Soaring Oil Prices Have Mixed Blessings
By Olusola Faleye
The most significant development in the preiod under review was the soaring crude oil price, which was a mixed blessing for the nation. The development boosted the revenue earnings from oil, but triggered increases in energy cost in the economy. I shall address the matter in greater details later in my address. In the meantime, other macroeconomic variables in the business environment had remained largely unchanged in the third quarter.
There was an observed problem of depressed consumer demand during the period under review. There were increasing cases of unsold inventories by many manufacturing firms and business concerns. This may not be unconnected with the tight fiscal and monetary policy regime, which had been in place since the beginning of the current fiscal year. This does not in any way detract from the merit of a stable macro-economic condition induced by the policy regime.
Exchange Rate Situation
Since the beginning of this year, the exchange rate situation has been generally stable. This has made planning easier for the business community, from the perspective of the exchange rate. The rate at the beginning of the quarter was N132.8, and N132.9 at the end of the quarter. This represents a marginal depreciation of less than 0.07%.
In the parallel market, the rate was n141.5 at the beginning of the quarter, and n140 at the end of the quarter. This was infact, a modest appreciation in the value of the naira to the tune of 1%. Evidently, the stability had resulted from the tight fiscal and monetary policy stance of the administration. It is instructive that the level of fiscal deficit has been kept within the target for the year.
Interest Rate Situation
There was no significant change in the interest rate situation during the period under review. Interest rates still remain high ranging from 22-35%. The ongoing banking sector reform would appear to have severely inhibited the avalability of loanable funds, especially medium to long-term funds.
Inflation
The latest published inflation figure was for the month of July, which was put at 19.1%. This is still on the high side as the budget target for the year was a single digit inflation.
Fiscal Operations of the Federal Government
We note that a deficit of 110 billion was incurred as at August 2004. When compared with the projected deficit of n181 billion for the whole year, this level of deficit is reasonable. We are of course worried that the deficit was financed by the ways and means, which is inflationary and contrary to the assurance given at the beginning of the fiscal year.
The good news however is that the Finance Minister has assured the nation that no interest would be paid on the ways and means. this is significant because interest payment on domestic debt had over the years exerted enormous pressures on the finances of government. For instance, N170.6 billion was paid as interest in 2002, and n173 billion was paid in 2003. This trend should not be allowed to continue. It is also laudable that unlike in the past years, we have not witnessed any case of supplementary budget this year. This is a manifestation of better planning and budgeting by the Federal Government.
May I also commend the openness that has characterised the statutory allocations to the three tiers of government. The allocations were made public in the print media, and published on the web site of the Finance Ministry.
Nuisance of Multiple Taxes And Levies
Gentlemen of the press, the nuisance of multiple taxes and levies persisted during the quarter. The activities of the local governments in virtually all the states of the Federation have become more worrying. This phenomenon is frustrating investment initiatives, especially at the small medium and macro enterprise levels. There is urgent need to streamline the taxes and levies applicable at the local government levels. For vehicles, the payment in one local government should cover the vehicle within all other local governments within a state. The harassment of delivery vans of business enterprises by local government officials has become increasingly unbearable.
We are therefore calling on the relevant authorities at the Federal, State and Local government levels to curb the menace of local government officials. Their activities are at variance with the poverty alleviation and economic empowerment programmes of three of government.
Activities of FERMA
Gentlement of the press, the Federal Road Maintenance Agency (FERMA) has been doing a good job in the maintenance of federal roads. We therefore commend the Agency and the Federal Ministry of Works. However, some officials of the Agency have been demanding all manner of fees from motorists plying or parking on the Federal roads. There is no clear -cut evidence that the collection of rates and levies by FERMA officials was authorised. We are therefore calling on the Hon. Minister for Works to call FERMA officials in Lagos State to order. Their continued collection of fees and levies from motorists is affecting the business environment very adversely.
Proposed Strike Action by Labour
As you all know, the Lagos Chamber is a proponent of the deregulation of the downstream oil sector. We believe that this is the only approach to pave the way for meaningful private sector role in the sector and curb the gross inefficiencies that have characterised the current monopolistic structure in the sector. The private sector needs to take full control of the sector and deregulation is imperative to make this possible. However, the transitional issues and processes need to be managed carefully in view of the perception of oil as a social good in Nigeria.
