SEC and the National Assembly
One has watched with keen interest and concern developments in the National Assembly as it concerns the Securities and Exchange Commission (SEC). Few weeks ago, the Lagos Chamber of Commerce and Industry (LCCI) appealed to the National Assembly, to allow the overriding interest of the nation to supersede the desire to get an individual to vacate office. We should make a distinction between an individual and an institution. The latter is far more important than the former.
LCCI reiterates its position that there should be recourse to the provisions of the law to bring any erring public officer to justice. There are adequate apparatuses of government to make this happen. It is inappropriate and disproportionate to shut down a major regulatory institution in the economy because of the alleged shortcoming of its chief executive.
International trade processes
Documentation and processes for imports and exports are becoming increasingly cumbersome, leading to undue delays and cost escalation. LCCI urges the Competiveness Council and the Nigerian Investment Promotion Commission (NIPC) to do a process audit of international trade documentation processes with a view to reducing the bottlenecks and delays and the volume of documentation required. This should cover the processes relating to Form M application, banking processes, inspection agents, customs, the port concessionaires, SON, NAFDAC, NEPC, etc. All these agencies require loads of documentations which are generally slowing down momentum of business activities and imposing avoidable cost burdens. Huge costs are incurred on borrowed funds and demurrage charges as a result of these delays. All these impact negatively on productivity of enterprises in the economy.
Petroleum Industry Bill (PIB)
The PIB is a major policy reform instrument that would transform the oil and gas sector of the Nigerian economy. It also has the potential to fast-track economic diversification. We commend the commitment and speed of the National Assembly in the consideration of this bill. We are pleased to note that it has passed second reading in both houses of the National Assembly. We look forward to an exciting public hearing and expeditious passage and assent of the bill.
Imperative of economic diversification
Recent developments in the global economy underscore the urgent need to diversify the economy; the risk to sustainability of current levels of oil prices is real. There are demand side issues arising from recession in Europe, declining economic growth in Asia and America and, more importantly, acceleration of energy independence programmes in the advanced economies, especially the US.
There are also supply side issues. Many countries are discovering oil in commercial quantities, such as Ghana, Uganda, Cote d’Ivoire, Angola. There are other discoveries as well in Brazil and the US. The implication of this is the increase in supply of crude oil which would ultimately put a downward pressure on prices. There is therefore an urgent need to diversify the economy and rely less on crude oil. This continuous reliance makes the economy very vulnerable to external shocks.
The way forward is to fix the structural problems in the economy, especially power, the railways, and the road network. All these are critical to enhancing efficiency, productivity and progress in other sectors, such as manufacturing, agriculture, ICT, services and downstream oil and gas. It is important as well to improve the institutions and the policy space in order to attract more private capital both from within and outside the country. Access and cost of fund are equally very critical to economic diversification
The agricultural sector
This sector presents a striking paradox in the Nigerian economy. It accounts for 38 percent of the nation’s GDP and less than 5 percent of revenue. This underscores the low level of productivity and efficiency in the sector. The return on investment is very low and the income per head is also very low, which is why there is ravaging poverty in the agricultural communities which are basically in the rural areas. It is thus important to enhance productivity in the sector through improvement in market access, linkages with other sectors of the economy, investment in all-year-round farming and acceleration of mechanisation, land reforms and access to funding. We appeal to government to give the Bank of Agriculture the same level of attention currently being given to Bank of Industry.
Debt profile
Nigeria’s public debt as at December 2012 was $48.5 billion. Of this amount, domestic debt accounts for $41.97 billion (86.5 percent) while external debt accounts for $6.53 billion (13.5 percent). Clearly, domestic debt presents a much bigger challenge for the economy and this is beginning to raise sustainability concerns. Other concerns include:
(1) Cost of debt service is on the high side. In the 2013 budget N591.8 billion was earmarked for debt service. In 2012, the amount was N559.6 billion. The high yield on the Federal Government bond and treasury bills contributed to this level of debt service. The amount being currently used to service debt is about 36.5 percent of the capital budget of the federation.
(2) The debt figures by the Debt Management Office (DMO) do not capture the entire ramifications for the national debt. For instance, debt owed to local contractors by government ministries and agencies, which run into billions of naira, are not captured. For several years, many of these contractors have remained unpaid and some have even gone bankrupt. Similarly, the bonds issued by AMCON, well over N4 trillion, are also not captured. It is necessary for all these to be brought into the picture so that the true position of the public debt and its sustainability would be better appreciated.
Bank of Agriculture
One of the biggest drawbacks to the development of the agricultural sector is funding. Credit access is a big challenge. This is a sector that accounts for 38 percent of the nation’s GDP but less than 5 percent of revenue. This situation could be ascribed to the low productivity in the sector due partly to lack of capital. We urge the fiscal and monetary authorities to scale up the capitalisation of the Bank of Agriculture in order to fill this gap.
Stock market
The Nigerian Stock Exchange (NSE) closed the first quarter on a positive note as one of the best performing equity markets in the world. Indicator such as market capitalisation of the listed equities rose by N1.76trn or 19.6 percent from N8.974trn recorded at the beginning of the year to N10.733trn. Similarly, the NSE All-Share Index was up by 5,457.44 basis points or 19.4 percent to close the quarter at 33,536.25 basis points, up from 28,078.81 points recorded at the beginning of the year.
Over the last nine months, the management of NSE and SEC had embarked on several reforms geared towards boosting liquidity in the market. The initiatives include the introduction of securities lending and market making into the market as well as the forbearance granted to stockbrokers. These initiatives have been positive for the market, thus translating into increased activities.
With the impressive results announced so far by corporates across the sectors and barring unforeseen circumstances, the appreciation recorded in the market in the first quarter would potentially spill over to the other quarters of the year.
GODDY IBRU
Ibru is president, Lagos Chamber of Commerce and Industry.
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