The Lagos Chamber of Commerce and Industry, LCCI has said the relaxation of monetary conditions is yet to impact on the cost of funds in the economy and predicted that the Gross Domestic Product (GDP) will rebound in 2016.
Simultaneously, with the declining global oil price and its attendant impact on government revenue and foreign reserves, general business outlook will remain tense with a high risk of default in credit transactions in both public and private sectors.
Reviewing the outgoing year, 2015, LCCI noted that the business environment was faced with multiple challenges ranging from insecurity in some parts of the country, infrastructural conditions, foreign exchanges crisis, funding issues, inconsistency of policy and the quality of institutions.
Director General of LCCI Muda Yusuf at the weekend, said in a statement on the macroeconomic outlook for 2016 that “Gross Domestic Product, GDP growth is expected to rebound, though, slowly to about 3.5 % if the right mix of fiscal and monetary policies are put in place to stimulate the economy and attract domestic and foreign investments. While the recovery is expected to be driven by increase in government expenditure, the growth in oil sector may be constrained still by low price and investment drive.
“Meanwhile, exchange rate volatility is expected to persist fuelling high inflation of about 10-11%. However, correction towards Real Effective Exchange Rate (REER) in the form of exchange rate adjustment is likely in Q1, 2016.”
Analysing the sectoral outlook for 2016, the chamber said, “The targeted N300 billion by the Nigerian banks to boost lending to Small and Medium Scale Enterprises (SMEs) and the agriculture sector in 2016 will boost SMEs development and employment and thus increase non-oil export.
“The insurance industry will remain largely underpenetrated with insurance density at about 0.225%. Therefore, significant change in this industry with respect to growth and penetration remains bleak even as the sector is still highly fragmented. The declining GDP is also expected to strain, to a large extent, the performance of this industry.
“Subsidy arrears payment and end of subsidy regime likely to result in improved market efficiency and profitability as downstream sector players explore pricing dynamics to boost investment. The expected deregulation in the downstream sub-sector will be a game changer.”
“With the declining trend of global oil price and its attendant impact on government revenue and foreign reserves, general business outlook will remain tense. Implications on cost of and access to credit will be undesirable. Businesses, especially those with high forex exposure, will continue to face challenges of meeting foreign obligations to suppliers and partners. This will also impact contractual trust and integrity.
“Risk of default in financial obligations in both public and private sectors will be high as macro-economic conditions and cash flow remains tight.”
Meanwhile in its review of 2015, the chamber said, “The third quarter, Q3 2015 business environment survey showed that a forex restriction by CBN is one of the costliest policies in Nigeria in recent years. The CBN through its Monetary Policy Committee (MPC) on Tuesday 24th November, 2015 resolved, among other issues, to reduce the Monetary Policy Rate, MPR from 13% to 11 % (which represents the lowest since 2009) as well as the CRR from 25% to 20%. The decision by the MPC to reduce monetary rates was informed primarily by the desire to stimulate the economy.
“This is against the backdrop of the economic realities as manifested in weak and fragile domestic macroeconomic environment, declining private and public expenditures and the slump in crude oil price. Also, cost and access to fund remained a major challenge for businesses especially MSMEs. Through the year, lending rate of commercial banks including fees and charges ranged between 22% and 34% depending on the customer profile, tenor and collateral quality.”
The chamber further noted that political and economic developments offered mix of notable events which shaped business and economic environment in 2015.
On access roads to Lagos port, the chamber said, “We had consistently expressed our concern over the deplorable state of roads leading to the Lagos ports (Apapa and Tincan Island). These ports account for over 60% of the cargo into the country and an estimated 70% of customs revenue. The poor state of the roads has multifarious effects on the private sector, economy and the citizenry. Some of these effects are as follows: Risk to the lives of citizens arising from containers falling off the trucks as a result of bad roads. Several lives have been lost in recent past as a result of this;
High demurrage paid by importers to Terminal Operators and Shipping Companies as a result of delays [which were not their own making] in the clearance and evacuation of cargo in the ports; High cost of transportation for evacuating cargo because of the prolonged engagement of the trucks by importers arising from the delays; Serious traffic congestion along the roads leading to the ports, which often spill over into the Lagos Metropolis causing severe traffic jam and loss of man hours. These congestions are caused by the convergence coming to Lagos ports to lift fuel; Delays in getting raw materials and other inputs from the ports to the factory premises in Lagos and other parts of the country.
“We urge the Federal Government to fix these roads as a matter of utmost urgency, as these are Federal roads. It is also important that the Trailer Park under construction in the neighbourhood of the Tincan Island port be urgently completed to reduce the menace of trucks and tankers on Lagos roads. Above all reforms of the downstream petroleum sector should be accelerated to reduce the importation of petroleum products and by extension the pressure on Lagos ports.”
-Vanguard
