The Nigerian economy remains fragile, with the high dependence on oil sector for revenue and foreign exchange earnings, the Lagos Chamber of Commerce and Industry.
Speaking in an exclusive interview with our correspondent in Lagos over the weekend, the Director-General, LCCI, Mr. Muda Yusuf, said the capital market was not likely to pick up soon, owing to declining oil prices, noting that “historically, when oil price is dropping, the stock market often declines.”
Yusuf said that although oil revenues increased with recovering oil prices in 2018, the impact on the economy was subdued by the huge foreign exchange commitments to petroleum product importation and the inherent subsidy.
He explained that the uncertainty created by the upcoming election was another factor pointing to a fragile economy, adding that “when we have this kind of uncertainty, a lot of foreign investors dump their stocks, which affect the performance of the market.”
According to him, the interest rates in the United States and some other advanced economies are getting better.
He said, “Quite a number of the portfolio investors are moving their capital back to those economies, and once they move their funds back, they withdraw from our own capital market. Basically, those are the issues and the money market seems to be doing very well and each time money market is doing well, capital market often declines because people are investing more in the money market now.
“Therefore, the performance of the oil and gas sector remains a critical factor that will shape the outlook for the economy in 2019.”
Muda added that the high debt service obligations were also major constraints to the growth of the economy.
He stated, “According to estimates by Capital Economics analysts, every $10-per-barrel fall in oil prices will cause a three per cent to five per cent decline of the Gross Domestic Product in most of the gulf economies, and a slowdown of 1.5 per cent to two per cent of GDP in Russia and Nigeria on an annualised basis.
“Given the challenging economic conditions, key policy reforms would be imperative to support and sustain macroeconomic stability, which include: a foreign exchange management framework that reflects the market fundamentals; the acceleration of the economic diversification agenda; normalisation of Lagos ports environment, the oil and gas sector reform, especially the petroleum industry bill.”
Others, he said, were reduction in the cost of governance at all levels; improvement in domestic revenue, particularly independent revenue to reduce volatilities of government revenues, among others.
The LCCI boss observed that exporters suffered huge losses as a result of the Apapa gridlock last year.
“Many contractual obligations could not be met; export products went bad because of the long waiting period to access the ports. There were also reports of flagrant extortions by security agencies managing the traffic on the Apapa corridor.”
