTIVITY AMONGST FARMS, FACTORIES, AND MARKETS. 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, WITH IMMENSE SOCIO-ECONOMIC BENEFITS FOR THE CONTIGUOUS STATES AND INDEED THE ENTIRE NATION. THE PROJECT WAS FUNDED THROUGH THE PRESIDENTIAL INFRASTRUCTURE DEVELOPMENT FUND (PIDF) CREATED BY PRESIDENT MUHAMMADU BUHARI AND MANAGED BY THE NSIA. LCCI WANTS TO SEE MORE OF SUCH DEVELOPMENTS FOR THE BENEFIT OF THE ORGANISED PRIVATE SECTOR.
6. 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 IMPORTATION OF CRITICAL INPUTS.
7. 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.
8. WHILE ALL EYES ARE FIXED ON INFLATION AND EXCHANGE RATES MANAGEMENT, THE AUTHORITIES MUST NOT LOSE SIGHT OF OUR UNHEALTHY UNEMPLOYMENT FIGURE.
MONETARY POLICY DEVELOPMENT
MONETARY POLICY WAS INFLUENCED BY EXTERNAL ACTIONS AND DOMESTIC MACROECONOMIC FACTORS IN THE FIRST QUARTER OF 2023. THE EXTERNAL FACTORS WERE RUSSIA–UKRAINE WAR, DECLINING OIL PRICES, HEIGHTENED GEOPOLITICAL TENSION, GLOBAL INFLATIONARY PRESSURES AND MONETARY POLICY TIGHTENING IN MAJOR ECONOMIES, GLOBAL CAPITAL FLIGHT. ON THE OTHER HAND, THE DEVELOPMENTS ON THE DOMESTIC FRONT INCLUDED SLOW ECONOMIC RECOVERY, PERSISTENT INFLATIONARY PRESSURE, GENERAL ELECTION AND DECLINING EXTERNAL RESERVES. GENERALLY, INTEREST RATES EXPERIENCED SOME INCREASE WHILE THE NAIRA WEAKENED, AND INFLATION CONSISTENTLY WITNESSED SOME UPWARD TREND DURING THE QUARTER UNDER REVIEW.
INTEREST RATE
DURING THE PERIOD UNDER REVIEW, THE INTEREST RATES MOVEMENT IN THE MONEY MARKET REFLECTED DEVELOPMENTS IN THE BANKING SYSTEM CREDIT AND LIQUIDITY CONDITIONS. IN FURTHERANCE OF CENTRAL BANK’S MONETARY POLICY STANCE, THE MPR WAS RAISED TO 18.0% IN MARCH 2023 FROM 17.5% IN JANUARY 2023, WHILE THE CASH RESERVE RATIO (CRR) AND LIQUIDITY RATIO (LR) REMAINED AT 32.5% AND 30.0% RESPECTIVELY IN MARCH 2023. IN ADDITION, THE ASYMMETRIC CORRIDOR AROUND THE MPR WAS RETAINED AT +100/-700 BASIS POINTS.
FURTHER, INTERBANK RATE DECLINED BY 1.65% POINTS TO 10.35% IN JANUARY 2023 FROM THE PREVIOUS MONTH, PRIME LENDING RATE FELL BY 0.18% POINTS, TO 13.67% IN JANUARY 2023 FROM 13.85% IN DECEMBER 2022, WHILE MAXIMUM LENDING RATE FELL BY 1.50% POINT TO 27.63% IN JANUARY 2023, COMPARED WITH 29.13 PERCENT A MONTH EARLIER.
