From Uche Usim, Abuja
The Nigerian economy sunk into its worst recession in two decades in 2020.
However, growth resumed slowly but steadily in 2021 as the COVID-19 pestilence restrictions were eased, global supply chains rose from coma, oil prices soared, and the fiscal and monetary authorities implemented policies to absorb the economic shock and relaunch the economy on a growth path.
Nonetheless, 2021, just like other years, was a challenging one for every Nigerian regardless of class or creed.
Widening insecurity, unemployment, COVID-19 pandemic (and the new variants), exchange rate volatility, high food prices and poverty were the hurdles stacked against millions of Nigerians. Many Nigerians and businesses died from asphyxiation caused by these blights.
Despite the aforementioned headwinds, the government worked hard to steer the nation’s troubled ship from the tempest space back to calmer waters.
A major push towards economic tranquility was made by the Central Bank of Nigeria (CBN), which said it disbursed N3 trillion as loans with single digit interest rate and two-year moratorium to households, Micro Small and Medium Enterprises and big companies from 2020 till date. This was to enable them recover from the decapitating effects of the COVID-19 pestilence.
However, 2021 opened up with a headline inflation of 16.47%, which later peaked at 18.17% in March and decelerated incrementally to 15.40% in November.
The Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, in his review, noted that headline inflation was on the increase on a month on month basis from January to date, albeit at a reducing rate.
He noted that food inflation was consistently higher than headline inflation and core inflation for most part of the year.
Inflationary pressure remains a major cause for worry both for businesses and the households as it remains elevated. Inflation was fuelled by various factors in 2021 and these include; the structural constraints which inhibited productivity in the economy. This includes challenges of infrastructure, especially power, transportation, logistics etc.
Watchers of the economy are deeply concerned over the growing insecurity which is affecting agricultural output in practically all parts of the country.
Farmers have been sacked from their agrarian communities by terrorists, making food cultivation an uphill battle. The concomitant effect of that is high food cost amid low purchasing power of the people.
Farmers who subscribed to the Central Bank of Nigeria’s Anchor Borrowers’ Programme owe the apex bank over N463 billion.
Some of the loan beneficiaries have not been able to farm because they are languishing in various Internally Displaced Persons (IDP) camps as insurgents take over their communities and plant bombs where seeds should be planted. Added to that is climate change concerns which include desertification and flooding, which have also taken a toll on agricultural outputs.
According to the CPPE CEO, another issue witnessed in 2021 is the sharp depreciation of the naira exchange rate, leading to high cost of raw materials, inputs, equipment and some imported finished goods. This has very serious implications for cost and for the welfare of the people during the year.
Implications of the high inflationary pressures for both the economy and the citizens are legion but they include; aggravation of poverty as access to food becomes difficult; increasing risk of malnutrition which has a negative impact on human capital development, increase in social tension which fuels criminality, among others.
In order to tackle inflation in 2022, the CPPE boss, Yusuf, advised the fiscal and monetary authorities boost productivity in the economy to drive output growth; stem the depreciation of the naira exchange rate, address the illiquidity in the foreign exchange market and minimise the monetisation of fiscal deficit so that the Central Bank of Nigeria (CBN) financing of deficit should be strictly limited to statutory threshold spelt out in the CBN Act. He also urged the government to seek creative ways of addressing insecurity in order to pave the way for farmers to return to their farms and immediately address the cost of logistics. The Centre also called for the need to address the ease of cargo clearing at the port, the need to address climate change concerns and the need to review Nigeria’s trade policy to bring down the cost of some intermediate products for manufacturers.
In terms of Gross Domestic Product (GDP), the Nigerian economy witnessed four consecutive quarters of GDP growth since the exit from recession in the fourth quarter of 2020. There was a GDP growth of 0.51%, in the first quarter; 5.01% in second quarter; and 4.03% in the third quarter of 2021. These were indications that the economy was on a recovery path.
These could be attributed to the rebound of domestic economic activities following the relaxation of restrictions on economic activities and movement within the country; revitalization of sectors that were earlier on lockdown following the onset of the COVID-19 pandemic such as the hospitality, entertainment, aviation, road transportation, tourism, among others; the restoration of supply chains that were disrupted at the inception of the pandemic; recovery of the global economy following improvements in investors sentiments as a result of improved vaccination in many parts of the world, rebound of commodity prices which had a positive impact on macroeconomic outlook and economic stimulus programmes by monetary and fiscal authorities.
However, for the recovery to be sustained, it is important to create an enabling environment for positive investor sentiments in the economy. This should be driven by policy, regulation, macroeconomic conditions, and security of life and property.
