Nigeria’s Organised Private Sector, OPS, has provided a bouquet of panacea that the federal government should consider in order to achieve a real time turn around of the national economy.
President of the Lagos Chamber of commerce and Industry, LCCI, Mrs. Toki Mabogunje, in a major review of the economy in Lagos on Tuesday, said government should take a holistic review of the energy industry which is key to rejuvenating the ailing economy.
Among key conditions for the year is tge eregulation of the Downstream Oil Industry:.
Mabogunje, said the Chamber fully acknowledged government’s resolve towards deregulating the downstream segment of the oil industry and the push back to the comprehensiveness of the reform.
The Chamber said it would like these measures to be sustained in year 2021 but cautioned that deregulation will not yield the desired benefits for industry players and Nigerians given the monopolistic structure of the Nigerian downstream oil industry characterised by huge dependence on the Nigerian National Petroleum Corporation NNPC for product supply.
“We also urge the Federal Government and the Nigerian National Petroleum Corporation to create an enabling regulatory environment that encourages domestic and foreign investment in refineries to boost domestic refining capacity.”
On the Passage of Petroleum Industry Bill (PIB), the Chamber called for urgent action on the legislation.
The PIB seeks to establish a framework for the creation of a sustainable. commercially oriented and profit-driven petroleum sector to ensure investment growth in the sector.
The Bill presents an opportunity for the needed reform of the Nigerian oil and gas industry and it would create a platform not only for preserving existing government revenue but also to incentivise new projects that will increase production and revenue for government and stakeholders, thereby guaranteeing long term sustainability of the industry.
The Chamber therefore urged the National Assembly to put in place a law that will promote a more effective and efficient governance, administration, host community development and fiscal framework for the petroleum industry.
A competitive Bill would help preserve the integrity of the existing projects, whilst also encouraging future growth of oil production and make Nigeria an investment destination of choice, said Mabogunje, recommendung that the input of the private sector stakeholders should be given due consideration by the National Assembly.
The National Assembly has expressed commitment to pass the PIB before the end of the first quarter of 2021 and the Chamber believe the passage would also encourage investments in private sector refineries and position Nigeria as a major refining hub in West and Central Africa.
On the power sector, the Chamber endorsed the cost-reflective tariff regime in the sector. “We note the pushback from the labour unions on the policy.
However, for the sector to attract significant investments for improved power generation, transmission and distribution, the cost-reflective tariff model is inevitable.
If the economics of the investment is not right, investors will not inject capital into the sector. However, it is imperative for power distribution companies (DISCOS) to intensify efforts in metering electricity consumers to avoid occurrences of consumer exploitation through estimated billing.
There should also be a strong accountability and consumer protection framework to improve consumer confidence.” the president stated.
The Chamber lauded the low interest rate regime that prevailed for most part of 2020 and would like to see it sustained in year 2021. The low yield environment has been beneficial to investors in terms of mobilizing cheap funds for investment in the real economy, it believed.
The low yield environment also contributed significantly to the impressive performance of Nigerian Stock Market in the previous year.
Mabogunje said that a low interest regime will encourage blue-chip corporates to undertake further investments, thereby stimulating aggregate demand and economic growth.
” We expect the Central Bank of Nigeria, CBN to maintain its pro-growth policy stance by keeping interest rates low, to stimulate redirection of funds from money market to the real economy.
The focus of improving credit access by small businesses must be sustained, it advised.
On 2021 budget, the Chamber commended the Federal Government for maintaining the January-December Budget Cycle for the second consecutive year amid covid-19 disruptions.
According to the Chamber, the timely signing of the 2021 Appropriation Bill and 2020 Finance Bill into law is a welcome development.
“We welcome the 2020 Finance Act as the legislation is expected to improve the country’s tax administration framework. The Act adopts appropriate counter-cyclical fiscal policies to respond to the economic and revenue challenges faced by the Nigerian economy. However, the Act needs to be regularly reviewed to reflect changing dynamics in the economy.