THE FOREIGN EXCHANGE MARKET
NAIRA EXCHANGE RATE CONTINUED TO RECORD DISTURBING VOLATILITY IN THE FIRST QUARTER OF 2023. IT AVERAGED N460.93/ USD IN MARCH 2023 AT THE OFFICIAL MARKET (I & E RATE), FROM N446.47/ USD IN DECEMBER 2022. AT THE BUREAU DE CHANGE (BDC) SEGMENT, THE NAIRA DEPRECIATED TO N752.43/USD IN MARCH 2023 FROM N744.5/USD IN DECEMBER 2022. THE PREMIUM BETWEEN OFFICIAL (I & E) RATE AND THE BDC RATE WIDENED IN THE QUARTER UNDER REVIEW. THE CHAMBER’S POSITION IS THAT MONETARY AUTHORITIES NEED TO LIBERALISE THE FX MARKET BY UNIFYING THE MULTIPLE FX RATES AND ENSURING FX RATES ARE MARKET-DRIVEN. THIS, THE LCCI BELIEVES, IS CRITICAL TO ENHANCING STABILITY, LIQUIDITY, AND TRANSPARENCY IN THE FX MARKET. THE UNIFICATION IS EXPECTED TO IMPROVE OUR CURRENCY MANAGEMENT FRAMEWORK, REDUCE UNCERTAINTIES AND ELIMINATE ARBITRAGE AND ROUND-TRIPPING OPPROTUNITIES.
INFLATION
THE HEADLINE INFLATION IN MARCH 2023 INCHED UPWARDS TO 22.04% COMPARED TO 21.91% RECORDED IN FEBRUARY 2023, 0.13% POINTS HIGHER. FOOD INFLATION IN MARCH 2023 WAS 24.45% ON A YEAR-ON-YEAR BASIS, 7.25% POINTS HIGHER COMPARED TO MARCH 2022 AT 17.20%. THE INFLATIONARY PRESSURES WERE PRIMARILY ATTRIBUTABLE TO HIGH FOOD AND ENERGY PRICES, CLOTHING & FOOTWEARS, TRANSPORT AND INSECURITY, AND IMPORTED INFLATION. OTHERS INCLUDED HIGH GOVERNMENTAL SPENDING ON THE JUST-CONCLUDED GENERAL ELECTIONS AND FORTHCOMING CENSUS, WE FORESEE A FURTHER RISE IN THE INFLATION RATE IN THE NEAR TERM.
THE CHAMBER VIEWS THAT HIKING 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 CUSHIONING THE COST OF PRODUCTION.
NATIONAL DEBT
THE RECENT DATA RELEASED BY THE DEBT MANAGEMENT OFFICE (DMO) PUTS NIGERIA’S PUBLIC DEBT AT N46.25 TRILLION ($103.11BILLION) AS AT END-DECEMBER 2022 COMPARED TO N39.56 TRILLION ($95.77 BILLION) IN 2021. THE GROWTH REFLECTED ON BOTH THE DOMESTIC AND EXTERNAL DEBT. THE EXTERNAL DEBT STOCK INCREASED TO N18.70 TRILLION (441.69 BILLION) IN 2022 FROM N15.86 TRILLION ($38.39 BILLION) WHILE DOMESTIC DEBT STOCK WENT UP TO N27.55 TRILLION ($61.42 BILLION) IN 2022 FROM N23.70 TRILLION ($57.39 BILLION)
WITH N10.8 TRILLION BUDGET DEFICIT PROJECTED IN THE 2023 BUDGET, THE COUNTRY’S DEBT STOCK IS EXPECTED TO INCREASE IN 2023. IN THE FIRST QUARTER OF 2023, THE DMO ISSUED BONDS TO RAISE ABOUT N2.61 TRILLION. NIGERIA’S NATIONAL DEBT MAY INCH UP TO N77 TRILLION BY THE END OF THIS CURRENT ADMINISTRATION IN MAY 2023 IF THE CBN’S WAYS AND MEANS OF N23.7 TRILLION IS SECURITISED AND IF THE CURRENT LEVEL OF BORROWING IS SUSTAINED. THE 2023 BUDGET DEFICIT IS EXPECTED TO BE FINANCED MAINLY BY BORROWING N7.4 TRILLION FROM DOMESTIC SOURCES; N1.8 TRILLION FROM FOREIGN SOURCES; N1.7 BILLION FROM MULTILATERAL LOAN DRAWDOWNS; AND, PRIVATISATION PROCEEDS, N206.18 BILLION.