In the year under review, the trade balance was in a deficit of N3 trillion in the third quarter of this year, which was an increase of 26.5% on year on year comparative analysis. This is not remarkably different from the trend in previous quarters.
The fundamental issues remain the over dependence on oil and gas for our export earnings. The huge import bill on petroleum products and the weak competitiveness of the non-oil economy were major contributory factors to the unfavourable balance of trade position.
To fix the balance of trade position, the CPPE advocates for giving the exporters unfettered and unconditional access to their foreign exchange, creating a fast track for exporters at the ports, providing access to intermediate inputs on concessionary terms to exporters in order to make their exports competitive both in quality and on price, among others.
Another remarkable development in the Nigerian economy was the introduction of the Petroleum Industry Act (PIA), a long-awaited document meant to guard and guide the reform of the oil gas sector. It promises to transform the sector through the creation of a legal and regulatory framework that would inspire much higher levels of investors’ confidence. Though late in coming, the reform initiative will change the investment landscape in the sector for the better. The impact on the oil and gas outlook is positive.
Experts are worried that the proposal by the Federal Ministry of Finance to reintroduce excise duty on carbonated drinks remains ill-timed and most inappropriate given the prevailing harsh economic and business conditions. Added to this is the galloping and volatile inflationary condition citizens and the business community are already battling.
The CPPE reckons that the reintroduction of excise duty is also a negation of the economic recovery, job creation and poverty reduction aspirations of the federal government.
“Many upcoming small businesses in the beverage sector would be hard hit by this proposal. The millions of micro enterprises in the soft drinks’ fruit juice distribution chain will be adversely impacted by the imposition of the excise tax.
Nigerian manufacturing companies, and indeed most investors, are going through tremendous stress at the moment. “They are currently grappling with serious macro-economic challenges and structural constraints impacting on capacity utilization, productivity and competitiveness. This is affecting sales, turnover, profitability, shareholder value and the sustainability of investments. The norm globally at this time is to provide incentives for industries to aid their recovery from the shocks of the pandemic and escalating costs. We cannot afford to be doing the exact opposite. Manufacturers, across all product segments need a respite, especially in the light of the unprecedented escalation of production and operating costs”, the Centre said in its review.
Another major issue affecting players in the Nigerian business ecosystem is high energy cost amid epileptic power supply. This remains one of the biggest challenges facing investors in the Nigerian economy.
It is responsible for the high cost of production and the high price of finished goods.
The issue is expected to worsen when the Nigerian government removes petrol subsidies in 2022.
Manufacturers are smarting over the high cost of gas amidst unending scarcity.
There is also the added challenge of having to pay for the gas in dollars. This is inequitable and needs to be urgently corrected. It is unfair to demand for payment for gas by industrialists in foreign currency when manufacturers are selling their products in naira. It is against the extant regulation and policy of the CBN on payment for domestic transactions.
“We request an urgent intervention by the government to correct this anomaly. There is also an acute shortage and a phenomenal spike in the cost of cooking gas. It is a paradox that as a leading exporter of gas in Africa, there is no framework to ensure adequate supply of gas to the domestic market. Again, we request that this irregularity be corrected.
Experts have asked the Nigerian government to immediately tackle the issue of exchange rate volatility, which featured prominently in the economy in 2021 because it worsens uncertainty for investors including the Small and Medium Enterprises (SMEs). It also undermines investors’ confidence, makes planning difficult and heightens investment risk.
Close to the exchange rate volatility is insufficient liquidity challenges. It remained a major albatross of investors in the economy in 2021, including the real sector investors. Insufficient liquidity makes planning difficult because of the uncertainty. It also hinders profit or dividend repatriation and compels investors to patronise the parallel market at a more prohibitive exchange rate and ultimately creates compliance and regulatory issues for investors.
There was also a call to end crude oil theft in order to have a healthy economy.
The Inter-Agency Task Team (IATT), comprising anti-corruption agencies under the Presidency, recently described the annual loss of $4.2 billion worth of crude oil, which is never accounted for, as a totally unacceptable hemorrhage that should be stopped in the interest of the country.
To this end, it called for the enforcement of stricter anti-corruption measures in all agencies of the government to enthrone transparency and accountability.
Also, the Nigeria Extractive Industries Transparency Initiative (NEITI) is also seeking the recovery of N2.659 trillion, being unremitted funds currently trapped with 77 oil and gas companies in Nigeria. The money springs from their failure to remit petroleum profit tax, company income tax, education tax, value added tax, withholding tax, royalty and concession on rentals.
Plugging revenue generating loopholes, creating a conductive business environment, tackling insecurity and infrastructural challenges and ending profligate lifestyle of government officials are some recommendations of experts to ensure a better economy in 2022.