Growth of trade, manufacturing sectors remains weak, says LCCI
THE Lagos Chamber of Commerce and Industry ( LCCI) has argued that growth in both trade and manufacturing has drastically declined in the last six months, adding that urgent steps must be taken to save the sectors from total collapse.
Reviewing the fourth quarter of 2023, LCCI President, Gabriel Idahosa, pointed out that trade recorded a 1.53 per cent real growth in the third quarter compared to 2.41 per cent in the second quarter of 2023, while manufacturing slowed to 0.48 per cent from 2.20 per cent recorded in the second quarter of 2023. Decelerating and low growth in manufacturing and trade, he said, largely reflects the deregulation of the downstream oil sector and rising energy costs ( diesel and electricity tariff), exchange rate volatility, continuous rise in interest rates, high inflation and weak consumer demand.
Adding that the macroeconomic factors are expected to further weigh on the growth prospect of the sector, he said that growth in manufacturing is expected to remain weak due to squeezed consumer spending, while the outlook in the medium term is projected to improve.
Idahosa recalled that the World Bank, in its recently- released January 2024 Global Economic Prospects ( GEP), projects global growth to slow to 2.4 per cent in 2024 from an estimated 2.6 per cent growth in 2023.
“This implies the third consecutive year of deceleration, reflecting the lagged and ongoing effects of tight monetary policies to rein in decades- high inflation, restrictive credit conditions and anemic global trade and investment. According to the report, near- term prospects are diverging, with subdued growth in major economies alongside improving conditions in emerging markets and developing economies ( EMDES) with solid fundamentals. Meanwhile, the outlook for EMDES with pronounced vulnerabilities remains precarious amid elevated debts and financing costs,” he said.
The LCCI boss added that while GDP grew by 2.54 per cent ( yearon- year) in real terms in the third quarter of 2023, compared to 2.51 per cent recorded in the previous quarter and 2.25 per cent in the corresponding period in 2022, the
quarterly growth indicates that the economy remained weak.
“The agriculture sector stood at 1.30 per cent in the third quarter compared to 1.50 per cent in the previous quarter. The decline in growth was largely due to crop production and a contraction in fishing, at – 2.33 per cent in the third quarter compared to 0.29 per cent in the previous quarter. The contraction recorded in transport and storage moderated slightly in the third quarter to – 35.85 per cent compared to – 50.64 per cent in the previous quarter, reflecting the continued effect of removal of fuel subsidies and higher transport costs.”
Revealing external factors that affected monetary policy in 2023, he said they include the tightening of global monetary policy in response to high inflation and global capital flight; while domestic macroeconomic factors include persistent inflationary pressure, declining external reserves, and consistent exchange rate depreciation.
“During the period under review, the interest rate movement in the money market reflected developments in the banking system’s credit and liquidity conditions. In furtherance of CBN’S monetary policy stance, the MPR remained at 18.75 per cent in the fourth quarter of 2023, while the cash reserve ratio ( CRR) and liquidity ratio ( LR) remained at 32.5 per cent and 30 per cent respectively,” he said.
Noting that the FX crisis remains one of the biggest challenges for industries and businesses going into the year, he lamented that the naira continues to depreciate in all segments of the foreign exchange market.
Idahosa regretted that despite various foreign trips to scout for FDIS, capital importation into the country continues to decline, giving stakeholders great concern.
He said the inflationary pressures are primarily attributed to food and non- alcoholic beverages; housing, water, electricity, gas and other fuels; clothing and footwear; transport, furnishing, household equipment and maintenance. “Increasing the MPR has, thus far, proven to be insufficient in taming inflation. Therefore, there is a clear need for the government to strengthen its support to critical sectors like agriculture, road infrastructure, power, energy and so on as well as look for ways to improve supply chains as well as cushion production costs. Nigeria’s public debt profile is N95.2 trillion as at the end of December 2023. This is unsustainable and growing fiscal concern and the government must explore other avenues to manage debt, including equity issuance opportunities and sale of underutilised assets including real estate,” he said.
Increasing the MPR has, thus far, proven to be insufficient in taming inflation. Therefore, there is a clear need for the government to strengthen its support to critical sectors like agriculture, road infrastructure, power, energy and so on as well as look for ways to improve supply chains as well as cushion production costs.