ACCORDING TO THE WORLD BANK, DEBT SERVICE COST OF NIGERIA’S FEDERAL GOVERNMENT WILL BE IN THE REGION OF 123.4% IN EXCESS OF REVENUE. THIS IS COMING AFTER THE FEDERAL GOVERNMENT SPENT A TOTAL OF N5.24 TRILLION ON DEBT SERVICING BETWEEN JANUARY AND NOVEMBER 2022, OUT OF ITS N6.5 TRILLION RETAINED REVENUE FOR THE SAME PERIOD, ACCORDING TO THE FINANCE MINISTRY. THE AMOUNT PUTS THE COUNTRY’S DEBT SERVICE-TO-REVENUE RATIO AT 80.6 PERCENT FOR THE PERIOD UNDER REVIEW – A FIGURE FAR ABOVE WORLD BANK’S RECOMMENDED 22.5 PERCENT FOR LOW-INCOME COUNTRIES LIKE NIGERIA. WE, AT THE LCCI, FROWN AT BORROWING TO FUND SUBSIDIES OR SUPPORT UNECONOMIC VENTURES. THAT IS, SPENDING THE MONEY WE DO NOT HAVE – AN ACT WHICH IS UNSUSTAINABLE.
THE LCCI IS OF THE VIEW THAT THE GOVERNMENT’S FIXATION ON DEBT ACCUMULATION IS UNHEALTHY. HENCE IT SHOULD EXPLORE OTHER AVENUES INCLUDING OPENING EQUITY OPPROTUNITIES AND OFFLOADING/ SALES OF ITS REAL ESTATE HOLDINGS. THE GOVERNMENT SHOULD ALSO MAKE THE PROBLEM OF OIL THEFT, WITH THE REMOVAL OF OIL SUBSIDY REGIME, A THING OF THE PAST TO HELP CREATE ROOM FOR FISCAL MANIPULATION.
FINALLY AND MOST IMPORTANTLY, FOLLOWING THE COMMENDABLE LAUNCHING OF THE RESTRUCTURED MINISTRY OF FINANCE INCORPORATED (MOFI) AS THE ARROWHEAD OF NIGERIA’S EFFORTS TO OPTIMISE NATIONAL ASSETS BY PRESIDENT MUHAMMADU BUHARI ON THE 1ST OF FEBRUARY 2023, THE LCCI WISHES TO URGE THAT COPIOUS REFERENCES SHOULD HENCEFORTH BE MADE TO THE GROWTH IN THE STOCK OF FINANCIAL ASSETS THAT NIGERIA OWNS IN CORPORATE EQUITIES, REAL ESTATE AND INFRASTRUCTURE SPACES AND THE RETURNS NIGERIA IS GENERATING ON THEM, EACH TIME THE GOVERNMENT OF NIGERIA IS PROVIDING UPDATES ON THE GROWTH IN THE STOCK OF THE FINANCIAL LIABILITIES THAT NIGERIA OWES AND THE COST IT IS INCURRING ON THEM, TO PROVIDE LOCAL AND GLOBAL OBSERVERS A BALANCED PICTURE OF OUR FINANCIAL POSITION.
THIS WOULD MOTIVATE NATIONAL ASSET MANAGERS, LED BY THE MOFI, TO GROW OUR ASSETS AND THE RETURNS ON THEM AS WELL AS MOTIVATE OUR NATIONAL LIABILITY MANAGERS, LED BY THE DMO, TO MINIMISE OUR LIABILITIES AND THE COSTS WE INCUR ON THEM WITH EQUAL VIGOUR. INDEED, ISSUANCE OF JOINT REPORTS BY MOFI AND DMO WOULD BE MOST IDEAL GOING FORWARD. ONE-SIDED UPDATES ON LIABILITIES WITH NO UPDATES ON ASSETS WHEN SUCH UPDATES WERE ADEQUATELY AVAILABLE COULD WELL BE BLAMED FOR SOME OF THE DOWNGRADES OF NIGERIA’S DEBT ISSUANCE RISK PROFILE AND OUTLOOK. THE RATING OUTCOMES WOULD HAVE BEEN MORE FAVOURABLE HAD UPDATES ON ASSETS BEEN PROVIDED SIDE-BY-SIDE WITH UPDATES ABOUT LIABILITIES.
