…Insists 2015 was most challenging
By Bimbola Oyesola
FOR Nigeria’s Organised Private Sector (OPS), the 2015 financial year was one of the most challenging as difficulties in the business environment, including insecurity in parts of the country, weak infrastructure, foreign exchange crisis, funding constraints, policy inconsistency and the quality of regulatory institutions almost suffocated many operators.
In particular, the last six months was considered as the most difficult period for the operators, who, according to the Lagos Chamber of Commerce and Industry (LCCI), lost about N1.46 trillion in stalled business activities resulting from forex shortages. This cuts across the private sector operators including fast moving consumer goods, steel, furniture, pharmaceuticals and manufacturing.
Besides the challenge of uncertainties and risks created by the political transition and the elections, the LCCI Director General, Muda Yusuf, said the unfriendly business environment in the year continued to undermine the capacity of investors to maximise abundant business opportunities in Nigeria.
Political and economic developments offered a mix of notable events, which shaped business and economic environment in 2015.
According to National Bureau of Statistics (NBS), Nigeria’s real Gross Domestic Product (GDP) fell to 2.84 per cent in the third quarter of 2015, compared to 6.23 per cent in the same period in 2014. In fact, sectors like manufacturing and the services slipped into recession after recording successive declines over the last three quarters in 2015.
But many also believe the successful democratic transition that ushered in a new political dispensation presented a new wave of optimism on the back of the inherent goodwill of the federal administration. This is as stakeholders insist that business activities were largely slow for a better part of the year due to uncertainties around the general economic policy direction of the present administration.
The Manufacturers Association of Nigeria (MAN), noted that the movement in manufacturing activities followed dismal performance of Nigeria’s macro-economy in 2014, which was ascribed to crude oil price crash during the period.
The association identified high cost of credit, poor power supply, high cost of alternative energy and non-availability of local input material as major challenges to the growth of the sector.
It stated: “The average cost of borrowing charged to manufacturers during the period was high and at double digit, which is discouraging to further investment or re-tooling in the manufacturing activities.
“Local raw materials content of manufacturing in the second half fell below the performance in the first half of the year. The scenario obviously highlights the non-diversification and the mono-product nature of the Nigerian economy, which needs to be urgently addressed. It also underscored the negligence in developing the non-oil sector and the non-optimisation of the potentials of the abundant petroleum oil resources in the country.”
MAN was of the opinion that if the Petroleum Industry Bill (PIB) had been signed into law, it would have significantly improved the local content availability of petrochemicals.
Its President, Frank Jacobs, while reviewing the year, lamented that the sector was already at its tethers end bearing in mind several factors militating against it.
He stated that evidence abound from the inter-play of the macro economic indicators in the economy that the second quarter of 2015 was a difficult period for the entire industrial sector, particularly the manufacturing sector.
It was during that time that the Central Bank of Nigeria (CBN) through its Monetary Policy Committee (MPC) on Tuesday, November 24, 2015, resolved, among other issues, to reduce the MPR from 13 per cent to 11 per cent (which represents the lowest since 2009) as well as the CRR from 25 per cent to 20 per cent.
Dwindling price of crude
What further exacerbated the problem of the sector was the price of crude oil, which continued to experience a downward trend. The price, which stood at an average of $112 per barrel in June 2014 slipped to $35 per barrel in December 2015. which was far below the budget benchmark of $53 per barrel for 2015.
In response to dwindling receipts from oil export, CBN adopted several measures such as the closure of Retail Dutch Auction System (RDAS) window, restriction of cash payment into domiciliary accounts and prohibition of 41 items from accessing the interbank foreign exchange market.
CBN’s administrative allocation of foreign exchange signposted much deeper challenges for investors and the economy. As at December 18, 2015, premium at the parallel market reached a record level of 35 per cent against the official exchange rate as the naira crashed further to 270/$ in the parallel market.
