In less than one month from now, the Nigerian economy would be starting another fiscal year. What does this portend? An opportunity has presented itself a couple of days ago during the 134th Annual General Meeting (AGM) of the Lagos Chamber of Commerce and Industry (LCCI), as the President, Asiwaju (Dr.) Michael Olawale-Cole, took time to examine this important issue. For him, last year had been historic for the global and domestic economy, characterised significantly by trends of shocks and disruptions from the Russian-Ukraine war, climate change impacts, and the lingering threats from the Coronavirus (COVID-19) pandemic. All through the year, the world economy, including Nigeria had continued the battle with record high inflation rates, high energy costs, and supply chain disruptions.
Nigeria is presently said to be confronted with myriads of challenges, including sustained double-digit inflation, unsustainable debt profile, revenue mobilisation challenges, budget disruptions, foreign exchange illiquidity, disruption to business and commercial activities, reduced disposable income, escalation in poverty levels, and unemployment rates, as well as reduced investor confidence. To address these, the chamber had advocated for a well-coordinated synergy between the fiscal and monetary authorities as well as members of the private sector in navigating the uncertain economic terrains for latest report from the National Bureau of Statistics (NBS) had shown that Nigeria’s Gross Domestic Product (GDP) grew by 2.25 per cent (y-o-y) in real terms in the third quarter of 2022, which represents a 1.78 per cent decline when compared to the 4.03 per cent growth recorded in q3 2021.
The q3 GDP figures reflected the slowdown in growth attributed to impacts of recession and the challenging economic conditions, but it is expected that the annual GDP growth would close on a positive note for this year. The body called on fiscal and monetary authorities to develop a medium-term growth plan anchored on boosting local production, supporting ease of doing business, attracting private investment, developing physical and soft infrastructure, business-friendly regulatory policies, economic diversification, and employment generation among others because inflation is expected to sustain its double-digit level in the short to medium term largely driven by persistent food supply shocks, foreign exchange illiquidity, higher energy costs, speculative spending based on the naira redesign policy, insecurity, and electioneering campaign spending as these structural factors would continue to mount pressure on domestic consumer prices.
For instance, the Monetary Policy Committee of the Central Bank of Nigeria, at its September meeting, raised the MPR to 16.5 per cent; retained the asymmetric corridor of +100 and -700 basis points around the MPR; increased the CRR to a minimum of 32.5 per cent; and retained the liquidity ratio at 30 per cent. The decision to raise the rate was in view of fighting the surging inflation rate, which had risen consistently for the past eleven months while factors such as oil prices, oil production, output growth, inflation, foreign exchange stability, foreign capital inflows, credit to the private sector are expected to influence monetary policy decisions in the short to medium term. The business environment witnessed some developments that either enabled it or made it more challenging, just as this year saw the signing into law of the Nigeria Start-up Act 2022, established to create an enabling environment for the technology sector.
Furthermore, Nigeria’s debt-servicing bill has increased by 1.8 percent from N896.56bn in 2022q1 to N912.71bn in q2 2022. In q2 2022, the country spent N664.73bn on domestic debt servicing while it spent $597.95m (N247.98bn) on external debt servicing, giving a total of N912.71bn. The borrowings are significantly increasing, and the nation is struggling to service these debts due to revenue mobilisation challenges and an increased fuel subsidy burden. Recall that the International Monetary Fund (IMF) had warned that debt servicing may gulp 100 percent of the Federal Government’s revenue by 2026, if the government fails to implement adequate measures to improve revenue generation. The record of 20.5 trillion Naira (or $47.3 billion), proposed expenditure by the Federal Government to run the economy in 2023 also reflects the huge needs that exist in our critical sectors.
What is the way forward? There are a number of things that we need to do for diversification through local crude refining capacity, production of petrochemical products, and accelerating reforms in the oil and gas sector to attract more foreign investments. The government’s initiative on the new National Trade Policy (2023-2027), which replaces the outdated trade policy that had directed Nigeria’s foreign trade direction for years, is in the right direction, hoping that when the policy is approved by the Federal Executive Council (FEC), it would support robust trade relations between Nigeria and the rest of the world. In addition, there is the need to urgently revisit the national grid power supply, which allegedly collapsed for the seventh time in September and that it is evident that the national grid cannot supply sufficient power to meet the electricity demand of Nigerians, implying that something drastic should really be done to restore to a large extent, regular power supply for our economy to also become vibrant.