THE 2022 FINANCE BILL
THE FINANCE BILL 2020 AND FINANCE BILL 2021 WERE EACH ASSENTED TO ON THE 31ST OF DECEMBER OF THE YEAR IT BEARS. HOWEVER, THE 2022 COUNTERPART DOES NOT SEEM TO HAVE SUCH TREATMENT. THE PRESIDENT AS WELL AS THE ORGANISED PRIVATE SECTOR (OPS) HAVE MADE THEIR CONCERNS KNOWN. AND THE RECENTLY CONDUCTED ELECTIONS MIGHT HAVE CONTRIBUTED TO THIS.
THE CHAMBER, RISING FROM THE INTERACTIONS WITH OUR MEMBERS AND SEVERAL STAKEHOLDERS IN THE BROADER BUSINESS COMMUNITY, HAS PLACED A RESPONSIBILITY ON ITSELF TO SHARE THE CONCERNS ABOUT THE 2022 FINANCE BILL AS APPROVED BY THE NATIONAL ASSEMBLY AND AS IT AWAITS THE ASSENT OF THE PRESIDENT.
IN RECOGNITION OF THE POTENTIAL IMPACT OF THE 2022 FINANCE BILL ON THE OPERATIONS OF OUR MEMBERS OPERATING IN VARIOUS SECTORS OF THE ECONOMY, THE LAGOS CHAMBER HAS REVIEWED THE BILL. IT IS PLEASED TO PROVIDE SOME COMMENTS ON AFFECTED SECTORS:
1. RECENT STATISTICS REVEAL THAT NIGERIA HAS STRUGGLED TO ATTRACT INVESTMENTS INTO THE OIL & GAS INDUSTRY AND THAT INVESTMENTS IN THE NIGERIAN OIL AND GAS SECTOR HAVE DECLINED SIGNIFICANTLY IN THE LAST SEVEN YEARS. THE OPERATIONAL OVERHEADS OF OIL AND GAS COMPANIES REMAIN ABOVE 40%. THIS IS ABOVE THE GLOBAL BENCHMARK.
2. IN LINE WITH FGN PRIORITIES AND ONGOING INITIATIVES TO GIVE INCENTIVES FOR GAS PRODUCTION, SEVERAL SECTIONS OF THE PIA CLEARLY SHOW THE DETERMINED EFFORTS BY THE GOVERNMENT TO LIMIT GAS-FLARING AND THEY CONTAIN VERY STEEP PENALTIES. ALSO, GAS FLARE FEES/ COSTS ARE TREATED AS A PENALTY AND AS SUCH A NON-TAX-DEDUCTIBLE ITEM. OIL & GAS COMPANIES IN NIGERIA HAVE REDUCED FLARING BY 70% SINCE 2000 WHILE NEARLY DOUBLING OVERALL PRODUCTION AND COMMERCIALISED VOLUMES IN FOUR-FOLDS.
3. WITH THE PLAN TO EXIT SOME LARGE ENTERPRISES FROM THE PIONEER STATUS INCENTIVES, THE GOVERNMENT CAN SAVE ABOUT N6-TRILLION (WAIVERS, EXEMPTIONS, INCENTIVES GRANTED BY THE GOVERNMENT), ACCORDING TO THE MINISTER OF FINANCE, BUDGET AND NATIONAL PLANNING IN HER 2023 BUDGET PRESENTATION. WE URGE THE GOVERNMENT TO TREAD MEASUREDLY IN RAISING TAX RATES, SINCE THERE ARE NEW WAYS OF RESCUING SOME TAX EXPENDITURES TO ADD UP TO GOVERNMENT REVENUE IN 2023. LEAVING RATES AT THEIR LEVELS WILL NOT LEAD TO A LOSS OF REVENUE.
