The Lagos Chamber of Commerce & Industry (LCCI) wishes to express grave concerns over the recent decision by the Central Bank of Nigeria (CBN) to hike the Monetary Policy Rate (MPR) from 22.75 percent to 24.75 percent. In the same vein, we view the recent hike in electricity tariff as making the cost of living and doing business in Nigeria unbearable. The two decisions are compounded by the difficulty in the importation and clearing of goods at our ports. The use of frequently fluctuating import duty exchange rates makes planning difficult for businesses. Feedback from businesses and analysts suggests that these moves will inflict severe pain on the private sector, further exacerbating the already challenging economic environment.
The private sector, which is the primary driver of growth and employment generation in Nigeria, is currently plagued with increased borrowing costs, reduced investment incentives, heightened uncertainties in our policy environment, and a pressured foreign exchange market. The recent hikes in the MPR have directly translated into higher interest rates, making it more expensive for businesses to access credit for working capital, expansion, and sustainability.
We have consistently advised that rate hikes alone will not curb inflation without resolving the challenges of the real sector of the economy. The real sector has demonstrated the capacity to create more jobs, manufacture products for consumption and export, and sustain the industrial base of the economy. 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.
We acknowledge that the removal of the subsidy on electricity supply may have been in line with attracting foreign investors into the sector with a cost-reflective tariff. We have also advocated that we subsidize production instead of consumption. However, our major concern is seeing businesses pay heavily for the services that they do not enjoy optimally. It is a grave concern that with a higher cost of power, companies are still not having access to the service.
We call for an aggressive metering programme that leads to a 100 percent coverage of electricity consumers. This guarantees liquidity for the distribution companies and gives more satisfaction to consumers with a feeling of paying for what they consume. Beyond the provision of infrastructure, we need to have a sound regulatory and policy environment to attract more foreign investment into the power sector.
It is therefore expected that with the government having access to more funds, the huge costs borne by companies in providing business support infrastructure like power, logistics, warehousing, security, and others should be promptly provided with saved funds from discontinued subsidies and taxes. For instance, the Economist Intelligence Unit, in its April Global Outlook, reported that China will be relying heavily on public investments to achieve the projected 4.7 percent GDP growth in 2024. We are concerned that businesses will face double jeopardy in paying a higher electricity tariff and another cost in providing a private electricity supply. We urge the Federal Government to invest more in the power sector to improve the power supply to businesses and homes.
Small and medium-sized enterprises (SMEs), in particular, are disproportionately affected by the CBN rate hike policy. Many SMEs operate on thin profit margins and rely heavily on affordable credit to sustain their operations and drive growth. The surge in borrowing costs stifles their ability to invest in productivity-enhancing measures, hire new employees, and contribute to economic growth. The Chamber strongly urges the Central Bank of Nigeria to reconsider its monetary policy stance and avoid further increases in interest rates. While the CBN’s objective of containing inflation and stabilizing the exchange rate is commendable, it must be pursued in a manner that does not unduly hamper private sector activities and economic growth.
On the burden of importation, we urge the Central Bank of Nigeria and the Nigeria Customs Service to work together towards having a fixed import duty exchange rate that is lower than the official rate for importation of items in critical sectors like agriculture, manufacturing, power, and healthcare. This will reduce the cost burden on operators in these sectors, boost their productivity, and enhance their sustainability. Delay in clearing of goods has also come up as a major pain point for importing businesses. We can improve our import processes through automation and enhanced port infrastructure.
We recommend that the CBN explore alternative policy measures that promote credit access, stimulate investment, and support entrepreneurship. On metering, the government should create the needed environment where local meter manufacturing can thrive to bridge the current gap in meter deployment. This will reduce the pressure on the foreign exchange market, create jobs, generate revenue for the government, and develop local expertise in meter manufacturing.
Dr. Chinyere Almona, FCA
Director General
Lagos Chamber of Commerce & Industry
Thursday 4th April 2024
