COVID-19: LCCI calls for structural reforms in economy
* Liberalisation of petroleum sector
“Says foreign reserves down by $4.7bn
By Udeme Clement :
The President, Lagos Chamber of Commerce and Industry, LCCI, Mrs Toki Mabogunje has called on Federal Government and policy makers in Nigeria to pursue structural reforms and put in place home-grown policies that will stimulate economic growth, following the effect of COVID-19 on the nation’s economy.
According to her, such reforms should include liberalisation of petroleum downstream sector to enhance more investments and income flow for the local economy.
The LCCI President made this known in a quarterly press conference.
She informed, “We are of the opinion that the current covid-19 experience presents ample opportunity for the government and policymakers to pursue structural reforms. Reforms such as liberalisation of petroleum downstream sector, exchange rate convergence, securitising government’s equities in joint ventures, privatising government’s redundant assets, PPP-led infrastructural development, export diversification, agro-based industrialisation and cut in governance costs.
“These reforms are needed to aid rebound of the economy going forward, especially in times of adversity”.
On decline in crude oil prices, she stressed,
“We are deeply concerned about the slump in crude oil prices due to weakening demand as Brent, Nigeria’s benchmark grade, has dropped by over 60 percent since the beginning of the year. The crash in global oil prices incited intense fiscal and external pressure on the economy and severely distorted the 2020 budget, as a result of the country’s huge exposure to the oil market.
“While the Organisation of Petroleum Exporting Countries, Allies and G-20 jointly agreed to reduce supply by 13.2 million barrels per day effective May 1, 2020, we believe that this action may not significantly boost oil prices to desired levels, if global oil demand remains subdued. This has implications for small oil producers like Nigeria with limited buffers and weak foreign reserves”.
She pointed out, “The IMF projects have significant economic contractions in oil-exporting countries, with Nigeria’s GDP forecast to plunge by 3.4 percent. Most oil companies have reduced their capital expenditure, minimise losses and we are concerned about the consequent effects of these developments on investment and employment in the oil industry generally.”
She added, “Government’s revenue targets, budget plans and fiscal stability are all under increased pressures, as a result of shrinking oil receipts induced by low oil prices and huge volume of unsold supplies.”
On External Reserves, she said, “The Chamber notes continued depletion in external reserves since the beginning of the year. Foreign exchange reserves have depleted by 12 percent or $4.7 billion from January to mid-April 2020, due to weak dollar inflows and net portfolio outflows. Depleting foreign reserves limit the extent to which the Central Bank of Nigeria can intervene in the foreign exchange market.
“The depletion of foreign reserves amid supply-demand imbalance in the global oil market will only exacerbate the country’s vulnerability against external shocks.
The sharp contraction in oil prices and continued depletion of external reserves forced the CBN to embark on a downward adjustment of exchange rates across various windows. LCCI notes that exchange rate at the Official, Bureau-de-Change and Investor & Exporter windows was weakened to N360/$, N378/$ and N380/$ respectively from N306/$, N357/$ and N366/$. The naira is weakened to about N420/$ in the parallel market since March 2020 when the CBN halted dollar injection in the foreign exchange market.
“The technical devaluation of the naira has implications for production cost, project cost with foreign currency components, imports, investment, consumer prices and cost of servicing foreign currency obligations by corporates and government. We believe that another ‘price adjustment’ is inevitable in the next three months, if global oil prices fail to pick up by the end of the second quarter”.
Her words, “We note the disparity across different exchange rate segments. We urge that the gap between official rate and the parallel market be effectively managed, so as not to give room for round-tripping or arbitrage opportunities. Harmonising the multiple exchange windows into a single window and a market-driven or liberalised foreign exchange system should be the goal”.