4. THE OIL SECTOR’S CONTRIBUTION TO GROSS DOMESTIC PRODUCT (GDP) IN 2022 WAS JUST AROUND 5% BUT THIS SECTOR ACCOUNTS FOR OVER 85% OF FOREIGN EXCHANGE EARNINGS AND ABOUT 50% OF TOTAL GOVERNMENT REVENUE. THIS SUGGESTS THAT THIS SECTOR REQUIRES A SENSITIVE REGULATORY ENVIRONMENT TO AVOID DISRUPTIONS TO INVESTMENTS.
5. WITH THE DIVESTMENTS BY SOME IOCs FROM THE OIL AND GAS SECTOR, THE GOVERNMENT NEEDS TO REPOSITION THE INDUSTRY THROUGH A STEEPLY IMPLEMENTED PETROLEUM INDUSTRY ACT (PIA) TO PAVE THE WAY FOR NEW INVESTMENTS AND ENCOURAGE INDIGENOUS COMPANIES TO REFLATE THE SECTOR WITH REQUIRED INVESTMENTS. INDUSTRY STATISTICS REVEALED THAT INDIGENOUS COMPANIES CONTRIBUTE ABOUT 30 PERCENT OF CRUDE OIL AND 20 PERCENT OF THE COUNTRY’S GAS PRODUCTION, AND 40 PERCENT AND 32 PERCENT OF OIL AND GAS RESERVES, RESPECTIVELY.
BASED ON FEEDBACK FROM OPERATORS IN THE OIL & GAS SECTOR AND THE WIDER BUSINESS COMMUNITY, WE RECOMMEND THE FOLLOWING:
A. THE RETENTION OF THE TERTIARY EDUCATION TAX (TET) RATE AT 2.5%, PARTICULARLY AS IT WAS INCREASED FROM 2% TO 2.5% ABOUT A YEAR AGO. AT THE PROPOSED RATE OF 3%, NIGERIA’S EFFECTIVE CORPORATE INCOME TAX RATE WOULD RISE TO ABOUT 36%, WHICH IS ONE OF THE HIGHEST RATES IN THE WORLD, ACCORDING TO AVAILABLE RESEARCH.
B. RETAIN THE 30% CIT FOR ALL OIL AND GAS COMPANIES
C. CONSIDER AMENDING THE PETROLEUM PROFIT TAX ACT WITH THE SAME PROVISION IN THE PIA SECTION 104
D. GAS FLARE-OUT PROJECTS SHOULD BE SUPPORTED WITH THE RIGHT INCENTIVES TO ENSURE MONETISATION OF THE RESOURCE FOR THE BENEFIT OF THE NIGERIAN ECONOMY.
E. IT IS ALSO RECOMMENDED THAT FINANCE BILLS ARE PRESENTED FOR EXTENSIVE STAKEHOLDERS’ CONSULTATIONS BEFORE THE NATIONAL ASSEMBLY PASSES THEM INTO LAW.
THE LAGOS CHAMBER OF COMMERCE AND INDUSTRY WILL CONTINUE TO WORK TOWARDS RALLYING THE PRIVATE SECTOR TO SUPPORT THE IMPLEMENTATION OF THE 2023 FEDERAL BUDGET. ON ACHIEVING REVENUE TARGETS, THE MDAs AND GOVERNMENT OWNED ENTERPRISES (GOEs) CAN INTENSIFY THEIR REVENUE MOBILISATION EFFORTS IN AN ENABLING ENVIRONMENT WHERE THE PRIVATE SECTOR THRIVES.
