With the sliding oil price at the international market, devaluation of the nation’s currency and the austerity measures put in place in the country, Nigerians need no soothsayer to tell them to brace up for economic challenges this year.
Stakeholders in the nation’s economy therefore greeted the new year with trepidation when it crept in on Thursday.
President Goodluck Jonathan admitted that the nation would witness economic turbulence this year due to the drop in the price of crude oil, among other challenges, but said his economic team would work stridently to mitigate the impacts of the turbulence.
But Nigerians would rather take the assurance of the president with a pinch of salt, given the penchant of the present administration for shift in economic policies.
Already, organised labour unions in Nigeria have warned the federal government against job cut to mitigate the impacts of the austerity measures it recently introduced. They also advised the government to cut the price of fuel and the subsidy volume paid to fuel marketers due to the drop in the price of crude oil at the international market.
President of Lagos Chamber of Chamber of Commerce and Industry, Alhaji Remi Bello, said due to the import dependent character of the economy, the sharp declines in exchange rate will naturally push up the operating costs of enterprises in the economy.
He said many firms are already feeling the heat across all sectors, adding that the impact of the depreciation on operating costs will be very profound felt in 2015.
He said cost-push inflation will begin to manifest in the next few weeks, stressing that this will be driven by high cost of production and high cost of imported finished goods.
According to him, businesses driven by government patronage are likely to experience a decline in 2015, given the current government revenue outlook, while capital projects of governments will reduce drastically and affect some segments of the private sector.
The unfavourable revenue outlook may result in the suspension of some capital projects, he said, adding that generally, government contractors would experience a slowdown in their tempo of activities in 2015.
He said with declining revenue, the risk of default in payment for jobs executed for government agencies will be higher in the short term, advocating cautious engagement with government contracts at all levels of government.
“Already some MDAs and state governments are having difficulties in the payment of workers’ salaries. Many of the states are also currently servicing debts, having raised funds in the capital market.”
He said following current developments, many ongoing contracts, especially the medium to large ones, will attract cost variations. This, he said, is a new challenge that many contractors and suppliers as well as their clients will have to confront.
The president of the chamber said the current economic conditions will penalise outward tourism activities and reward inbound tourism in 2015.
He explained that with official rate at N168 and parallel market rate at N190, there was an unprecedented premium of above 15%, stressing that this poses a major risk of round tripping from the official market to the parallel marketer or interbank market.
This is a major challenge that has to be addressed in 2015, he advised.
According to him, the tight monetary policy may continue well into 2015, keeping interest rate high in the economy, while government revenue investment in infrastructure will decline.
He averred that government agencies may impose tax burden on investors outside the ambit of the law in 2015, given the weak dispute resolution system which would cause profound injustice to investors in the economy.
‘’There are rampant cases of overvaluation of cargo by the Nigeria Customs Service for the purpose of import duty computation. Many investors are already victims of this unwholesome practice. Many importers have been compelled to pay as much as twice the duty they should normally have paid. This approach to revenue generation may continue in 2015 with adverse consequences for investors in the new year.”
He revealed that servicing offshore financial obligations will become more challenging this year.
In the oil and gas sector, the non-passage of the Petroleum Industry Bill he said, could shatter investment prospects in the sector. Over $500billion has been lost in the last two years due to the non-passage of the bill.
General-Secretary of PENGASSAN, Bayo Olowoshile, lamented the stunted growth in the nation’s oil and gas sector.
He said the focus this year should be to stimulate local refining of petroleum white products and petrochemical products, domestic gas production for energy, industry, agriculture, domestic and automotive purposes.
General Manager of Haffar Industrial Company, Dr. Micheal Adebayo, lamented that the manufacturing sector didn’t have it so good in 2014 due to the hostile policies of the federal government on the real sector.
He said such policies like increased gas price and devaluation of the naira would unsettle the sector this year, advising the government to create a window through which manufacturers can genuinely benefit from the government.