The Nigeria Employers’ Consultative Association (NECA) has warned that the speed at which Nigeria is racing toward debt overhang would deter serious investors from bringing capital into the country.
This warning was given last week by the President of NECA, Dr. Ifeanyi Okoye, in an interview with THISDAY, in which he identified the floating of the Naira as the last straw that broke the camel’s back and precipitated the exit of many multinational manufacturing concerns from Nigeria.
Okoye said: “The country is fast reaching debt-overhang and no serious investor will bring capital in a debt-ridden economy.
“It is, therefore, important that government should moderate the cost of governance so as to reduce borrowing, particularly if it cannot improve revenue at this point.”
He noted that the 2024 supplementary budget would lead to increased borrowing by the federal government from overseas lenders and local facilities, but whichever way, “it will be detrimental to both foreign and domestic investments.”
He added: “The country’s Debt-to-GDP-Ratio is standing at 52.9 per cent, which is above the 50 per cent World Bank/IMF benchmark for developing countries. Also, debt-service-to-revenue reached 73.5 per cent in 2023 and may even be more now. These indices present serious warning for the country.”
According to him, the exits of multinational manufacturing firms would have tragic implications for the country’s economic growth and employment sustenance.
His words: “What is going on is called capital flight in economics, which is tragic for economic growth and employment sustenance. The trend is not a good trajectory for the country.
“I am not surprised that the pharmaceutical sector is most affected as the sector utilises a significant proportion of foreign raw-materials and other inputs, say 50 per cent notwithstanding the persistent shortage of forex.
“For years, capacity utilisation in the pharmaceutical sector has been one of the lowest among other sectors as it averaged a sub-optimal 56.8 per cent from 2021 to 2023.
“Unfortunately, the recent implementation of total floating exchange rate regime was the last straw that broke the camel’s back.
“It is, therefore, important that government review the foreign exchange policy and implement a regime that is proven to support businesses.”
He also stated that the President Bola Ahmed Tinubu’s administration’s Economic Stabilisation Programme that is targeted at food security, improved power supply, enhanced social welfare and healthcare, increased energy production etc. could address the core challenges of businesses in the economy.
Further according to him, “The manufacturing sector is beset by inadequate and high-cost credit supply. No doubt therefore, the N650 billion short term facilities will go a long way to support the sector, provided the final interest rate is liberal and is enjoyed by bona fide manufacturing companies. We await the full implementation.
“As earlier pointed out, the manufacturing sector has credit challenges across all categories – MSMEs and large companies.
“The commercial bank’s short term lending rate is about 30 per cent, therefore, a long-term facility with interest rate between 9.0 and 11 per cent will no doubt create investment expansion and boost manufacturing activities in the country, particularly when complemented with sound infrastructure development, including electricity, etc.
“However, to achieve the objective of the facility, it is important that the manufacturing sector is thoroughly consulted to identify bonafide manufacturers accompanied with proper implementation.”
Okoye also pointed out that electricity production in Nigeria is heavily constrained across all segments of its value chains – be it generation, transmission and distribution.
This, according to him, accounted for the mere 4000MW daily supply of electricity, which unfortunately suffers collapse often.
He said: “Ideally, if we assume that the population of Nigeria is 200 million by the rule of thumb, we should have at least 200,000MW daily supply.”
The president of NECA also noted that it is unfortunate that the agitation for the government to impose an additional 20 per cent tax on the final price of carbonated soft drinks is being spearheaded by internationally funded Non-Governmental Organisations (NGOs) operating in Nigeria.
He said: “It is purely an interest-driven proposal by some unscrupulous individuals that have never invested in factory business in Nigeria.
“The non-alcoholic beverage sector is the major employer of labour and contributor to the government’s revenue in addition to their rooted Corporate Social Responsibility (CSR).
“However, NECA has commended the government for the six months’ suspension, but recommended that it should be completely jettisoned.
“We believe that there are other ways of addressing the issue, which would require concerted stakeholders’ consultation.”
Dike Onwuamaeze
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