TO ACHIEVE THE LAUDABLE OBJECTIVES OF THE 2023 BUDGET, WE URGE THE GOVERNMENT TO SUSTAIN CURRENT EFFORTS TOWARDS THE REALISATION OF CRUDE OIL PRODUCTION AND EXPORT TARGETS BY STRENGTHENING THE INVESTMENT-FRIENDLINESS OF THE OIL AND GAS INDUSTRY. PUBLIC-PRIVATE PARTNERSHIPS (PPPs) ARE THE BEST MODELS TO FAST-TRACK THE PACE OF OUR INFRASTRUCTURAL DEVELOPMENT.
THE NEW NAIRA REDESIGN AND WITHDRAWAL LIMITS
RELYING ON THE POWERS OF THE CBN ACT 2007, THE MANAGEMENT OF THE CBN SOUGHT AND OBTAINED THE APPROVAL OF PRESIDENT MUHAMMADU BUHARI TO REDESIGN, PRODUCE, AND CIRCULATE NEW SERIES OF BANKNOTES AT N200, N500, AND N1,000 LEVELS IN LATE 2022.
THE NEW NAIRA NOTES HAVE BEEN IN CIRCULATION SINCE DECEMBER 15, 2022. WHILE THE OLD NOTES AND THE NEW NOTES WERE INITIALLY EXPECTED TO CIRCULATE TOGETHER UNTIL JANUARY 31, 2023 WHEN THE OLD NOTES WILL CEASE TO BE LEGAL TENDER IN NIGERIA. HOWEVER, THE CBN ON ITS OWN VOLITION EXTENDED THE DEADLINE BY 10 DAYS. SOME NIGERIAN STATES INCLUDING KADUNA, ZAMFARA, KOGI ETC HOWEVER SUED THE FEDERAL GOVERNMENT AND ITS AGENCIES WHICH INCLUDE THE CBN TO RESCIND THE NEW NAIRA POLICY. AS A RESULT, THE SUPREME COURT RULED THE OLD NAIRA NOTES REMAIN LEGAL TENDER UNTIL 31ST DECEMBER 2023.
BEYOND THE REASONS AND ECONOMICS OF CURRENCY MANAGEMENT, WE URGE THE CBN SHOULD NOT ONLY PAY LIP SERVICE TO THE JUDGEMENT BUT MUST OBEY IT TO ITS LETTERS. WHILE AT THIS, THE LESSONS LEARNED IN THE ABORTED IMPLEMENTATION SHOULD BE USED TO PREPARE FOR A MORE IMPROVED AND HITCH-FREE IMPLEMENTATION AT THE END OF THE YEAR. ALL THE NECESSARY INFRASTRUCTURE SHOULD BE PUT IN PLACE FOR A TRULY CASHLESS ECONOMY TO REDUCE THE TENDENCY TO HOLD CASH.
THE GOVERNMENT, BEING THE BIGGEST SPENDER, SHOULD ESTABLISH A CASHLESS PAYMENT FOR ITS PROCUREMENTS. THIS CAN ALSO BE SUPPORTED BY MORE AUTOMATION OF GOVERNMENT ACTIVITIES THAT REQUIRE PAYMENT FOR SERVICES BY THE PUBLIC. WITH MORE AUTOMATION AND LESS HUMAN INTERFACE, CORRUPTIVE TENDENCIES WILL REDUCE.
WE COMMEND THE FEDERAL GOVERNMENT’S PLANNED POLICY THAT ALL PAYMENTS FROM THE PUBLIC TREASURY BEYOND THE THRESHOLD APPROVED FOR DAILY CASH LIMIT BY THE CENTRAL BANK OF NIGERIA MUST BE DONE ELECTRONICALLY WITH EFFECT FROM MARCH 1, 2023. THE IMPLEMENTATION OF THIS POLICY AND THE STRICT MONITORING OF IT CAN BE VERY EFFECTIVE IN DEEPENING A CASHLESS ECONOMY.