The transitional issues pose a great challenge because of the unusually high prices of crude oil prices in the global market in recent times. Thus, this unusual situation, calls for temporary concessions by the government to partially absorb some of the fuel price increase induced by the changes in global oil prices. Meanwhile, we urge the federal government to enter into dialogue with all the stakeholders, including the labour movement and the Organised Private Sector (OPS) to forestall the strike and collectively agree on a road map to salvage the downstream oil sector. The roadmap should include a policy decision on the part of the government to immediately accelerate the setting up of private refineries, some of which have already been pencilled down for consideration and approval. These private refineries should be given specific incentives, including subsidised crude oil, to facilitate their production of refined products for local consumption at affordable rates.
The cost of a national strike to individuals, corporate bodies and the economy as a whole would be too profound for the economy to bear.
Checkpoints Along the Seme Border
As at the last count, the number of checkpoints along the Badagry Seme Border is over 20. This is a complete contradition of the anti-corruption crusade of the present administration. it also undermines the spirit of the ECOWAS Protocols, which seeks to promote trade and economic relations within the ECOWAS sub-region. We urge the government to check the proliferation of checkpoints along this route. The checkpoints, apart from impaining the nation's image are doing enormous damage to trade relations in the sub region.
Energy Cost for Manufacturing Firms
About two years ago, manufacturing firms were encouraged to adopt the use of natural gas as a source of energy for their plants. In response to this advise, many industries invested in the conversion of their plants to be able to use gas as a source of energy. Shortly after, there was a sharp upward review of the price of gas, which put many manufacturers in a quandary. The current pricing policy on gas is certainly not in consonance with the professed commitment of the government to the revitalisation of the industrial sector, Nigeria is blessed with abundant gas reserves to make the use of gas cheaper as a source of energy. We urge the government to review its current gas pricing policy.
Maritime and Ports Sector Development
The Maritime as well as Ports sector are critical to the economic and commercial activities of any nation. This is why the sector has become a recurring issue in my quarterly press conferences. For the preiod under review, I would draw attention to the following specific issues.
i. There is an urgent need to addrerss the problem of congestion at the Lagos ports. Reports reaching the chamber indicate that the cumbersome procedure for the clearance of cargo is a major factor in the current congestion at the Lagos ports. There is also the problem of ubiquitous presence of empty containers at the ports. The Nigeria Ports Authority therefore needs to evolve an effective policy to rid the ports of empty containers in order to create space for incoming cargo. We also repeat our call for a drastic reduction in the number of govermment agencies and personnel inspecting cargo at the ports.
ii. The container terminals outside the ports should be made more effective by ensuring the presence of accredited agents responsible for cargo examination as well as availability of cargo handling equipment at all times. It is unfair to saddle the importers with the additional responsibility of having to mobilise cargo inspectors from the ports to the container terminals. This of course imposes additional burden on the importers.
iii. The cost of transferring cargo to container terminals outside the port should be the responsibility of the NPA. It is unfair to pass on the cost of transferring cargoes to the terminals to the importer. Afterall, the importer has to choice over where his or her cargo would be transferred.
iv. The policy of simultaneous exmination of cargo by the agencies charged with cargo inspection should be enforced. The reluctance of the agencies to adopt the policy of simultaneous inspections a design to perpetrate corruption.
Contractor Arrears
We wish to implore the federal government not to lose sight of the payment of contractor arrears. As you all know, the government is indebted to local contractors to the tune of hundreds of billions of naira. The recent budget performance report by the finance minister did not give much detail on this matter.
SMIEIS Fund
As at August 2004, a total of N24.08 billion had been set aside under the Small and Medium Industries Equity Investment Scheme (SMIEIS). Of this amount, N9.48 billion or 39% has been invested in 176 projects, accordidng to the Central Bank of Nigeria progress report on the scheme. The Lagos Chamber is concerned about the slow pace of disbursement of the fund as well as the preference by banks for big projects. The utilization of the funds so far indicate a disbursement of N54 million per project.
This is certainly not consistent with the spirit of the fund. It also exemplifies the marginalisation of the small and medium enterprises under the scheme.
The Chamber is also concerned that the guidelines for the disbursement of the 10% of the fund for micro credit are yet to be prepared by the bankers' Committee. We urge the Committee and the Central bank of Nigeria to expedite action on the preparation of the guidelines for the benefit of small and micro-enterprises in the economy.
Excess Revenue From Crude Oil
It is heart-warming that an excess revenue of N637 billion has been realized from the increase in crude oil prices. 50% would be kept in the stabilization fund. The National Council of States also decided that the disbursement would be on monthly basis effective from 2005 fiscal year. We commend the programmed manner of the releases, which would reduce its inflationary impact on the economy. We however, appeal to the political leadership at all levels to ensue that this money is spent to truly enhance the welfare of the people in their various constituencies.
Chief Olusola Faleye, FCA is the President of Lagos Chamber of Commerce and Industry (LCCI).
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