Insecurity, huge debt profile and a policy on Form ‘M’ are all hurting the Nigerian economy, pushing businesses to the brink, according to the Lagos Chamber of Commerce and Industry (LCCI).
At a ‘state of the nation’ press conference held on Tuesday in Lagos, the chamber said security breaches across the country were impacting negatively on investors’ perception of Africa’s most populous nation as an investment destination.
“We call for an urgent review of the current security architecture to fix the seemingly worsening security situation,” Toki Mabogunje, president of the LCCI, said.
Public debt stock grew by eight percent to N31 trillion at the end of the second quarter, according to the Debt Management Office.
The Federal Government recently got $3.4 billion and $288.5 million from the International Monetary Fund (IMF) and African Development Bank (AfDB) respectively, while negotiations are also on-going for a cumulative $1.8 billion credit support from the World Bank, African Development Bank(second tranche) and Islamic Development Bank. Mabogunje said adding this to
prospective domestic issuances could possibly push the country’s public debt stock to around N34 trillion by year-end, equivalent to 23 percent of the gross domestic product (GDP).
“The growing level of the country’s debt is fast becoming unsustainable in the light of dwindling oil prices and production. Our position is reinforced by the uptrend in debt-service to revenue ratio from 60 percent by year-end 2019 to 72 percent as of May 2020. The high level of debt servicing continues to hinder robust investments in hard and soft infrastructures mwhich are key to stimulating productivity and improving living standards,” she said.
The CBN, had in late August, instructed authorised dealers to only open ‘Form M’ for letters of credit, bills for collection and other forms of payments in favour of the ultimate suppliers of the products or services or original equipment manufacturers (OEMs). This excludes millions of MSMEs from getting the much needed foreign exchange.
Muda Yusuf, director-general, LCCI, said the directive had disrupted many businesses, especially SMEs which constitute over 80 percent of businesses. He called for the review of the policy.
According to Mabogunje, inappropriate foreign exchange policies could discourage fresh capital inflows, be it foreign direct investment, portfolio investment, remittances, or non-oil export proceeds into the economy.
“This fact is evidenced by the sharp plunge in the level of capital imported into Nigeria, from $5.9 billion in the first quarter to $1.2 billion in the second quarter, partly caused by the capital control policy of the CBN,” Mabogunje explained.
She said that in trying to protect the country’s FX, it was necessary to address problems on the supply side and not just concentrate on those who demand for FX
“We believe demand management strategies alone are not sustainable solutions to the recurring foreign exchange crises. It is thus imperative to address supply side issues. This could be policy related and could also be related to fixing the structural factors impeding output and competitiveness in the economy,” she noted.
She said that globally and locally, economic and business activities were yet to recover from the impact of the pandemic, adding that most advanced economies had slipped into a technical recession following two consecutive quarterly contraction.
“There is need for our policymakers to formulate and implement policies that facilitate business continuity, particularly this time that business operators are grappling with the devastating impact of the pandemic,” she advised.
Odinaka Anudu & Gbemi Faminu