The Lagos Chamber notes the aggregate expenditure and revenue framework of the 2021 budget. The budget has a total spending plan of N13.59 trillion with a revenue projection of N7.99 trillion. Aggregate expenditure comprised N5.99 trillion earmarked for recurrent non-debt expenditure; N4.37 trillion for capital expenditure; N3.32 trillion for debt servicing and N496.5 billion for statutory transfer, with non-oil and oil revenue sources contributing 70 per cent and 30 percent respectively to projected revenue.”
The president appreciated the Federal Government’s resolve in reducing dependence on oil proceeds for budget funding by designing policies and strategies to improve non-oil revenue.
“Notable in this regard is the passage of 2020 Finance Act.
We note the assumptions guiding the budget: including GDP growth rate of 3 percent; inflation rate of 11.95 percent; N379/$ FX benchmark; $40 per barrel oil price target and oil production of 1.86 million barrel/day. While we consider the oil price and production assumption as realistic; the inflation, growth, and FX rate assumptions do not appear to reflect the current realities.”
The Chamber noted some key issues around the budget which incldue the fiscal deficit in the 2021 budget which is around N5.6 trillion, equivalent to 3.39 per cent of GDP, and it is expected that actual deficit will surpass this projected amount given the country’s persistent revenue challenge.
She said, “We note the Federal Government’s plan to finance the deficit largely through new borrowings ofN4.68 trillion from domestic and external sources. We are bothered about the mounting public debt and the increasing pressure of debt servicing on the nation’s finances.
It is a threat to our medium-term fiscal stability. Resort to borrowing from Central Bank of Nigeria’s financing through ways and means to bridge budget shortfalls poses a major risk to macroeconomic stability. Where possible, the option of equity financing of some capital projects should be explored.
Persistent revenue challenge is a risk to effective budget performance.”
The Federal Government she noted has intention to source 70 per cent of projected revenue from the non-oil sector basically through taxation.
This target seems optimistic given that corporate entities are still faced with lingering effects of covid-19 disruptions.
This goal cannot be accomplished without a supportive macroeconomic and policy environment that encourages the ease of doing business, Mabogunje observed, adding that an enabling environment that supports business growth and expansion provides the impetus to improve revenue mobilization in the non-oil sector.
The creation of an enabling business environment must be at the forefront of government’s revenue mobilization strategies in year 2021, she advised.
The Chamber also advised that he Federal Government should slowdown in mounting pressure on revenue generating agencies in achieving revenue agents.
Emphasis on revenue generation propels such agencies to focus solely on revenue to the detriment of their core mandate of facilitating investment growth and this has gross implications for the ease of doing business in the country.
Budget monitoring mechanism needs to be strengthened by possibly constituting a private-public stakeholder’s committee to oversee the implementation process. This is critical to improving budget outcomes.
The Chamber also considered the operationalization of AfCFTA as a step in the right direction in deepening economic integration in Africa.
The agreement requires participating countries to remove tariffs from 90 per cent of goods, thereby allowing free access to commodities, goods, and services across the continent.
The agreement provides the opportunity for manufacturers, traders, service providers, SMEs, etc to tap into African market with combined Gross Domestic Product and population of around $3.4 trillion and 1.3 billion persons, respectively.
For Nigeria, the trade agreement serves as avenue for local industries to penetrate new markets and establish strong cross-border supply chains with other African countries, Mabogunje said adding, ” We believe the benefits and costs of the agreement will not be evenly distributed among participating countries and only countries with open, friendly, and enabling operating environment stand to benefit materially from the agreement. This underscores the need for policymakers to expeditiously create an enabling environment that would enhance the country’s economic competitiveness in the AfCFTA framework.
“While the take-off of AfCFTA should be lauded, much work remains undone as critical parts of the agreement are yet to be finalized. Several Key issues including schedules of tariff concessions, schedules of service commitment, rules of origin, investment, competition policy and intellectual property rights have not been concluded. There is still lack of clarity on the type of value addition that must occur within an AfCFTA State party for a product to benefit from tariff reduction. We call on the AfCFTA Secretariat and the African Union to expeditiously finalize pending negotiations for effective AfCFTA implementation.
There is still a great deal of sensitisation and enlightenment that need to be done on the implementation modalities.”