THE 2023 GENERAL ELECTIONS AND ITS FALLOUT
WHILE NIGERIA’S PRESIDENTIAL AND NATIONAL ASSEMBLY ELECTIONS HELD ON THE 25TH OF FEBRUARY, 2023; THE GUBERNATORIAL AND STATE ASSEMBLIES HAPPENED ON THE 18TH OF MARCH. THE PRESIDENT-ELECT HAS SINCE BEEN ANNOUNCED AS WELL AS THE WINNERS OF THE NATIONAL ASSEMBLY ELECTIONS. EQUALLY ANNOUNCED ARE VIRTUALLY ALL OF THE 28 STATE GOVERNORS WITH THEIR LEGISLATURES. THE RULING PARTY WON THE MAJORITY OF THESE STATES. THERE WERE NOTED CHALLENGES, MOST IMPORTANTLY, AROUND THE WORKABILITY OF THE BVAS (BIMODAL VOTER AUTHENTICATION SYSTEM, INSECURITY AND AUTHENTICITY OF RESULTS, AMONGST OTHERS.
THERE IS A NEED TO ENSURE THAT IN FUTURE ALL ELECTIONS ARE PEACEFUL, FREE, FAIR, ORDERLY AND CREDIBLE. THERE IS A NEED TO DEPLOY RELIABLE TECHNOLOGY TO BOOST SECURITY, COMMUNICATION AND MORE SURVEILLANCE INFRASTRUCTURE AT CRITICAL LOCATIONS ACROSS THE COUNTRY.
FURTHERMORE, THERE IS ALSO A NEED FOR MASSIVE ENLIGHTENMENT CAMPAIGNS AGAINST THUGGERY, VIOLENCE, AND SECURITY BREACHES. ELECTION MANAGERS SHOULD HENCEFORTH ENGAGE CONSTRUCTIVELY WITH ALL CRITICAL STAKEHOLDERS INCLUDING, THE TRADITIONAL COMMUNITY, CIVIL SOCIETIES, MEDIA, AND SECURITY AGENCIES. INSECURITY, THUGGERY, VIOLENCE, AND LACK OF REAL-TIME TRANSMISSION OF ELECTION RESULTS FROM ALL THE POLLING UNITS SHOULD BE DISCOURAGED. THE AUTHORITIES NEED TO PROVE TO NIGERIANS THAT THEY ARE FULLY PREPARED FOR ELECTIONS AS A WAY OF BOOSTING THEIR CONFIDENCE AND INTEGRITY OF THE PROCESS AND GETTING THEIR BUY-IN.
ELECTORAL FALLOUTS
THE LCCI RECOGNISES THERE ARE DISENCHANTMENTS WITH THE CONDUCT AND OUTCOMES OF THE ELECTIONS, WE HOWEVER PLEAD WITH BOTH LOSERS AND WINNERS, ALIKE TO CONSIDER THE ‘UNINTENDED’ CONSEQUENCES OF THEIR WORDS AND ACTIONS. WHILE WE URGE WINNERS TO EMBRACE VICTORY WITH HUMILITY AND WITH A RICH SENSE OF INCLUSIVENESS, WE HOWEVER PRAY LOSERS SHOULD EXPLORE/ SEEK THE LEGAL ROUTE FOR REDRESS IF THEY SO DESIRE. EVERYONE SHOULD ESCHEW THE USE OF PROVOCATIVE & UNCIVIL LANGUAGE, HATE SPEECHES AND ACTIONS THAT WILL IN NO WAY ASSIST THE PROPER FUNCTIONING OF THE ECONOMY.
CONCLUSION
DISTINGUISHED GENTLEMEN OF THE PRESS, YOU HAVE BEEN WORTHY PARTNERS IN PROJECTING OUR ENGAGEMENT 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 LAGOS CHAMBER OF COMMERCE AND INDUSTRY, 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 IN-COMING 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, THE LAGOS CHAMBER OF COMMERCE & INDUSTRY 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.
I THANK YOU FOR LISTENING.
ASIWAJU (DR.) MICHAEL OLAWALE-COLE, CON
PRESIDENT,
LAGOS CHAMBER OF COMMERCE & INDUSTRY,
TUESDAY 11TH APRIL 2023
