Nigeria’s economic contraction shows weak fundamentals – LCCI

The Lagos Chamber of Commerce and Industry has said the output contraction Nigeria recorded last year highlights the country’s weak macroeconomic fundamentals and the persistent, structural, policy and regulatory issues in the economy.

The LCCI noted the improvement in quarterly output performance as real GDP growth rose by 0.11 percent in the fourth quarter of 2020, compared to 3.62 percent contraction in the preceding quarter.

“The quarterly performance was a pleasant surprise. The economy ended year 2020 in a negative growth region, with annual GDP growth declining by 1.92 percent, its lowest level since 1994,” the Director-General, LCCI, Dr Muda Yusuf, said.

He said apart from declining growth, the economy “is currently confronted with several challenges, including rising consumer prices, weak employment level, persisting liquidity concerns in the foreign exchange market, high poverty incidence, weak investor confidence and insecurity.”

He said the challenges, which had been part of the country’s economic narrative prior to the COVID-19 pandemic, were amplified by the pandemic-induced disruptions.

Yusuf said, “The persistent decline in real capita growth since 2015 indicates the fact that the economy has not grown fast enough to create opportunities for the rapidly growing Nigerian populace.

“This translates to more hardship for the Nigerian citizenry who are currently grappling with weaker real disposable income amid rising inflation.”

According to him, per capita income growth is expected to maintain its downward trajectory till the medium term, as the economy is expected to recover gradually from the 2020 contraction.

He said, “Businesses, particularly those in the production sector, still encounter challenge in accessing foreign exchange due to the lingering liquidity concerns in the currency market.

“We note the central bank’s accommodative policy disposition in year 2020, evidenced by its sustained developmental finance efforts and deliberate interest rate reduction.”

The LCCI also acknowledge the efforts by fiscal authorities in quickening recovery via the Economic Sustainability Plan.

“However, the stimulus provided by fiscal and monetary authorities (about three percent of GDP) was largely insufficient to achieve desired outcomes even as policy responses failed to address the structural challenges stifling productivity across sectors,” Yusuf said.

He saidaccelerating the pace of economic recovery requires fiscal and monetary authorities to be well coordinated to promote growth-enhancing and confidence-building policies that would encourage more private capital inflows into the economy.

“Investment-led growth strategy is critical for inclusive and sustainable economic growth.  Strong commitment to key reforms will not only boost output recovery but will also put the nation on a path of macroeconomic stability,” he added.

The group recommended a review of the forex management framework to expand the scope of market mechanism in the determination of the exchange rate. 

It said the unification of the exchange rates should be prioritised, adding, “This is imperative for expediting recovery and bolstering investor confidence.”

“Clarity in government’s policy direction is critical in deepening investor confidence,” the LCCI said.

It stressed the need to mobilise efforts in making the business environment more conducive for MSMEs and large corporates by addressing structural bottlenecks and regulatory constraints contributing to high cost of doing business.

The group said the government should prioritise public spending to support critical capital development expenditures in road, railways, power, health and education.