Lagos Chamber of Commerce backs fuel subsidy removal, flays continued FG borrowing

Lagos Chamber of Commerce and Industry (LCCI) says the proposed removal of subsidy on imported petroleum products by the Federal Government remains one of the best economic decisions that will reduce debts and tackle widespread corruption in the oil sector.

LCCl’s President, Dr Michael Olawale-Cole, who disclosed this during the chamber’s second quarter state of the economy conference on Tuesday in Lagos, also expressed displeasure over continued borrowing to fund subsidies or support uneconomic ventures, insisting that government’s fixation on debt accumulation was unhealthy.

According to a World Bank Report, Nigeria secured an $800 million relief package from the institution to minimise the effect of subsidy removal on the most vulnerable in the society.

The recent data by the Debt Management Office, DMO puts Nigeria’s public debt at N46.25 trillion ($103.11billion) as at end-December 2022, compared to N39.56 trillion ($95.77 billion) in 2021.

Olawale-Cole, however, urged government to begin to roll out several cushioning measures ahead of the subsidy removal in the second half of the year to mitigate any likely disruptions to the economy.

“Removal of fuel subsidies is, amongst others, expected to spur investments in domestic refining and petrochemicals and create a significant value chain for the various stakeholders.

“Though the planned removal of fuel subsidies may cause further northward movement of inflation in the short term, it is arguably one of the best economic decisions to reduce our unsustainable debts and widespread corruption in that sector.

“The government must however, take cognisance of its socio-economic implications, especially with unemployment at the unwholesome rate of about 40 per cent,” Olawale-Cole said.

The LCCI’s President frowned at borrowing to fund subsidies or support uneconomic ventures, saying that government’s fixation on debt accumulation was unhealthy.

According to Olawale-Cole, government must prioritise exploring other avenues, including opening equity opportunities, offloading/selling of its real estate holdings and tackling oil theft to create room for fiscal manipulation.

He stressed the need to importantly follow the recently launched and restructured Ministry of Finance Incorporated (MOFI) by President Muhammadu Buhari on February 1, to optimise national assets.

The LCCI’s president advised that copious references should be made on the growth and returns of the country’s stock of financial assets in corporate equities, real estate and infrastructure spaces.

This, he said, would provide local and global observers a balanced picture of our financial position.

“It would also motivate national asset managers, led by MOFI, to grow our assets and the returns on them as well as motivate our national liability managers, led by the DMO, to minimise our liabilities and the costs we incur on them with equal vigour.

“Indeed, issuance of joint reports by MOFI and DMO would be most ideal going forward.

“One-sided updates on liabilities with no updates on assets when such updates were adequately available could well be blamed for some of the downgrades of Nigeria’s debt issuance risk profile and outlook.

“The rating outcomes would have been more favourable, had updates on assets been provided side-by-side with updates about liabilities,” he explained.

Addressing inflationary pressure which inched upwards in March to 22.04 per cent, Olawale-Cole noted that hiking monetary policy rate had thus far proven to be ineffective and insufficient in taming inflation.

He stated that in most economies, amid the cost-of-living crisis, the priorities remained achieving sustained disinflation and reasonable real growth.

“Therefore, there is a clear need for the government to strengthen its support to critical sectors like agriculture, export infrastructure manufacturing, power, energy and insecurity.

“Government should also look at ways to improve supply chains as well as cushioning the cost of production by assisting manufacturers with subsidised inputs and foreign exchange allocation.

“While the Central Bank of Nigeria embarks on monetary tightening to tame inflation, it should ensure that targeted concessionary credit to the private sector is sustained for Micro, Small and Medium Enterprises,” he added.