•Says 2016 recorded negative GDP growths of -0.36%, -2.24%
By Udeme Clement
Muda Yusuf is the director general, Lagos Chamber of Commerce and Industry (LCCI). He spoke on economic activities under the administration of Muhammadu Buhari in 2016 and the outlook for 2017.
As economic expert, how will you review the economy in 2016?
The economy recorded negative GDP growths of -0.36%, -2.06% and -2.24% in the first, second and third quarters of 2016. We had weak purchasing power, high unemployment, weak investors’ confidence, weak fiscal position of the government at all levels; drop in sales and private sector profitability, declining capacity utilisation. The economy experienced high energy cost, escalating cost of transportation, high interest rate and weak exchange rate, which impacted on productivity and competitiveness across all sectors of the economy. Inflation reached a peak of 18.5 per cent in November, from 9.6 per cent in January last year. The Nigerian stock market was largely bearish in 2016. But the impunity with which public funds were looted reduced considerably in 2016, and tax administration efficiency level also improved last year.
In 2016, many economists complained about lack of investors’ confidence in Nigeria’s economy. What is your take on this?
There was a sharp drop in investors’ confidence due to weak growth and the fact that the economy slipped into a recession. Other factors that contributed to the weak investors’ confidence include currency depreciation of over 100per cent, liquidity problems in the foreign exchange market, which manifested in acute scarcity of forex. Remittances was a major problem for many foreign investors and airlines during the year. The economy also experienced high interest rate, multiple exchange rates, policy uncertainty and security concerns in parts of the country.
What were the effects of monetary policies introduced by the Central Bank of Nigeria (CBN)?
The CBN maintained a tight monetary policy stance to tame inflation. The policy impacted on interest rates, keeping lending rates at well over 25 per cent. The high yields on treasury bills and Federal Government bonds did not help matters, as they had a crowding-out effect on private sectors in the financial markets. Financial intermediation roles of the banks were also impaired as banks and other financial institutions invested heavily in the government treasury instruments.
Exclusion of 41 items from the interbank forex market had a profound negative effect on some segments of the manufacturing sector, especially in pharmaceuticals, steel, chemical and plastics industries. High tariff on automobiles also had severe impact on transportation costs because of the twin issues of currency depreciation and high import duty. Dealers of leading brands of automobile had a major challenge of marketing their products due to prohibitive costs. New cars attracted 35percent import duty, 35percent levy, making a combined tax of 70per cent.
What was the impact on various sector?
The Small and Medium Enterprises (SMEs) suffered high electricity bills by power distributing companies. Aviation sector had its share of challenges of scarcity of aviation fuel, which caused frequent flight delays and cancellations. The impact of recession was very evident in maritime sector. The combination of currency depreciation and high tariffs resulted in sharp declines in imports, leading to considerable lull in maritime sector activities. However, there was some improvement in the export activities at the ports, as the weak currency was a major incentive to exports. Agriculture was negatively impacted by security challenges in North East and North Central part of the country.
What is the way forward and outlook for the economy in 2017?
A framework for liquidity of forex market should be urgently put in place. This is critical to restore investors’ confidence, enhance forex inflows and boost Foriegn Direct Investments (FDIs) to reduce uncertainty in the economy. The tight monetary policy regime should be relaxed to spur domestic investments and consumer’s spending. Import tariffs should be reduced on major inputs for production and services sectors to moderate the current high cost of goods and services, boost investment spending and enhance disposal income of citizens. Sharp currency depreciation and high import tariffs put together pose a major burden of cost and inflation on investors and citizens. The shock of the simultaneous impact on business and citizens welfare is profound. Import duty on motor vehicles should be reviewed to bring down distribution and transportation costs in the economy. The automotive policy should be urgently reviewed and reworked. In order to tackle the problem of hunger, the current commitment to agriculture should be sustained. But this should go beyond crop production. It should cover the entire value chain of production, storage, processing, transportation and marketing. Food processing firms should be given special incentives [tariffs and taxes] to reduce the price of staple foods such as bread and noodles. The exclusion of 41 items from the official foreign exchange market should be reviewed to exempt the critical manufacturing inputs, as listed by the Manufacturers Association and import exclusion policy should be managed within the context of the trade policy framework.