LCCI: OPS faces increased borrowing costs
The organised Private Sector is currently plagued with increased borrowing costs, reduced investment incentives, heightened uncertainties and a pressured foreign exchange market.
The recent hikes in the Monetary Policy Rate (MPR) have directly translated into higher interest rates, making it more expensive for businesses to access credit for working capital, expansion, and sustainability. Another challenge in the sector is the high yields from treasury bills and bonds that the government portfolio is attracting from both local and foreign portfolio investors that has crowded out the private sector from accessing credit.
LCCI President, Gabriel Idahosa said the Chamber has consistently advised that rate hikes alone will not curb inflation without resolving the challenges of the real sector, which comprises the agriculture and manufacturing sectors.
He said the real sector has demonstrated the capacity to create more jobs, manufacture products for consumption and export, and form the economy’s industrial base.
While we understand that high interest rates attract Foreign Portfolio Investments (FPIs) and local investors to treasury bills and bonds, we lament the drying up of funds away from the private sector to government treasuries.
Citing latest report from the National Bureau of Statistics, he said: “It showed that as of September 2024, the headline inflation rate rose to 32.70 percent relative to the August 2024 headline inflation rate of 32.15 percent, that is an increase of 0.55percent compared to the August 2024 Headline inflation rate.
On a year-on-year basis, the Headline inflation rate was 5.98 percent points higher than the 26.72percent recorded in September 2023.
This latest uptick may sustain an upward trend in the coming months due to the current crises with petroleum pricing and an attendant burden that is unprecedented in Nigeria’s economic history”.
The LCCI boss argued that food inflation for September rose to 37.77 percent on a year-on-year basis, which is a 7.13percent point higher than the 30.64percent recorded in September 2023. According to him, this continued rise in inflation is driven by poor crop production by farmers who are constrained by security challenges, transport costs, and the emerging impact of climate change.
He lamented that Beverages, produced mainly by local and multinational companies, have also recorded rising costs due to the challenging environment in which these manufacturers operate with livestock and poultry being strong drivers of food prices in the past year.
He advised the government to remain focused on boosting food production through ongoing policy reforms, targeted fiscal interventions, and better management of Nigeria’s floating exchange rate regime.
In his words “the floating exchange rate policy adopted last year without any form of control has not shown good results till now. As an import-dependent nation, we need to consider better management approaches that fit the current profile of our economy. Boosting the supply of FOREX will also help strengthen the Naira if transactions in the forex market are transparent enough to reduce speculative activities”.
He however, said the Chamber is optimistic that if the government harmonizes its fiscal and monetary instruments to tackle the cost of agricultural production, enhance food processing, and sustain the fight against insecurity, inflationary pressures may soon begin to abate, and other economic variables can begin to record positive indicators.
He argued that with the Naira firming progressively in the past weeks, the government earning more FOREX to boost the supply of Dollars, and the intensive focus on targeted interventions, Nigerians should begin to see an easing posture with the inflationary pressures.
He lamented that the exchange rate of the Naira depreciated persistently in the months of September and August of the third quarter of 2024, exhibiting worrisome volatility across all market segments. He noted that from N1, 481.77 per dollar at the end of June 2024, the Naira depreciated by 9.17percent in value to N1, 617.72 in September 2024.
“The currency is currently exchanged at N1, 657.36 per dollar on October 3, 2024, compared to the parallel market; the premium has kept within the maximum benchmark of 5percent, recording 2.63percent at the end of September compared to 0.99 percent at the end of June 2024.
Idahosa regretted that the depreciation of the Naira was fundamentally driven by increasing demand for forex; speculative activities that distorted the real value of the Naira and the continued effect of market liberalization.
He advised that to address this situation, the CBN needs to sustain its interventions and improve supply in the FX market, adopt policies that would attract more FX inflow into the economy, and build market confidence in the performance of the Naira even in the long run.
