The Lagos Chamber of Commerce and Industry (LCCI) sees the short to medium term outlook for the Nigerian economy in 2020 as bleak, following the fallout of the COVID-19 pandemic.
President LCCI, Toki Mabogunje, made the projection at the Chamber’s second press conference on the state of the economy in 2020, on Tuesday in Lagos.
Mrs Mabogunje said the pandemic had resulted in unprecedented collapse in commodity prices, capital flight, turmoil in the capital market, supply chain disruption across sectors, and destabilisation of commercial and economic activities.
“Hence, we resonate with the International Monetary Fund’s position on a looming severe contraction of the economy by year end 2020,” she said.
The LCCI president, however, said the current COVID-19 experience presented an ample opportunity for the government and policymakers to pursue structural reforms.
She said it was an opportunity to put in place home-grown policies to engender a rebound of the nation’s economy.
She said reforms such as the liberalisation of the petroleum downstream sector, exchange rate convergence, securitizing government’s equities in joint ventures, privatizing government’s redundant assets and PPP-led infrastructural development are critical.
She said export diversification, agro-based industrialization and cut in governance costs were direly needed to aid the rebound of the economy going forward, and especially in times of adversity.
Mrs Mabogunje, however, acknowledged the sustained recovery of the Nigerian economy as GDP growth advanced to 2.55 per cent in the final quarter of 2019, compared to 2.28 per cent in the preceding quarter.
She, however, also noted the broad-based underperformance across key sectors such as agriculture, trade and manufacturing, with strong potentials to drive economic diversification.
On oil prices, she expressed deep concern about the slump in crude oil prices due to weakening demand, as Brent, Nigeria’s benchmark grade, had dropped by over 60 per cent since the beginning of the year.
She said the agreement by the Organization of Petroleum Exporting Countries and Allies and G-20 to reduce supply by 13.2 million barrels may not significantly boost oil prices to desired levels if global oil demand remains subdued.
On the nation’s external reserves, Mrs Mabogunje said the Chamber had noted the continued depletion in external reserves since the beginning of the year.
The LCCI President explained that the continued dependence on portfolio investment was unsustainable, as foreign investors may develop apathy for Naira assets in the face of an impending recession.
“We observe that about a third of the foreign reserves belong to foreign portfolio investors in OMO bills and this put foreign reserves under increased pressure amid weakening oil prices.
“We are of the opinion that the continued dependence on portfolio investment is unsustainable, as foreign investors may develop apathy for naira assets in the face of an impending recession.
“More so, the sustained depletion of foreign reserves amid supply-demand imbalance in the global oil market will only exacerbate the country’s vulnerability against external shocks,” she said.
Also on foreign exchange, Mrs Mabogunje projected that another ‘price adjustment’ was inevitable in the next three months if global oil prices fail to pick up by the end of the second quarter.
“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/$ and the naira has weakened to about N420/$ in the parallel market.
“We also note the disparity across different exchange rate segments and 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,” she said.
On the equity market, Mrs Mabogunje said the impressive performance of the Nigerian stock market in early-to-mid January 2020 was noted.
Sadly, she stated the gains recorded had been eroded due to divestment by foreign investors on uncertainties around the COVID-19 crisis.
“With the current uncertainties in the macro-environment, the outlook for the equity market is bleak as the covid-19 shock has significantly distorted the earnings projections of listed corporates.
“We, however, believe this period of low stock prices presents ample opportunity for investors to take positions in fundamentally sound stocks with demonstrated history of consistent earnings growth and dividend payment,” she said.
On inflation, Mrs Mabogunje projected that consumer prices, especially food, would come under pressure in coming months due to disruption to the agriculture value chain and commencement of the planting season.
“This will reduce agricultural output,” he said
She urged the government to stem rising consumer prices through measures aimed at bridging supply gaps and reducing transportation costs.
On the socio-economic and business impact of lockdown, the LCCI President acknowledged the efforts of the federal government, states, monetary authorities and organized private sector towards containing the COVID-19 pandemic.
Mrs Mabogunje disclosed that a survey by the Chamber on the impact of the pandemic on the Lagos business community revealed that 81 per cent of respondents were ‘severely’ affected by the pandemic with the median daily revenue loss of N500, 000.
“The lockdown has significantly destabilized business and economic activities especially in the informal and MSMEs sectors given their lack of adequate cash buffers to withstand the shock.
“Although government has rolled out a raft of relief measures to support businesses, we observe that these packages are tilted more towards formal establishments while micro and small-scale enterprises as well as informal businesses have been largely left out.
“The palliatives given by the various governments though laudable were not sufficient to address the social fallouts of the lockdown.
“We note that the palliatives were poorly articulated and failed to adequately capture significant fraction of low-income households who rely on daily income for livelihood,” she said.
On the flip side, Mrs Mabogunje said the current economic crisis provided a silver lining in the form of opportunities.
She said the pandemic would open up opportunities in areas inclusive of import substitution, creativity, innovation, and the non-oil export.
“As a result of COVID-19, we expect that global economy will be recalibrated, with global supply chains becoming more complex and dynamic.
“There are already signals of protectionist tendencies and possibilities in the light of border restrictions on the movement of human and goods.
“In the days ahead, countries across the world may place technical embargoes on exports of essential goods in a bid to meet local demand and as a way of managing disruption to the global supply chain.
“We are however convinced therefore, that the current situation presents an opportunity for the country to stimulate and promote import substitution.
“This implies changing the narrative from the base, mobilise resources and galvanize critical stakeholders and actors to create an economy focused on major commodities (intermediate and finished goods), but equally competitive on a global scale,” she said.