LCCI: High Interest Rate, Inflationary Pressure, FX Scarcity Hurting Manufacturing Sector

•Advises against raising taxes

Dike Onwuamaeze

The Lagos Chamber of Commerce and Industry (LCCI) has expressed concern over the dwindling fortunes of the manufacturing sector due to constraints from high inflationary pressure in the economy, continuous rise in interest rate, foreign exchange (FX) scarcity, amongst other militating factors.

This view was expressed yesterday, during the chamber’s quarterly review of the economy by its President, Dr. Michael Olawale-Cole.

He stressed that the removal of petrol subsidy would be the government’s best economic decision.

Olawale-Cole also advised the government to harmonise the multiple FX rates and avoid hasty increase of tax rates.

He said: “The growth in manufacturing has remained subdued due to high inflation, continuous rise in interest rate, forex scarcity, high energy cost, and weakening purchasing power which could weigh further on the outlook of the sector.

“To reduce the shocks from disruptions to supply chains for raw materials, manufacturers should be assisted with subsidised input and more allocation of forex for importation of critical inputs.

“The federal government needs to sustain its targeted interventions in selected sectors like agriculture, manufacturing, export infrastructure while tackling insecurity.”

The chamber also expressed the view that the removal of petrol subsidies would arguably be one of the government’s, “best economic decisions to reduce our unsustainable debts and widespread corruption in that sector,” adding that it would also “spur investments in domestic refining and petrochemicals and create a significant value chain for the various stakeholders.”

Olawale-Cole remarked that though the planned removal of fuel subsidies might cause further northward movement of inflation in the short term, “it will also release over N3 trillion per annum for social spending as well as create domestic high valued jobs rather than subsidising jobs in other countries at the expense of ours.

“We expect the government to roll out appropriate cushioning or palliative policies and measures before the subsidy removal in the second half of the year. We, in no way, will appreciate disruption in whatsoever form to the economy in the event of subsidy removal.” 

He also pointed out that the premium between official foreign exchange rate and the BDC rate has widened in the quarter under review and stated the chamber’s position that the “monetary authorities need to liberalise the foreign exchange market by unifying the multiple foreign exchange rates and ensuring that foreign exchange rates are market-driven.

“This, the LCCI believes, is critical to enhancing stability, liquidity, and transparency in the foreign exchange market. The unification is expected to improve our currency management framework, reduce uncertainties and eliminate arbitrage and round-tripping opportunities.”

The LCCI, however, rejected the government’s penchant for accumulation of public debt, which would bring the country to the point it would use more than its public revenue to service debts.  

“According to the World Bank, debt service cost of Nigeria’s federal government will be in the region of 123.4 per cent in excess of revenue. This is coming after the federal government spent a total of N5.24 trillion on debt servicing between January and November 2022, out of its N6.5 trillion retained revenue for the same period, according to the finance ministry.

“The amount puts the country’s debt service-to-revenue ratio at 80.6 per cent for the period under review, a figure far above World Bank’s recommended 22.5 per cent for low-income countries like Nigeria.

“We, at the LCCI frown at borrowing to fund subsidies or support uneconomic ventures. 

“The LCCI is of the view that the government’s fixation on debt accumulation is unhealthy. Hence it should explore other avenues including opening equity opportunities and offloading/ sales of its real estate holdings. The government should also make the problem of oil theft, with the removal of oil subsidy regime, a thing of the past to help create room for fiscal manipulation.”

It also urged the, “government to tread measuredly in raising tax rates, since there are new ways of rescuing some tax expenditures to add up to government revenue in 2023. Leaving rates at their levels will not lead to a loss of revenue.

“We are calling on the incoming government to be focused on tackling the many salient economic issues and making the most of the opportunity given to it by the Nigerian people to serve.”