By Adewale Kupoluyi
The agriculture sector in Nigeria has been given a pat in the back for contributing to the nation’s quarterly growth parameters, indicating that the economy has recorded ninth consecutive positive growth despite contractionary monetary policies. 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 when compared to 7.01% in the previous quarter, while manufacturing recovered from -1.91% in the third quarter while agriculture sector recorded higher growth compared to 1.34% achieved in the third quarter.
In an address on the State of the Economy for the First Quarter 2023, the President, Lagos Chamber of Commerce and Industry, Asiwaju (Dr.) Michael Olawale-Cole, made this disclosure and observed that the global economy had shown some positive signs in the first quarter of the year, as inflation and energy prices eased from their peak levels. China ended its Zero-COVID (Coronavirus disease) policy, which 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 and another range of triggers could spark a further deterioration in risk sentiment with adverse growth implications.
Given these developments, the International Monetary Fund (IMF), in its World Economic Outlook Update for January 2023, projected that global growth would slow to 2.9% in 2023 from 3.4% in 2022. Sentiment indicators such as Purchasing Managers’ Indices (PMIs) have been signalling a sharp slowdown for months while an array of consumer and business confidence indicators have given similar signals. 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 had recorded ninth consecutive positive growth despite contractionary monetary policies.
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. LCCI has stated the need for the Federal Government to sustain its targeted interventions in selected sectors like agriculture, manufacturing, export infrastructure while tackling insecurity, saying that the government should 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. 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 per cent. 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. 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.
The commended the Federal Government for recent efforts 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 for the project that was funded through the Presidential Infrastructure Development Fund (PIDF) created by President Muhammadu Buhari, and managed by the Nigeria Sovereign Investment Authority (NSIA). LCCI further said that it wants to see more of such developments for the benefit of the organised private sector. 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. 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 Micro, Small and Medium Enterprises (MSME).
While all eye are fixed on inflation and exchange rates management, the chamber has charged authorities not to lose sight of our unhealthy unemployment figure, as monetary policy was influenced by external actions and domestic macroeconomic factors in the first quarter of 2023. “The external factors were the 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. During the period under review, the interest rates movement in the money market reflected developments in the banking system credit and liquidity conditions”, Olawale-Cole said.
In furtherance of the CBN’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 months, 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. 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 while 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 forex market by unifying the multiple forex rates and ensuring forex rates are market-driven. This, it believes, is critical to enhancing stability, liquidity, and transparency in the forex market. The unification is expected to improve the nation’s currency management framework, reduce uncertainties and eliminate arbitrage and round-tripping opportunities. The headline inflation in March 2023 inched upwards to 22.04%, when 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 and footwears, transport and insecurity, and imported inflation. Others included high governmental spending on the just-concluded general elections and forthcoming census that could further lead to a rise in the inflation rate in the near term.
LCCI added that hiking monetary policy rate had 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, and energy. It should also look at ways to improve supply chains as well as cushion the cost of production. The recent data released by the Debt Management Office (DMO) puts Nigeria’s public debt at N46.25 trillion ($103.11 billion), as at the end of December 2022, when compared to N39.56 trillion ($95.77 billion) in 2021. The growth reflected on both the domestic and external debt whereby 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) and with N10.8 trillion budget deficit projected in the 2023 budget, the country’s debt stock was 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 the 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 per cent for the period under review – a figure far above world bank’s recommended 22.5 per cent 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 government’s fixation on debt accumulation is unhealthy. Hence, it should explore other avenues including opening equity opportunities 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”, LCCI noted.
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”.
The 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 chamber disclosed that 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, among others.
