NACCIMA: Nigeria’s economy still operates below its productive capacity-Udeagbala

The Nigerian economy is operating below its productive capacity as reflected in  all key indices such as high unemployment rates, slow growth, negative terms of trade and rising debt service profile among others, according to the submissions of   Nigerian Association of Chamber of Commerce, Industry and Agriculture (NACCIMA).

NACCIMA  which  unveiled this position at the  press briefing  on the  second quarter  review of the state  of the economy on Thursday  addressed  by its National  Ide John C. Udeagbala said  “the Nigerian economy is operating below its productive capacity, as reflected in the high unemployment rates.

“We are struggling to meet our economic development objectives; as the growth of national output falls below our population growth; the economy is still heavily import dependent for consumption and production; and dependent on crude oil for government revenues and foreign exchange.

 According  to  the NACCIMA president “as crude oil can no longer meet government demands for revenue, we are falling into a dependency on foreign debt to run. We need to turn around and reposition the national direction.”

Udeagbala said   the data on National Output from the National Bureau of Statistics, revealed that the Nigerian economy grew by 3.98% in the fourth quarter of 2021, a drop from 4.03% in the third quarter, which dropped from 5.01% in the second quarter of 2021.

“We emphasize this slight but continuous drop in growth rate even as we acknowledge that the Nigerian economy bounced back from the COVID-19 pandemic in the fourth quarter of the year 2020 to reach the peak growth rate for the period, of 5.01% by mid-2021.

“This declining trend is most concerning to us, as we consider that statistics on GDP is three or four months behind the present day, therefore, we estimate that the growth rate of National Output for the first three months of 2022 has decreased further considering the state of conflict in Europe which has had a negative impact on energy and food prices. It is the position of our Association that there is a very urgent need for policy implementation to avert a third recession of this decade by the end of 2022, even as the World Bank projects that the Nigerian economy will grow by 4.1% this year.”

Speaking on inflation, the NACCIMA President said “since our last press briefing in January, inflation; measured on a Year-to-Year basis, has grown from 15.63% as at December, 2021 to 15.92% as at March 2022. Headline inflation continues to be pushed by rising food prices. It is our hope that food security policies of the Federal Government, its ministries and agencies will prevent a return to inflation rates as high as 18.17% recorded as at March 2021.”

On unemployment and the education sector NACCIMA  said  unemployment rate, as at the last time it was measured, two years ago, in the second quarter of 2020, stood at 33.3%, signifying that 22million were unemployed in a labour force of 80million people, adding  that  “our unemployment challenge which affects most of our youth and its security implications, deserve urgent attention and a definitive resolution.

It noted  that the situation is further worsened by the current face-off between the Federal Government and the Academic Staff Union of Universities (ASUU), adding that the  crisis which has manifested in incessant strikes by members of ASUU over the years has severely hampered the educational system in the country, limiting the number of productive citizens available to the economy.

“Our Association calls on the Federal Government to place more priority on the education sector, as human capital in a post-COVID world is fast becoming the most valuable resource and a source of foreign exchange and investment. We also call for a renewed focus on the development of semi-skilled labour by implementing Technical and Vocational Education and Training (TVET) programmes.

“ Such programmes have already been successfully implemented by government in partnership with development agencies like the German Agency for International Cooperation (GIZ).

“We therefore look forward to the accelerated implementation of these types of policies and others like the National Skills Qualification Framework (NSQF); Executive Order 5 on the promotion of Nigerian content in contracts and science, engineering and technology; the extension of TETFUND to establish vocational training institutes; and government collaboration with the private sector to establish training institutes within industries.

“ NACCIMA is ready to work with government and other private sector operators and stakeholder to reduce unemployment by providing jobs and ensure efficient and effective private sector involvement in the education sector. To measure the impact of such public-private collaborations on education and job creation, we urge the National Bureau of Statistics to resume the collation, analysis and publication of unemployment statistics as a measure of economic progress, no matter how bleak the outlook.”

 On public debt  Udeagbala   also  spoke on  the nation’s  debt profile , nothing  that Nigeria’s total foreign debt as at December 2021, stood at 38.4billion US Dollars, an increase of over 150% from 15billion US Dollars in September 2017; while domestic debt rose by 48% from 16trillion Naira to 23.7trillion Naira over the same period.

