Our Economy and the Lagos Chamber of Commerce’s Fright
The trepidations expressed last week by the Lagos Chamber of Commerce and Industry (LCCI) about the state of Nigeria’s economy should be a source of concern to patriots. For most of the week, it was food for thought for me. Indeed, the biggest challenge facing investors in this economy is the disruptions caused by the recent foreign exchange policies of the Central Bank of Nigeria (CBN). Manufacturers and traders are suffering. Instead of putting in place policies that would encourage inflow of forex, the CBN has simply (in desperation) been pummeling innocent Nigerians, businessmen, traders, manufacturers and importers. The implications are already manifesting. The biggest of such is that inflation is on the rise in our nation. The decision to prohibit the lodgement of cash into domiciliary accounts must be urgently reviewed. It is killing the economy. Small and Medium Scale Enterprises and the informal sector are panting.
The President of LCCI, Remi Bello spoke for many, when he said significant disruptions, distortions and dislocations have been created in the business environment by the CBN as a consequence of the restrictions on the use of export proceeds, denial of access to foreign exchange market for many products, including critical inputs needed in manufacturing and service sectors, prohibition of cash lodgments into domiciliary accounts, tight exchange controls and administrative allocation of foreign exchange which are typically characterised by lack of transparency, corruption and considerable abuse.
The LCCI boss added: “The economy is now faced with a scenario where there is much pressure to move funds out of the economy than moving funds into the economy. This can be likened to a run on a system. This is a typical scenario which a confidence crisis would create. Future international trade transactions, financial and investment relations are now at risk. Round tripping of forex has continued to flourish because of the disparity in the exchange rate between the official and parallel market. Inflow of forex into the two autonomous sources has been adversely affected. It is worthy of note that Diaspora funds into the country was about $23 billion in 2013. The current policy will discourage the inflow of such funds which normally help to strengthen the supply side of the foreign exchange.”
No doubt, the sovereign risk perception of Nigeria has worsened over the last three months. Several credit lines for Nigerian investors have been cut off following the numerous cases of payment default to foreign suppliers. This forex policy is stifling. “Even reputable blue chip companies have defaulted for the first time in the several years of business relationship with their foreign suppliers. Considerable damage has been done to the image of many companies and the country in the international trade and investment arena. A major confidence crisis has been created for investors,” noted the LCCI.
It is a shame that the Muhammadu Buhari administration is yet to respond to the reservations of a major stakeholder like the LCCI on the economic crisis facing the nation. I am not surprised. This is clearly not a listening government. Our economy has never had it so bad. There is neither economic direction nor economic blueprint. The government and the CBN are not even engaging key stakeholders before unveiling draconian forex policies.
Another effect of these stifling forex guidelines is the persistent rise in inflation in the last two months. Prices of goods and services are skyrocketing. Families of the working class are struggling to survive. The National Bureau of Statistics confirmed that the nation’s Consumer Price Index which measures inflation rose again in August to 9.3 per cent, an increase of 0.1 per cent over the July figure, and staying above the Central Bank of Nigeria’s target upper limit. The nation’s inflation rate rose above the central bank’s upper limit of 9 per cent in June (Buhari’s first month in government) and is at the highest level since February 2013.
Our economy is clearly on the decline. The Gross Domestic Product (GDP) is dwindling; industrial capacity utilization is on the decline, inflation is rising, the stock market has lost about N1.5 trillion of its value, unemployment is on the rise, the naira is falling; our economic ratings are on the decline, virtually all economic indices are on the negative side in the last 113 days. Our dear president must spend quality time at home tackling these challenges instead of globetrotting. He must look inwards. Buhari must consistently engage critical stakeholders in business and economy. For the sake of this country, our President must surround himself with modern economists; not “typewriter” economists. He should also note that Western countries can’t help him turn around the Nigerian economy. No foreign investor will come if we don’t get our infrastructure, security and operating environment right. What Buhari is looking for in Sokoto is in his Sokoto. He should learn to encourage local investors instead of stifling them.