CBN’s rate hike, rising energy cost may hamper Q3 growth, says LCCI

The Lagos State Chamber of Commerce and Industry (LCCI) has predicted that the interest rate hike by the Central Bank of Nigeria (CBN) and rising energy costs will constrain the growth of the country’s economy in the third quarter (Q3) of this year.

The LCCI President, Dr Michael Olawale-Cole, said this at a media parley on the state of the Nigerian economy, held in Lagos, yesterday.

According to Olawale-Cole, the Chamber had pointed out earlier that rate hikes alone would not curb the inflationary pressures facing the economy, stressing the need to pay attention to supply-side support to reduce rising production costs caused by the high cost of energy and raw materials.

He argued that with the costs of diesel skyrocketing above N800/litre, Jet-A1 at N710/litre, and PMS selling above the government-regulated price of N165/litre, production costs would continue to rise, leading to a decline in manufacturing and increase in job losses.

Also, the LCCI President noted that the worsening security situation in many parts of the country, if not tackled, would continue to threaten agricultural production, manufacturing value chains and logistics.

Furthermore, he noted that the Chamber expects Nigeria to witness some fiscal challenges, occasioned by the country’s huge debt burden, accompanied by high debt servicing and heavy subsidy costs, warning of heightened fears of contracting output, constrained production, and recession risks.

“Sustaining the pace of recovery in 2022 and navigating through the growing uncertainties in the global economy requires well-coordinated fiscal and monetary policies in promoting growth-enhancing and confidence-building policies that would encourage private and foreign capital inflows into the economy,” Olawale-Cole said.

On food security, the LCCI boss said for Nigeria to be self-sufficient in food production, the country must boost its agricultural output sustainably and discourage dependence on imports, warning of a looming food scarcity, which would worsen the plight of the poor if nothing is done quickly.

Furthermore, he called for the removal of fuel subsidies and for oil theft to be curtailed to provide fiscal space for subsidised production of goods and services as well as for infrastructure, health, and education financing.

Meanwhile, he charged the CBN to embark on monetary tightening to tame inflation, and ensure that targeted concessionary credit to the private sector is sustained for Medium, Small and Micro Enterprises (MSMEs).

“The CBN needs to initiate a gradual transition to a unified exchange rate system and allow for a market reflective exchange rate. The CBN also needs to roll out more friendly supply-side policies to boost productive sectors, bolster investor confidence and help attract foreign investment inflows into the economy.

“There is a need to address structural bottlenecks and regulatory constraints that contribute to the high cost of doing business. A supportive and conducive investment environment is critical in facilitating private sector involvement in the economic recovery and growth process.

“The government should initiate moves towards having cost-reflective tariffs in the power sector as this will attract the needed investment to boost power supply and possibly end the frequent crashes of the national grid. We should also begin to initiate special-purpose interventions in boosting the deployment of renewable energy.”

On his part, the Deputy President, LCCI, Gabriel Idahosa, noted that the food inflation in the past months, confirms that food prices have a high impact on the headline inflation, stating that the high cost of production occasioned by the rising fuel prices, forex scarcity, and supply chain disruptions may remain in the short term if nothing is done.

He reiterated the Chamber’s position on the rising inflation, noting that rate hike alone would not tame the rising inflation while advising the government to invest more in boosting supply and cushioning the cost of production.

“The burdening impact of fuel costs on businesses will remain as long as we keep importing refined fuels for our teeming population and neighbouring countries,” Idahosa added.