The CBN, in an attempt to arrest the trend, blamed the development on the activities of speculators in the parallel forex market thus pushing for stricter restrictions.
The 2015 fiscal year experienced more exchange controls, including the “downward adjustment of maximum spending limit on offshore credit/debit card to $12,000 per annum; reduction in the weekly allocation to $10,000 per Bureau De Change (BDC) operator to source for dollar from private sources for personal and business travels; complete cancellation of the weekly sale of foreign exchange to BDC dealers anytime from now (market anticipation) and suspension of the use of naira debit cards abroad, effective from January 2016.”
The LCCI DG, however, said there is need to ease the restriction on forex inflows through autonomous sources to boost supply; review the policy of exclusion of 41 items from access to foreign exchange market, as well as real sector development through economic diversification strategy.
The MAN’s President also confirmed that the CBN’s policy barring 41 imported products, some of which are input materials for manufacturing, from the foreign exchange market was constituting a huge setback to the manufacturing sector.
The forex restrictions had also prompted JPMorgan Chase & Co. to remove Nigeria from its local-currency emerging-market bond indexes in September 2015, triggering a sell-off in the nation’s assets.
As a consequence, equity market lost over 30 per cent making the Nigerian Stock Exchange (NSE) one of the worst performing equity markets in 2015.
The Lagos Chamber in its Q3-2015 business environment survey showed that a forex restriction by CBN is one of the costliest policies in Nigeria in recent years.
It stated: “Available data showed that Customs revenue contracted in 2015 relative to 2014. With drastic fall in oil price (currently at $35 per barrel), heavy fuel subsidy bill nearing N1 trillion in 2015, widespread insolvency among state governments across the country, increasing sovereign debt (about $60 billion, including debt provisions in 2016 MTEF) and debt service obligation of N1.3 trillion in 2016, the financial crisis may linger in the new year.”
The World Bank in its 2016 Annual Ease of Doing Business Report also ranked Nigeria 169 among 189 countries with Mauritius ranking 32 as the best in Africa. From the report indicators, Trading Across Boarders, which is a measure of countries’ ports/border management effectiveness, presents a dismal ranking of 182 out of 185 countries.
Infrastructure
The OPS, through the year, had consistently expressed concern over the deplorable state of roads, especially those leading to the Lagos ports (Apapa and Tincan Island).
These ports, LCCI said, account for over 60 per cent of the cargo into the country and an estimated 70 per cent of Customs’ revenue, adding that the poor state of the roads has multifarious effects on the private sector, economy and the citizenry.
The LCCI lists the negative impacts to include risk to the lives of citizens arising from containers falling off the trucks as a result of bad roads, stating that several lives have been lost in recent past as a result of this.
Congestion at the ports, it added, resulting from the delay in the evacuation of cargo has often led to 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.
It stated further: “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 of fuel tankers from various parts of the country coming to Lagos ports to lift fuel and delays in getting raw materials and other inputs from the ports to the factory premises in Lagos and other parts of the country.”
2016 Business Outlook
Despite the challenges in 2015, the OPS is optimistic in 2016 that GDP growth will 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 LCCI said the growth in oil sector may be constrained still by low price and investment drive.
Meanwhile, the exchange rate volatility is expected to persist fuelling high inflation of about 10-11 per cent. However, correction towards Real Effective Exchange Rate (REER) in the form of exchange rate adjustment, which is likely in Q1-2016, the OPS opined, will probably reduce the pressure on external reserves.
Other macro-economic features for 2016 highlighted by OPS include clearer macro-economic policy space expansionary fiscal stance, huge debt profile, improved power supply and infrastructure, PIB acceleration and downstream deregulation and blocking leakages by Treasury Single Account (TSA).
Meanwhile, the targeted N300 billion by the Nigerian banks to boost lending to Small and Medium Enterprises (SMEs) and the agricultural sector in 2016, the OPS stated, will boost SMEs development and employment and thus increases non-oil export.