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By Merit Ibe
To unlock growth and investment in the economy in 2023, the Centre for the Promotion of Private Enterprise (CPPE) has proffered that government must be committed to the implementation of the Petroleum Industry Act (PIA), consolidate the power sector, reform the budget and appropriation processes to prioritise infrastructure financing and human capital development.
Director of the centre, Dr Muda Yusuf, who made the remark in its economic and business environment review for 2022 and agenda for policy makers for 2023, said adoption of these reform initiatives would guarantee progression towards fiscal consolidation, reduction in fiscal deficit, diminishing need for borrowing and abating debt service burden.
He noted that the enactment of the PIA was a major step towards the reform of the oil gas sector, which promises to transform the sector through the creation of a legal and regulatory framework that would inspire much higher levels of investors’ confidence. “But we need to see greater commitment to the implementation of the PIA. The deregulation of the petroleum downstream sector is a major economic reform imperative. This is inevitable if we must unlock investment in the sector and put an end to the perennial fuel scarcity and the monopolistic structure of the sector.”
Yusuf said there was need to also consolidate the power sector reform, saying an enabling environment must be created to sustain current private sector investment in the sector and attract new private capital to the electricity sector. “Urgent reforms are vital with respect to electricity tariff, metering and deepening of energy mix. We need robust incentives [fiscal and monetary] to boost private investment in renewable energy.” He also called for reform in the budget and appropriation processes to prioritise infrastructure financing and human capital development, adding that it would boost productivity and competitiveness of the economy.
In the review which focussed on four key macroeconomic variables: inflation, foreign exchange and GDP growth, he explained that for the basket of goods and services consumed by the average Nigerian, costs have accelerated by between 50 percent to 100percent in 2022, noting that the inflationary situation was the worst in recent history and the impact on citizens and the SMEs was very devastating.
On the GDP growth, he said given the enormity of the macroeconomic headwinds and the numerous fiscal and monetary policy shocks, the Nigerian economy could be adjudged to have demonstrated remarkable resilience in 2022.
“The fragile growth performance was a reflection of the diverse headwinds bedevilling the Nigerian economy. These include the macroeconomic instability, shrinking fiscal space, soaring public debt, heightening inflationary pressures, currency depreciation, foreign exchange illiquidity, surging energy cost, weakening purchasing power, legacy structural constraints, lingering insecurity and crippling trade facilitation issues. There were global headwinds triggered by the Russian -Ukraine war and lingering supply chain disruptions created by the COVID-19 pandemic.
“Nigeria’ GDP is valued at over N200 trillion [in nominal terms] as at third quarter of 2022. It grew by 3.11% in the first quarter; 3.54% in the second quarter and decelerated to 2.25% in the third quarter. The world bank projected a growth rate of 3.11% for 2022 and 2.9% in 2023.”
On the monetary policy, he said the high Cash Reserve Ratio (CRR) has made it difficult for banks to lay their primary role of financial intermediation. “Their profitability is also adversely impacted because of limited room for credit creation activities. Ways and Means finances of the apex bank pose greater liquidity and inflation risk to the economy than bank deposits. We seek a reduction in CRR so that the banks can be better placed to play their primary role of financial intermediation in the economy
He lamented that the forex challenge was a major predicament that investors grappled with in 2022.
“The dimensions of this dilemma were as follows:
Sharp currency depreciation; Forex market illiquidity, especially at the official window;
Volatility of the exchange rate, creating considerable uncertainty and unpredictability for investors; Transparency issues in the forex allocation ecosystem;
According to the world bank, official exchange rate depreciated by 5.2% in 2022, as at November; while parallel market rate depreciated by 40%.
Parallel market premium widened from 37% in January to 71% in November 2022.
The bank avowed that “Nigeria exchange rate policy settings are stifling business activities, investment and growth, and amplifying macroeconomic risks.”