“ Ladies and Gentlemen, it is clear today that the pro-debt argument put forward in the past, that Nigeria’s public debt is relatively sustainable, has run its course. It is now generally accepted that the current levels of debt service payments are considerably high and unsustainable given dwindling government revenues. Economic experts and analysts warn of looming macroeconomic instability if the trend of continued rising debt without corresponding revenue increase remains.

“NACCIMA, once more counsels all levels of government, especially the legislative and the executive branch to take a broader and longer view on the implications of this debt-fuelled economic growth approach, and to look to other sources of funding, such as a preference for an increased tax base over increased taxes, and leveraging investments through public-private-partnerships in exchange for tax credits spread over time. We further stress the urgency of this situation by pointing out the ongoing Sri Lankan economic crisis which is characterized by economic mismanagement, a rise in external debt, depleting foreign exchange reserves, a weakened currency, and rising prices.

“Although there are differences between our economies with respect to population and national output, the Sri Lanka experience provides a view to the kind of macroeconomic instability that economic experts and analysts are concerned about, and its causes. We must therefore take the lessons to be learnt and reposition our economy for growth.”

With regards to foreign trade, data as at the end of the fourth quarter of 2021 once again shows negative terms of trade, NGN173.96billion for the quarter; this is reflective of total exports of NGN5.77trillion being less than NGN5.94trillion in total imports.

“ As the Federal Government continues to ramp up efforts to diversify the economy from crude oil proceeds, NACCIMA would like to stress the obvious fact that a significant portion of foreign exchange proceeds go to the importation of petroleum products. For instance, in the fourth quarter of 2021, 26.75% of the total value of imports went to the importation of Motor Spirit, Kerosene type jet fuel, and Gas oil.”

We would further like to point out that the volatility in global prices of crude oil are such that a sharp increase in prices erode whatever gains are made by the Nigerian economy from non-oil exports. To this end, we call on the government to renew focus on implementing policies that ensure that our country is energy sufficient, becomes a net exporter of petroleum products and eventually, electricity.

 The challenges of energy are so prominent in the survival to the private sector, as evidenced by the impact of rising prices of diesel and kerosene jet type fuel on private sector productivity in these past few months, not to mention the multiple incidents of the collapse of the national grid.

The Association notes with some concern the rising cost of government with the passage of a National Budget of NGN17.1trillion for 2022, more than double the budget for 2017 which stood at NGN7.4trillion. With an additional approval of NGN4trillion for fuel subsidy, warnings of a fiscal cliff for our economy are on the rise. With Nigeria’s debt service to revenue ratio projected to reach 94 percent in 2022 and subsidy spending expected to overshadow capital expenditure (of NGN3trillion) in 2022, we cannot stress enough the need for the legislative and executive branch of government to take radical steps to reverse this trend.

Having dwelled on the issues of debt stock, debt servicing and the national budget, NACCIMA counsels that the most pragmatic solution to the problem of Nigeria’s widening infrastructure deficit is to seek a wider collaboration between the public and private sector for infrastructure development, as is evident in the success stories of the Presidential Executive Order 7 of 2019 on Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme. This Executive Order constitutes what is effectively a non-interest loan by the private sector to the government towards infrastructure development, payable in future, in the form of tax credits

The security situation in our country demands urgent attention and determined action. NACCIMA uses this opportunity to once again, underscore the importance of security of lives and property to economic growth and development. We call on the Federal Government, through its security agencies, to intensify efforts to counter and end the activities of kidnappers, bandits, terrorists, and other perpetrators of violence. Insecurity dampens investor-confidence and labels the country as unsafe to do business.

NACCIMA commended the Central Bank of Nigeria for its numerous interventions in the real sector. These interventions show willingness by the Apex Bank to adapt and evolve to the current economic realities by channelling the direction of development funding while implementing monetary policy. Interventions such as the SME Restructuring/Refinancing Fund (RRF), Power and Airline Intervention Fund (PAIF), the Nigeria Electricity Market Stabilisation Facility (NEMSF), and the Anchor Borrowers Programme, are a few examples to mention. However, NACCIMA would like to emphasize the need to prioritize the targeting of domestic investment over foreign investors and multi-national corporations, as this is a more direct path towards improving the productivity of the economy.