ECONOMISTS and industry watchers want the Federal government and the Central Bank of Nigeria (CBN) to pay closer attention to ease of doing business before adopting the monetary tightening measures suggested by the International Monetary Fund (IMF) in its latest report outlook.
The IMF, in its latest quarterly World Economic Outlook report unveiled at the ongoing Spring meeting in Washington DC, United States, said Nigeria’s economy could drop slightly to 3.2 per cent in 2023, and then lower further to 3 per cent next year as global outlook sustains high uncertainty amid recent financial sector turmoil, high inflation, ongoing effects of Russia’s invasion of Ukraine, and three years of COVID-19 pandemic.
The global economy faces a “rocky” recovery as geopolitics, monetary tightening and inflation continue to weigh on growth, the IMF said.
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“For Nigeria, our forecast is one of the most stable ones for this year. We have a slight increase; we have 3.3 per cent in 2022. That’s an upward revision. And for 2023, about the same 3.2 per cent, and 3 per cent in 2024. So this is an economy with very high inflation as well, and this is why we have a forecast of about 20 per cent for 2023,” IMF Division Chief, Research Department, Daniel Leigh, stated during a press briefing announcing the report.
Global growth is expected to expand 2.8 per cent this year and 3 per cent next year, each 0.1 percentage point less than the Fund’s January projection. That compares with 3.4 per cent expansion in 2022.
But economic watchers are of the view that Nigeria has reached its limits on tightening, arguing that further monetary tightening could squeeze the manufacturing sector further into crisis.
They insisted that the government must rally efforts around ease of doing business, to enable manufacturers and other players in small and medium scale enterprises not to be squeezed out by such monetary tightening tools.
“I don’t really agree with this position of IMF on further tightening of our monetary position. As far as I’m concerned, we have reached the limits of tightening. How many countries have a cash reserve ratio (how much money banks can keep in their vaults as permitted by the CBN) of 32.5 per cent in the world,” the Executive Director of the Centre for the Promotion of Private Enterprises and former Director-General of Lagos Chamber of Commerce and Industry, Muda Yusuf, told The ICIR.
Yusuf maintained that the high interest rate of 18 per cent was already squeezing businesses dry, making cost of funds for businesses almost beyond reach.
He stressed that the government needed to do more on the ease of doing business, adding, “The forex challenge is still there and there is no transparency. This is a policy problem. The second concern is energy cost, which is extremely high, and which affects cost of transportation.
“We also have the problem of high costs of production, which makes manufacturers not to sell easily because of high costs occasioned by high inflation and other costs of major concern,,” he said.
Another development economist, Celestine Okeke, said beyond monetary policy tightening, the government must pay attention to cutting wastages and fiscal discipline.
Okeke said, “We are doing the wrong type of tightening. We need to cut out wastes from the ministries, departments and agencies of government. Every year, we are buying Hilux vehicles and several unnecessary things. For me, the $800 million they are bringing for the social safety would have been put into getting our refineries to work to lessen the buden of high energy costs.”
An economic analyst with the Arise Television, Chuka Mbonu, said the manufacturers were going through difficult times occasioned largely by high cost of production and weak impact of ease of doing business.
Mbonu said, “Manufacturers are buffeted by insecurity, lack of power, double taxes, legal fee issues, and high transportation costs. They are not even able to produce goods at a lower price. This issue of monetary tightening would not solve these problems. The fiscal side and enabling business environment has to play its role.”
The IMF had earlier expressed worry that earlier hopes in 2023 that the world economy could achieve a soft landing — with inflation coming down and growth steady — have receded amid stubbornly high inflation and recent financial sector turmoil.
These situations have added to pressures emanating from tighter monetary policy and Russia’s invasion of Ukraine.
The unexpected failures last month of Silicon Valley Bank and Signature Bank, and the collapse of Credit Suisse Group AG have stirred markets and raised fears of financial stability concerns, complicating central banks’ quest to tame inflation, while maintaining growth and the health of the banking system.
Nigeria’s Purchasing Manager Index – an index to guage the health of the country’s manufacturing survey conducted by Stanbic IBTC Bank in March 2023 – declined to 42.3 points, below the 50-point benchmark of a good performance.
In the fourth quarter of 2022, the manufacturing sector’s contribution to the gross domestic product declined to 8.40 per cent from 8.59 per cent in the corresponding period of 2021, according to the National Bureau of Statistics (NBS).
The NBS data also showed that Nigeria’s total non-oil exports in 2022 were worth $4.8 billion (N2.2 trillion), which is just a fraction of Vietnam’s $53.2 billion earnings from only its agricultural export in the same period.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.